Responding effectively to risk on complex construction projects

As discussed in our previous insight article relating to risk, the construction industry has a poor track record with delivering on time and budget. A McKinsey working paper on risk (Beckers and Stegemann, 2013) found that most project overruns are foreseeable and avoidable, and that many of the problems are due to a lack of professional forward-looking risk management.  

Linesight has carried out primary research to assess how project teams perform with risk management activities on complex construction projects. We also sought to identify the critical factors for responding effectively to risk on projects.  

The methodology:  

Our research methodology included semi-structured interviews with risk specialists and other professionals directly involved with the risk management of complex construction projects.  

Interviewees were asked to rate project teams’ success with risk management activities on complex construction projects that they have worked on. The results, which show the distribution of interviewees’ ratings, are presented below.  

The findings: 

Shape 

One of the main findings from the data collected is that while project teams are very successful with the initial activities of the risk management process, namely identification and assessment, performance deteriorated significantly when they progressed to subsequent risk activities. The research confirmed that risk response development and execution activities are a weaker part of the risk management process. Project teams were also found to perform poorly with the risk monitoring and lessons learned activities. 

Several interviewees attributed the deterioration in project teams’ success to disengagement as they progress further through the risk management cycle, with the level of intensity of activities becoming progressively diluted.  

The research confirmed that the risk response development and execution activities are a weaker part of the risk management process. 

The risk response execution activity was considered by those interviewed as having the lowest level of project team success out of all the activities, with the exception of lessons learned. In several cases, interviewees attributed the lower success rating to the fact that sometimes risk response actions were not developed and executed when they should have been, with suggestions that sometimes they got put on the ‘too difficult pile’.  

Responding effectively to risk: 

In order to overcome the weaknesses found in the risk management process, the research identified five factors considered critical for responding effectively to risk on complex construction projects as follows:  

1. Senior management have the greatest influence on the risk management process. Team success on all risk activities was found to increase significantly when senior management engaged on risk, with response development and execution activities benefiting most. The risk culture established by senior management increases the project team’s focus on all risk activities, and helps to maintain it throughout the entire project cycle.  

2. The project manager has a highly influential role. Where project managers are of strong character and believe in risk,  effective risk management is more likely to prevail. More effective risk management can be achieved by simple actions such as putting risk on the agenda of every meeting.  

3. Senior management and project teams need to be educated on the benefits of risk management. This has a positive effect on project team behaviours on risk. Once senior management understand the benefits outputting from the risk process, their level of engagement should increase. This increased focus can then permeate the project organisation and into project team behaviours. Equally, project teams need to be educated on the benefits of risk management to maintain their interest and prevent their disengagement from associated activities at later stages in the project cycle. Comprehensive reporting on risk upwards to senior management and downwards to project teams was one mechanism identified as being useful for education purposes.  

4. Risk procedures have a positive impact on the assessment activity, which in turn should contribute to a higher level of project team success with risk responses. Procedures should be specific in terms of what is expected of project teams and the employer organisation during each risk activity.  

5. Owners and deadlines need to be established for risk response activities, together with procedures for escalation. This promotes responsibility and accountability for risk response actions. The research found that there is a higher probability of success that risk responses will be developed and executed where owners of responses are identified and deadlines set for taking associated actions.  

Ultimately, Linesight’s research has successfully identified a number of critical factors for responding effectively to risk on complex construction projects, as detailed above. This should add to the existing body of research on risk management and hopefully will also improve the performance of project teams on projects being undertaken. 

If you have any questions on the above article, please contact Willie Aherne.