- Risk Management - Everything You Need to Know
- How Risk Management is Vital for Achieving Sustainability Goals
- Major Risks Faced by the Construction Industry
- Enabling Effective Enterprise Risk Management
- Role of KanBo in Facilitating Risk Management
The construction industry is one of those few sectors that are not only dominated by fierce competition but demands high capital expenditure to build a successful business.
Both of these factors make the construction industry a high-risk sphere where both new and established ventures need to ensure effective risk mitigation and management to enable long-term profitability and sustainable growth. Without focusing on the risks involved, it can become quite challenging for any business to do well in the market but it's almost impossible to stay afloat if you are in the construction sector.
Having said that, it is often not that easy to manage a diverse variety of risks that can have an adverse impact on your business. From changes in the political landscape and regulatory environment to supply chain issues and technological leaps, construction organizations need to stay on top of the game to not only predict and identify these risks but to have an effective counter-strategy in place to alleviate their effect. This means that construction ventures and enterprises require a consolidated infrastructure that allows them to have a bird's eye view of the business at any given moment. Such a system can facilitate the business to observe the bigger picture and make the right decisions at the right time.
KanBo provides construction businesses with a comprehensive work and business process management platform that can help them in managing risks effectively.
Risk Management - Everything You Need to Know
Generally speaking, security governance and enterprise risk management work hand in hand to manage specific threats under the umbrella of risk management, which is also known as operational risk management or integrated risk management. More operational and tactical exposures to the company are taken into account by risk managers in order to better understand enterprise risks.
In addition to vendor risk management, audit management, corporate risk and compliance, legal concerns affecting risk, and even business continuity risks, these professionals are responsible for managing these areas. Information from and to the security management layer passes via this point, which serves as a conduit for addressing cyber hazards.
Enterprise Risk Management (ERM)
It is the goal of Enterprise Risk Management (ERM) to detect, analyze, and prepare for any physical or metaphorical threats that may affect a company's day-to-day business or goals via a process based on a sound strategy.
The senior levels of authority must identify, analyze, and address the risks that a business is prone to. Consider the company's financial, credit, and operational exposures as well as its corporate strategy risks. Only when looking at how technology enhances or diminishes certain business vulnerabilities, organizations can manage different types of risks.
Integrated Risk Management (IRM)
An integrated picture of how successfully an organization manages its unique collection of risks is at the heart of IRM, a set of behavior and procedures backed by a risk-aware culture and supporting technology.
IRM has a number of characteristics that need to be taken into consideration for effective strategy development:
- The strategy includes the development and execution of a framework, as well as performance enhancement via effective governance and risk management.
- The process also involves measurement where businesses discover, analyze, and rank potential dangers.
- Then a response is created which involves identifying and implementing measures to reduce risk.
- The business should aim to provide the best or most suitable ways of tracking and informing stakeholders about a company's risk response.
- The monitoring process should include methodically tracking governance goals, risk ownership and responsibility, adherence to policies and choices established with the help of the governance process, threats to those goals, and the efficacy of risk mitigation and control measures.
- Technology should be leveraged to implement an IRM solution (IRMS) architecture design and development.
A thorough picture of all functional areas, internal control and risk activities as well as significant strategic partners, vendors and external entities is required for businesses to grasp the entire spectrum of risk. To get this level of insight, risk and security managers must focus on all IRM characteristics.
How Risk Management is Vital for Achieving Sustainability Goals
Sustainable production and consumption must be researched and developed in order to satisfy environmental standards. Risk management in the construction sector plays a vital role in this. Even if present technology and approaches can reduce carbon emissions by half, achieving climate neutrality would need a search for new ways.
Focusing on operational efficiency and improved resource management are vital to addressing the problem of environmental protection. The following are some of the most important sustainability targets that construction businesses can aim to achieve with the help of advanced enterprise risk management:
The Sustainable Development Goals of the United Nations
As the UN Department of Economic and Social Affairs points out, the construction industry is directly affected by Goal 9. It encourages major corporations to invest in and create robust infrastructure while also encouraging a long-term and broadly inclusive process of industrialization and economic growth. In addition, achieving this aim necessitates that enterprises promote an atmosphere of sustainability and efficiency that is underpinned by rigorous risk management.
Chief Sustainability Objectives for Construction Organizations
Infrastructure That Is both Dependable and Sustainable
Construction businesses should aim for environmentally friendly and certified infrastructure development and implementation of PPP concepts. Additionally, the development of the telecommunications system and the construction of new transportation facilities should be sought after along with participation in industrial organizations and activities.
Encouraging People to Live Longer, Happier Lives
It is imperative for construction organizations to promote workplace health and safety, as well as health services and sports activities for workers, as a part of the industry's real estate growth. For the benefit of the communities in which companies operate, firms should fund and participate in community activities.
Opportunities for Inclusive Education for All
A broad variety of continuing education options should be made available to all employees, as well as the development and operation of academic institutions. There should also be support for intellectual efforts, collaboration with academic institutions, and engagement in corporate social responsibility and sponsorship programs that help the growth of young talent.
Long-Term Viability and Ease of Use for Drinking Water and Sanitation
Make sure that the construction of water supply and wastewater treatment and disposal systems is accompanied by the construction of flood protection and water treatment facilities. Throughout the constructing process, companies should guarantee environmental friendliness.
Availability of Affordable and Long-Term Energy Resources
Environmentally-friendly construction and infrastructure initiatives should be paired with energy infrastructure developments. Renewable energy initiatives should be a priority for construction companies.
Major Risks Faced by the Construction Industry
The Sheer Impact of the Pandemic
The COVID-19 epidemic caused major disruptions to building projects in 2020 and 2021. A scarcity of supplies, machinery, or components has caused delays for 52% of contractors, as per a poll by the Associated General Contractors of America (AGC). Several builders would not be able to weather the pandemic economically due to the very small operating margins on which many building projects operate. Uncertainty and the urge to pursue work beyond their usual areas of competence have resulted in some vendors taking on greater risk as a result.
Rising Prices of Raw Materials and Construction Capital
In the building industry, rising prices of timber, steel, and other materials have been a major issue throughout most of 2021. Structural steel costs alone have grown 91% from the final quarter of 2020. A study found that 93% of companies said that increased materials prices had an impact on their work.
Construction companies are shifting some of the increasing expenses onto their clients, switching vendors or requirements, or cancelling jobs in an effort to keep costs as low as possible. As a result of these increased costs, contractors' profitability is expected to be impacted. One of the most important factors in completing a construction project on schedule and under budget is whether or not the project's cost estimates are accurate.
Environmental Impact of the Construction Process
Even though every infrastructure project will have an environmental effect, there are steps that may be taken to reduce this impact, such as using environmentally-friendly materials. As a result, construction firms should place a high value on environmental stewardship and risk mitigation. Large volumes of garbage, contamination, and forest clearance are commonly the result of construction operations. Climate change is exacerbated by the production of materials and the usage of equipment in construction works.
When it comes to managing risk, the aim is to limit construction's negative influence on the environment while also identifying potential hazards. Environmental controls should take into account the effects of construction on a variety of factors, including air and water quality, noise and vibration, nearby residents and the ecosystem, and even historical places.
Economic Slowdown & Financial Issues
An economic downturn is a major issue for building companies. When the economy is in turmoil, businesses tend to cut down on capital expenditures, which slows down the development of the sector. Moreover, when a company is unable to get financing, its challenges are brought into sharp focus by the failures of firms of all sizes. Accounts receivable are generally the biggest uninsured asset on a company's balance sheet, restricting cash flows while being identified as the third most serious risk confronting the construction sector.
Ensuring Safety and Health
Health and safety are critical in any sector, but construction workers are constantly exposed to high-risk situations. There are several dangers on building sites, and 79,000 construction workers were injured or were sick as a result globally. This is exactly why health and safety risk management techniques must be followed regularly by organizations in this sector since even the smallest breach may result in significant casualties. Risk assessments, method statements, and documented health and safety rules may significantly decrease the hazards faced by construction organizations.
Enabling Effective Enterprise Risk Management
Enhanced Organizational Communication & Rewarding Involvement
Employees and management alike should be made aware of the necessity of risk management by participating in dialog activities. An in-house risk management training should be provided for new hires that encourages them to participate on a regular basis. Employees can be paid both fixed and variable rewards for their active involvement, which can be examined from time to time.
Based on personalized performance agreements tailored to each employee's job profile and duties, this approach utilizes risk-based metrics and goals for the performance assessment of employees. Organizations should make sure that there are a variety of procedures and tools available to staff that allow them to detect possible hazards, escalate them, and take appropriate action if needed.
Deployment of Accessible Reporting System
Risk reporting should be ideally governed by a group-wide guideline that is available to all workers. Risk reporting and communication, the structure and processes, and the group-wide framework should all be included in the guideline. As a component of the risk management procedures, this method for reporting risk complements operational risk management. In the planning and forecasting process, both financial and non-financial risks are taken into consideration. All of the companies are involved in a multi-stage process of assessing their respective risks and putting them in perspective with management and divisional control.
Once the relevant risks have been identified, they are forwarded to the concerned department, where they are summarized in terms of their potential impact on current and future earnings as well as their probability of occurrence as well as any preventative or mitigating measures that have already been implemented. Strategic management and the decentralized continuous improvement process play a major role in opportunity management. Companies should maintain a close eye on the construction markets and their evolution in order to identify and take advantage of possibilities before they arise.
Timely Identification of Correlations & Risk Scenarios
Sensitivities in respect to various scenarios, relationships, and other factors should be taken into account. A variety of risk scenarios shall be developed on a case-by-case basis to show any possible effects, as well as any linkages between them. As a result, construction businesses can ensure that risk status is constantly monitored and any significant changes are communicated immediately, regardless of the frequency of regular updates. There should be a dedicated department that can enable early evaluation of the risks connected with the company’s planned capital expenditures, divestments, and investments.
Once the threats have been recognized, they may be minimized or eliminated altogether. As a result, judgments are made on the basis of the same recognized principles because of this framework of standards and procedures. To determine the scope and kind of risk analysis, it is vital to consider the scale and complexity of the project.
Strengthening Risk & Opportunity Management
All levels of risk and opportunity management should be organized and made proactive in order to strengthen their resilience and their capacity to take advantage of opportunities. Enterprise Risk Management Policy (ERMP) should be deployed that lays out the structure and roles for risk management in the organization. For long-term success, it's essential that risk is handled in a methodical and efficient manner, and that the appropriate weight is given to each kind of risk.
A top-down and bottom-up strategy can be used to achieve this. Once the organization has developed a strategy, it can rely on proven risk identification and analysis procedures for guidance. This is an example of an enterprise risk management strategy that is both comprehensive and well-integrated (ERM). It is the responsibility of each business unit to manage risk in accordance with the framework established by the organization.
Implementing Enterprise-Wide Risk Management Approach
To comply with the ERM strategy, each company must maintain an Enterprise Risk Record. Risk management plans should be developed by business units after they identify, categorize, and analyze the scope and impact of those risks. The risk records from each business unit can then be combined, sorted, analyzed, and aggregated at the group level to form a consolidated Enterprise Risk Record, from which construction businesses can recognize the top risks. Subsequently, risk controls are reviewed and updated as needed. Strategic, operational, financial, and regulatory risks all fall under the umbrella of an enterprise's risk category. There may be more than one policy, practice, or standard in place to handle a certain risk.
Many large organizations classify all threats in the enterprise risk records of the various business divisions. As a result, they are able to focus on enterprise risk with more consistency. In a dynamic and proactive manner, you have the option to swiftly and easily gather, evaluate, and react to the most pressing threats at hand. Developing a risk appetite and a risk tolerance for certain important threats is another option to explore. This will ensure that your organization’s compliance processes are strengthened, and internal controls are more effectively designed, implemented, and verified. Ultimately, this helps the organization create a more cohesive framework for managing risk.
Improving Operational Risk Management
To be successful in construction and project development, risk and opportunity management are critical. To ensure that all of the organizational projects are scrutinized and approved, the company should develop and implement an effective operational risk management strategy. Following the processes and the limits of authorization attached to procedural rules, proposed construction and development projects above specified thresholds must be examined and approved by a dedicated control board that has all the relevant authority and discretion to ensure risk mitigation at all levels.
Investing in Technology for Risk Mitigation
As a preemptive measure, the top construction firms were investing considerably in technology. From video-call site meetings to processing digital orders, contractors, architects, engineers, and suppliers have had to fast adapt to working and communicating digitally. As a result of the epidemic, there has been a dramatic rise in the use of collaborative technologies. Reduced backlogs and increased bidding competition are affecting the construction technology business in similar ways.
To keep their businesses afloat, construction technology companies have had to lay off workers and slash prices. A new wave of bankruptcies among smaller firms might be triggered by the uncertainty about recovery timescales and the threat of viral reappearance, which would accelerate the trend toward industry consolidation even further.
Here are some of the steps that construction organizations can take:
- Rely on a certain angle to scale the platforms. When it comes to building platforms for certain industry sub-segments or value suppliers, there are still prospects for new enterprises.
- Improve the environment's connectivity by creating new solutions. The physical built environment will need to be better integrated with technological solutions in the future. In order for firms to achieve genuinely end-to-end digital projects, near-real-time project data collecting and the integration of design, project management, and scheduling technologies are necessary.
- Decide to construct an analytics engine for your company's data. Few, if any, project- or industry-scale predictive analytics tools exist for the construction sector. The low update frequency or low granularity of many descriptive analytics tools also limits their use to trade association surveys or dashboards generated from business data. Analytical and insight platforms that make use of the ever-increasing pool of inter-and intra-organization data may provide enormous value for investors and the industry as a whole. Individual projects and whole enterprises will benefit from more proactive, data-driven management via the use of these platforms.
Role of KanBo in Facilitating Risk Management
Be it a tiny start-up or an established corporation, you need a flexible and comprehensive digital platform that serves as the hub for all of your operations. The adaptability and agility of KanBo's work-and-business process management platform may be beneficial to any size construction organization. It's not necessary for building contractors to create organizational silos that impede cross-departmental collaboration and the generation of new ideas and innovations anymore, thanks to KanBo. KanBo provides all the building pieces for any form of hierarchical organization, from the CEO to the lowest-level employee, in every single firm it serves.
A Digital Headquarters For C-Level Executives May Be KanBo
Using KanBo, senior-level executives may seek up critical information inside the company's network of collaborators including plans and projects, tasks, expertise, and internal communications. An agile work management platform may also be used as a digital headquarters for senior management if desired. Executives in the construction business now have instant access to data and analytics presented in a highly visual manner thanks to KanBo's complete viewpoint. A company's entire innovation strategy might benefit from its ability to make swift yet well-informed judgments.
Low-Code Platform from KanBo Can Be Used By Citizen Developers
With a low-code approach, you get quicker application delivery and less hand-coding, among other benefits. "Citizen Developers," such as business analysts and project managers, who just have a fundamental grasp of programming, may now design apps using a low-code platform. It's feasible for non-technical staff to have a greater effect on the business in a variety of ways, including lowering IT backlogs and eliminating shadow IT. As a result, a more effective operational design is created. To put it simply, this leads to disruptive innovations.
If You Don't Have Any Programming Experience, KanBo Is A Great No-Code Option
Using no-code development platforms (NCDPs), developers and non-developers alike may construct application software using graphical user interfaces and configurations instead of depending on conventional computer programming. Those in the middle of the organization who aren't acquainted with coding may struggle. KanBo and other no-code development platforms are equivalent to low-code development platforms in terms of speeding up the application development process. Companies are relying on these platforms because of the growing number of mobile employees and a lack of competent software engineers.
When It Comes To Managing Projects and Workflows, Information Workers Can Rely On KanBo
Processes, on the other hand, are long-term activities with clearly defined phases that must be followed in order to achieve a certain objective. KanBo's platform includes all of the tools workers need to effectively manage projects and processes. It is possible for information workers from many teams and departments to effortlessly interact and communicate using the software's building components.
The construction industry is highly prone to risks that can deal a devastating blow at any moment. This is why it is essential for construction businesses to ensure effective risk management across different departments and at all levels. However, creating and building a culture of risk awareness can be a challenging endeavor in the absence of a centralized information hub that doesn't only provide a bird's eye view to the managers but allows team members to keep an eye on every little bit of detail.
That's where KanBo software comes in with its unmatched informational transparency and work visibility. It provides construction organizations with all the tools and building blocks they need to create and optimize an exceptional communication system along with a collaborative work environment where risks and threats aren't only identified proactively but can be undone through comprehensive combative strategies and timely decision-making.
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