3 steps for adding risk management to the construction bid preparation process


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Effective risk management is the key to every successful construction project. It could be the difference between making a good profit and breaking down or worse, suffering a loss. So when should you start your risk assessment? Do you do this during contract negotiations or are you waiting until you receive a notice to proceed? The fact is that risk management must start during bid preparation. Assembling a winning bid package requires a lot of time and effort. It begins by reviewing and fully understanding plans and specifications to accurately estimate labor, material, and equipment costs. Making even the smallest mistake can mean the difference between having a winning bid and losing a desirable project. Incorporating risk analysis into your bidding process can lead to more accurate pricing and can win you more work. It can also improve bid / no bid decision making. Identifying Risks The first step is to identify all potential hazards that could arise in a construction project. This shouldn’t be a guessing game. Carefully review bidding documents, plans and project specifications. Once you have a complete understanding of the scope of the project, you can begin to identify problems that may arise in the future. Build on your past experiences by reviewing similar projects you’ve completed in the past. Gather the key players on your project team together to clarify potential risks and potential opportunities. If you’ve never worked with a potential client, do your due diligence and do some research about it. Common risks include incomplete construction documentation, site conditions, accelerated schedules, safety concerns, delays, change orders, and unexpected increases in material costs. Prioritizing risks Once potential risks have been identified, the next step is to prioritize those risks. To do this, you need to determine the impact of each hazard and the likelihood of its occurrence. High-impact and high-likelihood risks should be at the top of your list with low-impact and low-risk risks at the bottom. Consider the amount of time, money and work each risk requires for effective management. This is the time to review your Bid / No Bid decision. If you have identified a large number of high-impact, high-potential risks, it might be time to turn away and move on to your next opportunity. Managing risks Now that you have identified and prioritized the risks, it is time to determine how to manage each risk. Decide whether you can avoid, eliminate, reduce, transfer, or accept each risk. In bid preparation, avoiding risk means making a decision not to bid. Eliminating, minimizing and accepting risks requires careful planning. Divide each risk into actionable elements. Determine what additional resources you will need and ensure that these mitigation costs are incorporated into your bid. Do not over-devote your resources to dealing with multiple risks. You may have to bring in additional labor or rent additional equipment to effectively manage all of your risks. Don’t lose sight of transferring the risk to the owner or the customer. Be sure to communicate with the owner or owner’s representative when preparing your offer to obtain an explanation of the risks they will take and the risks you will be responsible for managing. Work with your insurance provider to determine the risks that are covered under your current policies along with other options to protect your company from risks. Final Thoughts on Managing Construction Risks Identifying and managing risks is probably the most overlooked aspect of bidding preparation. By starting the process early, you can avoid bidding on projects that won’t earn you any money. This will also result in more accurate bidding with reasonable contingencies, resulting in your company winning more bids. Project management will run more smoothly and you will save time, money and resources as work progresses.


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