Plan Ahead to Manage Change and Construction Risk


The construction industry has seen significant growth over the past few years, and the trend is projected to continue—although at a slightly slower pace—through the rest of 2018. In February, we also saw the biggest jump in construction jobs filled since March 2007, which shows that contractors are hiring. Contractors need skilled labor as there’s plenty of work out there. The economy has been experiencing a lot of growth. Sounds like times are good, right?

When there’s plenty of work and things are going along smoothly is actually when businesses should be prepping for the future. It might not seem urgent to take on any future planning, especially when contractors are busy keeping up with a backlog of work. But due to the cyclical nature of our economy, things will inevitably slow down and contractors who have prepared in advance will fare better in the long run.

How Can Contractors Manage Risk?

Risk itself, especially risk caused by large economic forces, isn’t usually something individual businesses can control. That being said, the best way to manage risk in the construction industry is to have a solid game plan. Strategic planning will help you and your organization pay attention to the right data and respond accordingly.

During past economic downturns, the contractors that often fared the best were the ones that planned ahead and expanded the types of projects they were working on before jobs became scarce. Sometimes this involved expanding into new regions, new types of projects or new sectors. But at its most basic level, strategic planning for risk management means deciding which changing conditions you should pay attention to, when your business will adjust to changing conditions and how you’ll respond.

Which External Factors Should Companies Follow?

First off, contractors need to identify the information they need to pay attention to. Economic shifts aren’t something they can control, but they can respond to them appropriately. This means when you read headlines in the newspaper or see stories on TV, you need to think about the potential ramifications of what’s going on.

For example, political and economic changes in a country can affect the price of materials, the availability of labor, the types of projects in demand and the amount of work available. Industry publications can provide useful leading indicators about how things are trending. As a business, if you see trends starting to emerge, it might be time to take action. Keep an eye on what’s happening both in the industry and the economy as a whole.

Which Internal Indicators Should Companies Track?

Not everything is external and outside an organization’s control, however. Consider which internal scenarios will serve as early warning signs that the workload is shifting. Information you might examine internally are billings or the size of your backlog. Indicators like these can serve as triggers to adjust your processes in some way, possibly by looking at cost control, markets or geographies differently.

The data that matters most to you will depend on your company’s specific circumstances. Just make sure you’re regularly analyzing your construction data, because doing so can save you from unexpected and potentially damaging circumstances in the future.

The Future of the Construction Industry

We don’t mean to take the wind out of contractors’ sails at a time when there are many reasons to be optimistic. That said, we also remember the many contractors that suffered during the last recession. It’s important to plan ahead if you want to stay in a comfortable position for the foreseeable future. The construction industry, like most industries, experiences ups and downs. The contractors that best weather the storm are those who don’t just ride it out when it comes, but those who plan for it in the first place. The importance of risk management in construction can’t be understated; a strategic plan is a good place to start managing that risk.

Having good visibility into your data will go a long way toward helping you create plans and stick to them. An integrated construction ERP solution with the right business intelligence tools can not only significantly boost current productivity and profits, it can provide contractors with a significant edge in planning future growth. Learn more about how a software solution that connects the office, team and field can benefit your business.