Identifying Inflation Risks in the Building Business – Part Two

Identifying Inflation Risks in the Building Business – Part Two

05th March 2018

Last week we wrote about identifying the inflation risks in the construction industry and how easy it is for a job to go over budget due to factors such as inflation in market value during the negotiation stages or inflation in the construction company’s costs during the delivery period, particularly on long contracts which can also involve a market price risk for subcontractors too.  Today we’re going to take a closer look at the six different categories of risk.

  • LOGISTICAL RISKS – these include the availability of transportation facilities and the availability of equipment such as spare parts, fuel and labour.  Unless these logistical issues are considered, projects are likely to be delayed, leading to financial losses.
  • ENVIRONMENTAL RISKS               - these include natural disasters, but also more everyday risks such as weather and seasonal implications.  These risks are likely to be overlooked by people unfamiliar with local conditions so if you’re going to be working on a project in a different part of the country, you’ll need to find out about the areas weather conditions.  Preparing for weather risks can make it more likely that you will avoid any potential delays of this type.
  • TECHNICAL RISKS – these can include anything that restricts you from delivering the project that your customer actually wants.  This can include uncertainty of resources and the availability of the materials necessary, and incomplete design or even an inadequate site investigation.  These are the types of risk that are most likely to occur when there are changes in the project scope or as a result of design errors.
  • FINANCIAL RISKS – obviously, inflation is one of the biggest financial risks, especially during the negotiation stages.  However, availability of materials, resources, labour can drive up prices unexpectedly.  If you’re working on a project overseas, then it’s vital to understand how the foreign currency will be exchanged and different countries have different tax systems, all of which can impact on the final cost of any project.
  • SOCIAL/POLITICAL RISKS – Depending on where your project is, there are likely to be different regulations to abide by.  Then there is the issue of customs or import restrictions – an issue that may worsen once Brexit has gone ahead.  You’ll need to know how you’re going to dispose of your construction waste - what facilities exist in the area where the project is being undertaken.  If you’re a small construction company operating in your local area, these issues are less likely to cause problems and delays for you.
  • MANAGEMENT RELATED RISKS – one of the most common management related risks is an uncertain productivity of resources.  Before embarking on a project of any type, you need to make sure that your workforce has the correct skills and that their roles and responsibilities are properly defined. 

As Brexit looms ever closer, we’re facing some very uncertain times for businesses in most industries in the UK.  Paying attention to managing the risks involved with construction projects will be more vital than ever before.  The more risks that can be eliminated, the better your business is likely to cope with such an uncertain future.

Last week we wrote about identifying the inflation risks in the construction industry and how easy it is for a job to go over budget due to factors such as inflation in market value during the negotiation stages or inflation in the construction company’s costs during the delivery period, particularly on long contracts which can also involve a market price risk for subcontractors too.  Today we’re going to take a closer look at the six different categories of risk.

  • LOGISTICAL RISKS – these include the availability of transportation facilities and the availability of equipment such as spare parts, fuel and labour.  Unless these logistical issues are considered, projects are likely to be delayed, leading to financial losses.
  • ENVIRONMENTAL RISKS               - these include natural disasters, but also more everyday risks such as weather and seasonal implications.  These risks are likely to be overlooked by people unfamiliar with local conditions so if you’re going to be working on a project in a different part of the country, you’ll need to find out about the areas weather conditions.  Preparing for weather risks can make it more likely that you will avoid any potential delays of this type.
  • TECHNICAL RISKS – these can include anything that restricts you from delivering the project that your customer actually wants.  This can include uncertainty of resources and the availability of the materials necessary, and incomplete design or even an inadequate site investigation.  These are the types of risk that are most likely to occur when there are changes in the project scope or as a result of design errors.
  • FINANCIAL RISKS – obviously, inflation is one of the biggest financial risks, especially during the negotiation stages.  However, availability of materials, resources, labour can drive up prices unexpectedly.  If you’re working on a project overseas, then it’s vital to understand how the foreign currency will be exchanged and different countries have different tax systems, all of which can impact on the final cost of any project.
  • SOCIAL/POLITICAL RISKS – Depending on where your project is, there are likely to be different regulations to abide by.  Then there is the issue of customs or import restrictions – an issue that may worsen once Brexit has gone ahead.  You’ll need to know how you’re going to dispose of your construction waste - what facilities exist in the area where the project is being undertaken.  If you’re a small construction company operating in your local area, these issues are less likely to cause problems and delays for you.
  • MANAGEMENT RELATED RISKS – one of the most common management related risks is an uncertain productivity of resources.  Before embarking on a project of any type, you need to make sure that your workforce has the correct skills and that their roles and responsibilities are properly defined. 

As Brexit looms ever closer, we’re facing some very uncertain times for businesses in most industries in the UK.  Paying attention to managing the risks involved with construction projects will be more vital than ever before.  The more risks that can be eliminated, the better your business is likely to cope with such an uncertain future.