How contractors can focus on risk management in relation to project selection

Every contractor in today’s market is desperately trying to find work. While being aggressive in the construction industry is necessary, this environment brings its own risks and challenges for owners and managers to overcome.  We believe the best way for decision makers to tackle this arena is to concentrate their focus on risk management.  Many contractors in need of work are taking greater risks by entering new markets, working for new owners (i.e. going from residential work to public work), new products (i.e. the green energy movement has attracted a lot new players), and new subcontractor relationships.  Introducing this many new and unpredictable variables to a construction company can cause undue stress on the company and may ultimately lead to bankruptcy. 

When managers ensure a strong job mix, they are giving the company the best chance at turning a profit.  One of the areas for managers to be aware of is how the job is being awarded.  Open bid projects are easier to find but the margins on negotiated bids is higher; therefore, owners and managers need to look for a variety of jobs to give the company a competitive edge.  Also, managers should be aware of the financial strength of the owners and project managers?  Any debt needs to be conservatively structured and credit ratings should remain healthy; these are indicators used by outsiders to evaluate the strength of the company.  The location and type of work can add risk if the project in a new area or the work is a different trade than what the company specializes in. 

By keeping these potential risks in mind when searching out projects, the owner or manager can pick the jobs that pose the least amount of risk to the company, which can be critical to surviving these tough economic times.