Study Identifies 5 Major Construction Risk Factors
October 5, 2018 Construction

It’s impossible to run any business without incurring risks, but the construction industry is riskier than most. Smart contractors do all they can to understand and mitigate the business threats they face so their businesses remain viable in times good, bad and uncertain.

One helpful resource is the Construction Risk Index 2017, released just last year by insurance analysts and consultancy Willis Towers Watson. The firm surveyed 350 high-level industry executives from around the world to identify megatrends affecting the global construction market and the risks posed by each.

Their report ranks these trends and forecasts their likely impacts over the next 10 years. Here are five of the pertinent risk factors to watch out for:

  1. Geopolitical instability and regulatory change. This trend ranked in the top three among respondents from every region except North America in terms of both its potential industry impact and the difficulty of managing the risk. This concern highlights the important role public funding plays in maintaining a healthy construction economy, and it recognizes how negative changes in governmental policies, priorities, and regulations could have severe consequences. The difficulty of predicting such changes increases the threat they can pose.
  2. Workforce management and talent optimization. Although hardly a new problem, the continuing and growing need to attract and retain talented young people is another megatrend that poses risks for the worldwide construction industry. In too many markets, the industry is perceived as one with limited employee growth potential and limited opportunities for women. This puts it at a disadvantage in recruiting needed skilled workers. Industrywide efforts are needed to promote construction as a rewarding career path.
  3. Business model and strategy challenges. The third trend identified in the study covers risks associated with evolving business models in the global construction market. Examples include threats from new and emerging competitors, changes in the supply chain, increased merger and acquisition activity and an increasing need for businesses to diversify. These risks were ranked highest by the North American executives surveyed.
  4. Risks from digitization and new technologies. Digital technologies such as 3D printing, drones and building information modeling (BIM) are already transforming many construction industry practices. Further advances will likely lead to even more changes over the next 10 years. Among the risks associated with these changes are potential failures of critical IT systems, liabilities arising from the more widespread use of BIM, overreliance on technology leading to increased human error, and security threats from cyber attack and data security breaches.
  5. Complex operating models in a global business landscape. Infrastructure projects in developing countries represent a likely source of growth for construction companies. But expanding operations across new emerging markets comes with some inherent complications. Managing workers from various cultures in countries with different regulatory systems will present challenges along with opportunities.

Studies such as the Construction Risk Index 2017 can help both contractors and risk management specialists prepare for new and evolving industry conditions. These findings should stimulate the development of new strategies and instruments to mitigate business threats that construction companies will face over the next 10 to 20 years. By keeping abreast of these developments, you’ll put yourself in a better position to protect your bottom line.

About the Authors

Dale A. Ruther
Dale A. Ruther
CPA, CIT, CDS, CCIFP
Partner Emeritus,

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