Risk Management vs Risk Avoidance: What Works Best in Construction?
Unexpected challenges can derail even the most meticulously planned ventures, from budget overruns and schedule delays to health and safety incidents. When faced with these potential threats, project managers and business leaders often grapple with a fundamental question: Should we manage the risk or simply try to avoid it altogether?
While risk avoidance may seem like the safest option on the surface, a deeper understanding reveals that a comprehensive and proactive risk management strategy is more realistic and effective for ensuring project success and long-term business resilience.
This guide will clarify the differences between these two approaches and explain why a robust risk management framework, like those advocated by industry leaders, is the superior choice for the construction sector.
What is Risk Avoidance?
Risk avoidance is the strategy of eliminating a specific risk by choosing not to engage in the activity that creates it. It is the simplest and most definitive way to deal with a threat. In the context of a construction project, this might look like:
- Refusing to use a new, untested material due to concerns about its structural integrity.
- Choosing not to work in a particular geographic area known for seismic activity or extreme weather.
- Declining a project that requires working at a height or in a hazardous environment.
On the surface, risk avoidance seems like a foolproof strategy. If you don’t engage with the risk, you can’t be harmed by it. However, this approach has significant limitations. It can often lead to missed opportunities for innovation, growth, and profitability. By avoiding all potential risks, a business might be left with only the safest, most mundane projects, potentially falling behind competitors willing to take calculated risks.
What Is Risk Management?
Risk management is a more comprehensive and structured approach. It is a process that involves the systematic identification, analysis, and management of project risks. The aim is not to eliminate all risk, but rather to eliminate the unexpected by thinking about everything that might happen to derail a project from its objectives.
A robust risk management framework typically involves four key strategies:
- Risk Identification: Pinpointing potential threats and opportunities that could impact the project. This includes everything from health and safety hazards on a construction site to financial and contractual risks.
- Risk Analysis: Evaluating the identified risks to determine their likelihood and potential impact.
- Risk Response Planning: Developing strategies to deal with each risk. This includes:
- Mitigation: Taking action to reduce the likelihood or impact of a risk.
- Transfer: Shifting the risk to another party, often through insurance or contractual agreements.
- Acceptance: Consciously accepting a certain level of risk, especially if the cost of mitigation is greater than the potential impact.
- Avoidance: In some cases, a risk is so severe that avoidance is the only viable option, but this is a deliberate choice within the wider risk management framework, not the default strategy.
- Risk Monitoring and Control: Continuously monitoring the project environment for new risks and evaluating the effectiveness of the chosen response strategies.
As an employer, you must make a “suitable and sufficient assessment” of risks to your employees’ health and safety and others who may be affected by your work.
Why Risk Management is Better for Construction
While risk avoidance has its place for threats that are truly catastrophic and unmanageable, it is a limiting and often impractical strategy for the construction industry. Risk management is far more suited to the complex, dynamic, and high-stakes nature of construction projects for several reasons:
- It’s Realistic: It’s impossible to avoid all risks in construction. Every project involves some degree of uncertainty. Acknowledging this and having a structured process to manage it is simply a more realistic approach.
- It Encourages Innovation: By managing risks rather than avoiding them, a company can pursue innovative techniques, materials, and technologies that might initially seem risky but offer significant competitive advantages. Risk management allows for calculated, strategic risk-taking.
- It Builds Resilience: A company that can effectively manage risks is more resilient in the face of unexpected challenges. A well-developed risk management plan allows for quick and decisive action, minimising the impact of an event and enabling a faster return to normal operations.
- It’s Legally Mandated: An employer’s legal responsibilities to protect their workers’ health and safety are a core part of risk management. You are required to assess and control risks, not just avoid them.
- It Optimises Opportunities: A comprehensive risk management framework also considers positive risks or opportunities. It’s not just about avoiding harm, but also about identifying chances to improve a project’s timeline, budget, or quality.
- It Improves Communication and Collaboration: Identifying and analysing risks forces project teams, contractors, and clients to communicate openly about potential threats. This encourages a collaborative environment where problems can be identified and solved together, rather than hidden or ignored.
A good risk management framework helps leaders understand how to successfully undertake their roles and identify, analyse, and appropriately manage potential threats and opportunities.
The Role of Compliance and Third-Party Assessment
A significant component of risk management for construction companies is ensuring compliance with industry standards and regulations. Third-party assessment schemes play a crucial role in this process. Organisations like Veriforce CHAS specialise in providing compliance and risk management solutions to the construction industry.
By undergoing a pre-qualification assessment from a third party, a contractor can demonstrate that they have robust health and safety policies and risk management processes in place. This helps clients reduce their project risks by ensuring they only work with competent and compliant suppliers. This standardisation and pre-vetting process allows both sides to focus on project delivery rather than endless paperwork.
While risk avoidance has its place for absolute, unmitigable threats, it is a limited and often self-defeating strategy for the construction industry. By avoiding all risk, you may also be avoiding all opportunities.
A comprehensive risk management framework is a far more powerful tool. It’s a proactive, systematic process that empowers businesses to identify, analyse, and strategically respond to risks, rather than simply hiding from them. By utilising effective risk management, construction professionals can ensure the safety and success of their projects and build more resilient, innovative, and competitive organisations.
