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Managing risk is the biggest issue for construction companies

Get free weekly news by e-mailConstruction firms believe that managing risk is the greatest challenge they face, closely followed by skills shortages and securing forward workload, according to a survey released today by KPMG LLP.

KPMG’s Global Construction Survey 2005 questioned senior executives from the world’s largest construction contractors. The results of the study found that managing contracting risk and pricing it properly is one of the key challenges currently facing the industry, with 63 percent of respondents citing it as the greatest issue. However, 70 percent of those questioned believe their framework for managing risk during a project life cycle is either advanced or sophisticated.

A particular area of concern is that despite the importance placed on risk control and the sophistication of the frameworks already in place, only a quarter of firms said that they would never over-ride their key risk management policies in order to secure a contract – which means 75 percent would essentially be willing to take calculated risks in order to win a high margin project.

Richard Whittington, head of building and construction at KPMG LLP, comments, “While there may be times when a business judgement must be made in order to secure new work, there is a real risk that these decisions may be made at the expense of the firm’s reputation and management culture.”

The survey also revealed that companies that had tightened their selection process on tenders also enjoyed a lower level of litigation related to projects. Most respondents (65 percent) indicated that the percentage of projects with claims or disputes requiring resolution via specialist consultants, mediators or lawyers was less than 10 per cent - a figure that belies the litigious reputation of the industry.

Richard Whittington said, “There is high profile litigation connected with large construction projects but there are also many disputes settled reasonably by the parties involved. However, if companies follow their risk management procedures throughout the project lifespan, not only can end profit be maximized, but potentially costly and lengthy litigation can be avoided.”

Date: 22nd July 2005 • Region: Various Type: Article •Topic: Operational risk
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