Frequent budget overruns, schedule changes and safety issues leave construction firms at high financial risk, says McGraw-Hill Construction Report
San Francisco – December 15, 2011 – The complexity of construction projects creates greater risks for inefficiencies than those faced by other industries; thus, good project management must include good risk management, offers McGraw-Hill Construction’s latest SmartMarket Report, “Mitigation of Risk in Construction.” Mitigating risk can yield significant cost benefits, yet risk assessment procedures are more widely adopted than risk mitigation, with 43% of owners, architectural and engineering firms, and contractors reporting that one quarter or less of firms use formal mitigation procedures. The groundbreaking report, sponsored by Navigant and Pepper Hamilton LLP, was released today at the 26th annual Construction SuperConference in San Francisco.
“Investing in risk mitigation represents a great opportunity for firms in the construction industry to improve their bottom-line and increase productivity,” said Harvey Bernstein, Vice President, Industry Insights and Alliances, McGraw-Hill Construction. “The results reveal that the industry understands the key risks and the strategies, like BIM and integrated teams, that help address risks. The firms that will have an edge in this difficult construction market are the ones that understand the value of risk mitigation and recognize they can no longer continue business as usual.”
The in-depth report identifies the risks the industry is most concerned about today: schedule and scope creep (24% of projects are delayed), budget and cost overruns (19% go over budget), project process approvals, safety, and site conditions. Bottom-line and performance risks are regarded as the most serious. However, these factors are under a firm’s control, so effective mitigation strategies can directly have a positive impact.
“Construction professionals estimate that 11% of their projects get embroiled in disputes, and the average claim totals over $3 million,” said Bruce Ficken, Pepper Hamilton Partner and Head of the Firm’s Construction practice. “While we can help with litigation if it goes that far, we would rather advise clients on how to avoid legal claims through risk mitigation. There is a lot you can do throughout the project lifecycle that will significantly reduce risk and unnecessary costs.”
Addressing risk early helps firms reap the full benefits of risk mitigation and is one of the chief recommendations in the report. The report also suggests strategies such as building a strong project team, communicating clearly, embedding risk management into firm culture, implementing a rigorous risk assessment and mitigation process, engaging in activities that reduce the likelihood of litigation, and utilizing technologies such as building information modeling (BIM). Over 70% of respondents report that using integrated teams and BIM software reduces project risk.
“We want to help the industry become more successful in overcoming challenges in complex construction projects,” said Dave Tortorello, Managing Director and Leader of Navigant’s Global Construction Practice. “Risk mitigation can be a convoluted concept, as complex as the obstacles construction firms face. Navigant applies its sophisticated claims expertise to fill this knowledge gap, strategically guiding firms through all facets of risk mitigation. We are pleased to be able to offer this report to shed light on critical issues and start conversations around effective strategies for managing risk.”
The most complex projects in the construction industry are often those in the infrastructure sector, and the report takes an in-depth look at this sector, while also detailing risks related to the energy sector, healthcare, insurance considerations, and sustainability, as well as insights into how design-build and integrated project delivery can reduce risk. Expert interviews and case studies offer insights from around the U.S. and world, such as the Pentagon Renovation Wedges 2-5, Utah’s I-15 Corridor Reconstruction, and NYC’s World Trade Center 2, 3, and 4.
McGraw-Hill Construction conducted the 2011 Risk Mitigation Study in October 2011 to assess the level of impact caused by risks, the scope of use of risk assessment and mitigation procedures, and the frequency and causes of litigation, particularly for firms that work on infrastructure projects worth $100 million or more. In addition to the primary study and dozens of interviews, an online survey focusing on risk mitigation in the energy sector was also carried out among Construction Users Roundtable (CURT) members. For more information or to download the report, visit http://bit.ly/s2auFZ. Construction SuperConference attendees can also stop by Navigant’s booth #10.
About McGraw-Hill Construction:
McGraw-Hill Construction connects people, projects and products across the construction industry. For more than a century, it has remained North America’s leading provider of project and product information, plans and specifications, and industry news, trends and forecasts. McGraw-Hill Construction serves more than one million customers in the global construction industry through Dodge, Sweets, Architectural Record, Engineering News-Record, GreenSource, and SNAP. To learn more, visit www.construction.com or follow @mhconstruction on Twitter.
About The McGraw-Hill Companies:
McGraw-Hill (NYSE: MHP) announced on September 12, 2011, its intention to separate into two public companies: McGraw-Hill Financial, a provider of content and analytics to global financial markets, and McGraw-Hill Education, an education company focused on digital learning and education services worldwide. McGraw-Hill Financial’s leading brands include Standard & Poor’s Ratings Services, S&P Capital IQ, S&P Indices, Platts energy information services, and J.D. Power and Associates. With sales of $6.2 billion in 2010, the Corporation has approximately 21,000 employees across more than 280 offices in 40 countries. Additional information is available at http://www.mcgraw-hill.com/.
Navigant (NYSE: NCI) is a specialized, global expert services firm dedicated to assisting clients in creating and protecting value in the face of critical business risks and opportunities. Through senior level engagement with clients, Navigant professionals combine technical expertise in Disputes and Investigations, Economics, Financial Advisory and Management Consulting, with business pragmatism in the highly regulated Construction, Energy, Financial Services and Healthcare industries to support clients in addressing their most critical business needs. More information about Navigant can be found at www.navigant.com.
About Navigant’s Global Construction Practice:
Navigant’s Global Construction Practice works with owners, contractors, providers of capital and their counsel to proactively manage large capital investments through advisory services and to manage the risks associated with the resolution of claims on those projects, with an emphasis on the infrastructure, healthcare and energy industry.
About Pepper Hamilton:
Pepper Hamilton LLP is a multi-practice law firm with more than 500 lawyers nationally. The firm provides corporate, litigation and regulatory legal services to leading businesses, governmental entities, nonprofit organizations and individuals throughout the nation and the world. The firm was founded in 1890.
About Pepper Hamilton’s Construction Practice:
Over the past 30 years, Pepper's construction lawyers have represented contractors, public and private owners, developers, subcontractors, architects and engineers, and sureties throughout the United States and overseas. Members of the group advise and represent clients on matters involving power and other process plants, transportation facilities, heavy and highway construction, airports, bridges, light rail transit, environmental remediation and Superfund clean-up, waste water treatment, high-rise commercial buildings, convention centers, hotel-casinos, schools, libraries, recreational facilities, laboratories, manufacturing and warehouse facilities, hospitals, prisons, underground utilities and postal facilities.