Contract documents

September 15, 2023

Table of Contents

1. Introduction
2. What is a Risk Management Plan?
3. Creating a Risk Management Plan
4. Establishing an Order
5. Building a Response Strategy
6. Writing the Plan
7. Revisiting, Reviewing, and Revising
8. Conclusion

 Introduction

 A construction site comes with arguably more risks than any other working environment. So many things can go awry, and when they do, it has a ripple effect and causes challenges on every level of the project. The obstacles project managers and leaders are sure to face on a site highlight the importance of having a sound risk management plan in place.

What is a Risk Management Plan?

 A risk management plan is an established system that helps project managers and construction personnel mitigate risks during a project. Contractors write the plan and view it as their proverbial playbook that they reference throughout the course of a project whenever a challenge presents itself.

Creating a Risk Management Plan

 A risk management plan is one of the most powerful tools any contractor has in their arsenal. Creating a solid one requires the following steps.

Identifying Risks

 The first step in developing a risk management plan is identifying the risks. Identification will take more than one person, and everyone participating in the project must be brought to the table. Construction crews, welders, framers, executives, and project managers all see the project with a different set of eyes. Their differing perspectives are why all parties must be part of this phase. Everyone has value, and their experiences are essential to building the plan, no matter how inconsequential or unlikely they may appear to be. The goal is to create a comprehensive document that addresses all scenarios, and having their direct input makes that possible. After receiving information from each person, move to the next phase and begin writing a solution to each potential barrier.

Establishing an Order

 Challenges on a construction site often happen at the same time. Since more than one can happen at a time, having a risk management plan that ranks each risk in the order you should address each is vitally important. When ranking the risks, use the guiding principles of how the risk will impact the project and the probability of the risk occurring. Establish a scoring system and rank the risks from highest to lowest. If one or several occur, you’ll know how and in what order to address them.

 Building a Response Strategy

 Once you identify a risk, move to creating a response strategy using one of four common approaches.

1. Risk Minimization: Minimization means doing your best to lessen the occurrence of the risk. An example would be to have extra construction vehicle batteries on hand in the event one or several go out.
2. Risk Transferal: Transferal happens when a contractor has no interest in being a part of the risk resolution process, choosing instead to pass that responsibility on to a subcontractor or the insurance company.
3. Risk Avoidance: Avoiding a risk is always an option. This typically involves major design or location adjustments once the project review and pre-planning phases are finished. This is a crucial step and choosing not to perform it can result in extreme costs down the road.
4. Risk Acceptance: Accepting the risks that are part of the project is always an option as in many cases the risks may be out of their control. A prime example of this would be a looming labor shortage that may or may not take place. If the contractor reviews the prospects and decides to move forward, they’ve accepted the risks and own the responsibility for what may occur.

 Writing the Plan

 After you’ve compiled the risks, given them a rank and score, and an appropriate response, it’s time to write the actual plan. Aside from the items listed above, it’s a good idea to include team members’ contact information and any links to online resources that can clarify a situation. Finally, make the plan easy to read and accessible at all times.

Revisiting, Reviewing, and Revising

A risk management plan is a living document that must be revisited, reviewed, and, in some cases, revised to maximize it. These efforts shouldn’t take place in a silo and must involve the same parties who built the document in the beginning phases. As was the case at the start, use their eyes, hear their concerns and voices, and be ready to make changes that are in the best interest of everyone involved in the effort.

Conclusion

 On a construction site, it’s not a matter of if; it’s when a risk occurs. Failing to build a document to guide you and your team through this portion of a project can result in costly failures and losses. With that, review the project with key stakeholders before it commences. Listen intently to their input and build a document that reflects the concerns of every person on the team. By doing this, you set your organization, and project up for optimal success.

View Developing a Risk Management Plan for Your Construction Company for an in-depth look at how you can create a risk management plan for your company.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.