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Requirement
In two (2) pages - summarize a construction startup (contractors) company's initial strategy to minimize the risk of failure
Solution
Construction Start up (contractors) company's initial strategy to minimize the risk of failure
Any successful project or company depends on the way in which risk is managed in the company and the risk prevention and mitigation measures adopted by the company. We identify that the most common reasons for failure in construction companies are lack of planning, poor documentation, improper tax management, issues due to contingencies beyond the control of the company, cash flow management, lack of good accounting practices, difficulties in attracting enough quality works and so on. Construction projects require heavy initial investments and a failure can result in equivalent losses.
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The strategy which can be used to minimize the risk of failure by construction companies are firstly identifying the risks which can lead to failure, selecting the correct projects and controlling the risk, being able to understand the extent to which risk must be transferred to the related party, reviewing the risk and finally refining the risk. Risk analysis includes identifying the factors which can lead to failure. The most common reasons are property issues, loss of income, improper human resources and issues related to third party liabilities which can create conditions out of company control. Additionally proper management of financial and documentation is of importance. This analysis must be done as identifying the potential risks before hand and finding ways to control them is much better than waiting for the risks to convert into failure. Risk of failure can be controlled by taking proper actions to minimize the frequency of loss or preventing the loss from occurring. T he loss can be monetary or to personnel. Hence making proper insurance provisions is extremely critical along with exhibiting due diligence in taking safety measures for the workers. Safety is a big concern for construction companies and can lead to potential damage to the project and also company image. Hence, having proper safety measures is of utmost importance. Alternatively, the company must have proper knowledge of claims management as even the best of the construction companies are not immune from accidents. Thus proper insurance and claim management form an important part of the minimising risk strategy. It is also important to understand that all risks cannot be controlled by the company in any project and the company must thus understand and identify the risks which must be transferred to the relevant parties. There is need to identify the party which would be best responsible and equipped to deal with certain activities and the risk of failure in those activities must be transferred accordingly. Additionally, maintaining good documentation and following the financial accounting and tax management best practices will save the company the damage due to loss in profits and improper tax management. The company must also decide and allocate relevant resources to marketing and innovation.
The strategy of the construction company to minimize the risk of failure is a combination of managing the risks at operational level as well as managing financial, human resources and marketing related factors which may be potential reasons for failure with due diligence.
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Marla McIntyre, Daniel Gentges & Paul D. Cranley . 2013. The Basics of Risk Management in Construction Contracts. [ONLINE] Available at: https://enewsletters.constructionexec.com/riskmanagement/2013/09/the-basics-of-risk-management-in-construction-contracts/. [Accessed 11 April 2016].
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Jeff Cavignac. 2009. Managing Risk In a Construction Company. [ONLINE] Available at:http://www.constructionbusinessowner.com/topics/insurance/construction-insurance/managing-risk-construction-company. [Accessed 11 April 2016].
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Randal DeHart. 2014. The Contractor Paradigm. [ONLINE] Available at:https://www.fasteasyaccounting.com/construction-company-failure-root-causes. [Accessed 11 April 2016].
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Ted Garrison. 2012. Strategic Thinking & Planning For Contractors. [ONLINE] Available at:http://www.mcakc.org/wp-content/uploads/2012/10/MCA-Strategic-Thinking.pdf. [Accessed 11 April 2016].
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