6 Most Common Classifications of Construction Risk

According to the Construction Industry Institute, there are as many as 107 top project risks. While the risks listed all have the potential to impact a project, the most common areas of risk that can derail construction projects include:

Financial risk

Anything that can affect construction companies’ finances can be classified as financial risk. Financial risks in construction include cost overruns, material waste, change orders, late payments from clients, and increased cost of materials. These risks can create cash flow problems that can halt or delay projects, leading to litigation and ultimately negatively impacting the bottom line. Financial risks are often attributed to poor planning and coordination.

Project risk

Project risk includes any factor that impacts the effective management of construction projects. Delays, inadequate management oversight, communication issues, scheduling issues, and team conflict are all areas of project risk. According to a Dodge Data & Analytics report and Triax Technologies report, this risk area is an ongoing challenge for contractors, with 66% reporting challenges in conducting ongoing management of project risks. Project risks can result in poor project performance, leading to costly delays, reduced productivity, and sometimes project failure.

Safety risk

The nature of construction work and the construction environment make safety risks, otherwise known as occupational risks, significant risk exposure in the industry.

Safety risks can include injuries, fatalities, and illnesses. Some of the most common injuries that occur on the construction job include:

  • Overexertion
  • Sprains, strains, or muscle tears
  • Falls, slips, or trips
  • Cuts
  • Fractures
  • Accidents with objects or equipment

Safety is an ongoing area of risk for construction firms, with injuries and fatalities on the rise. The U.S. Bureau of Labor Statistics’ annual National Census of Fatal Occupational Injuries report for 2019 revealed that construction and extraction occupations fatal work injuries increased by 6% in 2019 to 1,066 – the highest figure since 2007.

Schedule risk 

Schedule risk occurs when the construction schedule isn’t realistic, neglecting to factor in issues such as the client’s operations, project restrictions, and expected weather events for an area—poor scheduling cost risks and performance. Miscommunication and mistakes related to scheduling can set a schedule back by days, weeks, or months, significantly impacting construction project budgets.

Contractual/legal risk 

This area of risk includes potential disputes and litigation arising from the fulfillment of contracts with clients. Legal risks can result when project delivery is late or payments are delayed, and a breach of contract occurs. Claims can also be triggered by a lack of detail in signed contracts or an inability to determine accountability for delays or quality issues. This risk exposure can delay projects and increase costs.

Environmental risk

Inclement weather conditions and natural phenomena are an ever-present risk area in construction. Environmental risks include earthquakes, flash floods, fires, tornadoes, and hurricanes that damage construction sites, make work inaccessible, and slow down project progress. Erratic changes in weather such as intense heat and cold are other environmental risks that potentially impact construction materials and machinery, disrupting operations and causing project delays.

Be sure to familiarize yourself with these common risk areas so your company can stay ahead of risk management! We broke down construction risk for you to make sure your company understands risk management to be successful. You can find our guide on construction risk 101  at https://www.redteam.com/construction-risk-101-understanding-risk-management/

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