When embarking on any construction project it is essential to weigh up the risks involved and value created from the outcome of the project. This blog post will define risk and value management for you and explain the importance of these tasks when taking on a construction project.

What is risk management?

Constructing excellence define risk management as “a process to help you identify issues that could have a significant negative impact on your business, then evaluate and minimise the potential effects of those risks”. When taking on risk there must also be some level of value added to the business to make the risk worth taking. 

Risk management includes activities used to identify and control all risks related to the project you are carrying out. For this to be successful in construction projects you must:

• Identify and assess the risks in terms of impact and probability 
• Create procedures to actively manage and monitor risks throughout a project
• Update risk information throughout the project
• Allocate responsibility for managing each risk with the best team to do so.

Managing risk is an ongoing process for any construction project and should be taken seriously as risks can continue to change as the project progresses. Risk management plans should be in place to aid your team to deal quickly and efficiently with risks if they arise.

What are the benefits of risk management?

1. Reduce uncertainty on your construction projects
2. Enable better decision-making from team members and ensure that strategic decisions are well thought out
3. Better briefing for your construction team
4. Better work planning, enhancing productivity
5. Clear accountability from risk managers and assigned team members
6. Clear focus on larger risks and critical problems
7. Better partnering as risk management helps provide partners of the project with common purpose

What are the risks of poor risk management?

• Income or benefits from a project are not as good as expected
• Poor advice leads to inappropriate planning and activities
• Delayed completion due to inefficient planning
• Unforeseen costs 
• Higher running costs resulting from defective construction 
• Accidents and injuries to the team
• Coordination problems 
• Poor guidance for operatives
• Poorly trained workforce
• Poor documentation of records

• Income or benefits from a project are not as good as expected
• Poor advice leads to inappropriate planning and activities
• Delayed completion due to inefficient planning
• Unforeseen costs 
• Higher running costs resulting from defective construction 
• Accidents and injuries to the team
• Coordination problems 
• Poor guidance for operatives
• Poorly trained workforce
• Poor documentation of records

How can I ensure a good risk management arrangement?

• Ensure risks are clean and unambiguous 
• Project should achieve the best value for money
• Represent a fair balance between risk and control 
• Do not create conflicts of interest in those required to give independent advice to the client

What is value management?

Value is defined by Alliance Contracting as creating the most benefit to the client which proves that the project is worth doing and can be quantified in business terms (financially, creating a better working environment or improving client experiences). 

Value management or value engineering is defined by building.co.uk as “a conscious and explicit set of disciplined procedures designed to seek out optimum value for both initial and long-term investment and has been widely used in the construction industry for many years”. 

The 3 main stages of value management are:

1. Planning: 

A team will review the proposed project, perform a functional analysis, uncover what the client sees as value and then define the key criteria and objectives for the project to add as much value as possible.

2. Design: 

This activity requires a value engineering workshop which is around 40 hours used to bring the design team and client together to review all proposed solutions, estimate the cost and propose implementation of the project. 

3. Methodology and approach:

These are the steps of the value engineering workshop which include:

1. The information phase
2. Speculation/creative phase
3. Evaluation and analysis phase
4. Development phase
5. Presentation phase

What are the benefits of value engineering?

Value management enables stakeholders of a project to properly define and achieve their needs for the project through a facilitated workshop, encouraging teamwork and by the end, all parties are satisfied with the project going ahead. The purpose of value management is to ensure that a project can function effectively and provide value for money rather than just focusing on reducing costs.

Other benefits include:

• Helping to determine the best design option for your client
• Understanding business needs 
• Enhanced flexibility to solve problems
• Reduce and save the overall project’s life cycle cost
• Identify problems and find solutions for them
• Improve the overall quality of the project
• Saves time and resources

What are the challenges associated with value management?

Some challenges you may face when endearing on a value management workshop may include: 

• Maintaining the project schedule – As value engineering may cause changes to the project, these should not slow down the completion schedule.
• Maintain product quality – Although this is an easy way to save money, quality should not be compromised for any construction project.
• Getting all team members on board – The risks and values should be presented in an easy-to-understand and logical manner to ensure the whole team understands the aims of the project and get on board with the client’s aims.
• Project margins – Ensuring the project creates maximum benefit for the client.

A report from NAO highlights that inadequate use and understanding of risk and value management is a major barrier to improving construction projects. 

Risk and value management should be carried out hand in hand to ensure that you can deliver the most value for the least risk for your client’s project. At AJH Construction we ensure our clients benefit from our first-hand experience and knowledge of the technical, commercial and legal challenges facing the construction industry today. Get in touch with us today to start discussing your next big project.