Construction Risk Categories

In the construction industry, the following risk categories and responsible parties comprise the Enterprise Risk Management (ERM) function:

Strategic Risk

Business Approach (CEO/President): Effective planning ensures an organization is headed in the right direction. Implementing sound business policies and practices drives company profitability and make its future more secure.

Operational Risk

Sales Methodology (Sales Manager): Using prudent sales strategies and techniques is the key to developing beneficial customer relationships and a desirable reputation. Lacking either can lead to costly relationships and great difficulty achieving profitable work.

Bid Process (Chief Estimator): While it’s true that money is made or lost in the field, there must be enough money to start with. Utilizing consistent decision-making processes and techniques to win and launch new projects is a key to dependable job profitability.

Accounting Procedures (Accounting Manager): Financial statements drive critical decision making. Strict accounting procedures can ensure that job cost and other financial reports are accurate and reliable. Decisions based on inaccurate financial data are a key cause of business failure.

Construction Management (Construction Manager): Money is the lifeblood of an organization. Having strong controls in place can greatly increase job profitability and decrease the cost of purchases immediately improving cash flow.

Information Transfer (IT Director): Intelligently applied technology enhances productivity and efficiency. Having systems in place that leverage IT to improve communication and securely move data ensures the organization will have fast, consistent, and efficient access to information.

Financial Risk

Credit Status (CFO/Controller): Creditors and guarantors have a high expectation for specific behavior to maintain positive relationships with them. Failing to meet expectations can cause irreparable harm to a company reliant upon outside parties for support.

Hazard Risk

Insurance Coverage (CFO/Controller): Unanticipated events often lead to monetary loss when not properly insured against. Following sound practices and procedures to secure the needed insurance coverage avoids potential liability and provides financial protection at a minimal cost.

Safety Practices (Safety Manager): Accidents lead to a poor safety record, higher insurance costs, and lost bid opportunities. Effective safety plans, programs and practices are trademarks of an organization that cares about the well-being of both its personnel and others, and therein reaps the benefits.