Let's face it: Construction is a risky business. A major step in combating risk is identifying as many of its sources as you can.
Almost every contractor and builder has had to deal with problems arising from one or more of the following circumstances:
- The project owner delays payment.
- An estimator makes mistakes.
- The contractor cannot or does not reduce overhead fast enough in rough times.
- A subcontractor fails to perform as required, or goes broke.
- A supplier doesn't meet a critical schedule.
- The cost of certain materials spikes unexpectedly, or there is a material shortage.
- We have an economic recession.
- There is a serious jobsite accident.
- An insurance claim is denied.
- A large change order claim is disputed.
- A key employee leaves the company.
- Non-documented site conditions are discovered.
- An owner files for bankruptcy.
- Cash runs short.
- Suppliers cut off credit... and on and on.
You can set up policies and procedures to minimize these and other risk factors.
Most risks can be anticipated. Call on the right professionals to help. If the lawyers, accountants, insurance agents, and other professionals you rely on focus on the construction industry, and more particularly within your niche of the building industry, these experts can help you identify your risks so that you can deal with them effectively.Your construction-oriented certified public accountant (CPA) can provide financial ratio guidelines based on published statistics as well as experience with other contractors. Your construction attorney can tell you the top five legal problems his contractor clients have, and help you avoid them. An insurance agent whose clients are primarily contractors can identify your exposures as a contractor and steer you toward the necessary coverages.
Being without this kind of input from people who specialize in your business can leave you in the position of not knowing what you donâ€™t know. You can deal with a situation once you know it exists.
The bottom line about risk is that you must identify your various exposures, decide the potential impact of each, and do what you can to manage it, both internally and externally. For those exposures that cannot be eliminated, you must develop plans that can be implemented quickly if required to minimize the impact on your company.
Managing risk is a persistent theme in the book, Construction Business Management: What Every Contractor, Builder and Subcontractor Needs to Know, by Nick Ganaway. Nick was a successful general contractor for 25 years and is a consultant in Atlanta, Georgia for contractors and other small business owners.