Risk is inherent in construction. Ground conditions may differ from the desk study. Material prices may increase during a long programme. A key subcontractor may become insolvent. Weather may delay external works. Understanding and managing these risks proactively is one of the most valuable contributions a quantity surveyor can make to a construction project.
What Is Construction Risk Management?
Risk management in construction is the systematic process of identifying risks, assessing their likelihood and impact, allocating responsibility, and developing mitigation strategies. It is not about eliminating risk — that's impossible — but about understanding risk and making informed decisions about how to manage it.
The Risk Management Process
Step 1: Risk Identification
The first step is to identify all risks that could affect the project. This is done through risk workshops involving the client, design team, and (where possible) the contractor. A comprehensive risk register is built up, covering:
Step 2: Risk Assessment
Each risk is assessed for:
This allows risks to be prioritised — high probability, high impact risks need the most attention.
Step 3: Risk Allocation
Construction risks should be allocated to the party best able to manage them. Under JCT and NEC contracts, risk allocation is clearly defined for many common risks. However, bespoke risk allocation through the contract should reflect the project's specific circumstances.
Key principles:
Step 4: Risk Mitigation
For each significant risk, a mitigation strategy is developed:
Step 5: Risk Monitoring
The risk register is a live document. Risks should be reviewed regularly throughout the project — new risks will emerge, existing risks will change in probability or impact, and some risks will be resolved.
Contingency vs Risk Allowance
There is an important distinction between contingency and risk allowance:
Contingency: A general budget allowance for unforeseen items — typically a percentage of the overall cost plan. Represents the uncertainty inherent in the cost plan itself.
Risk allowance: A specific quantified allowance for identified risks. Calculated from the risk register as (Probability × Impact) summed across all risks.
Both should be included in the project budget, separately identified. As the project design develops and risks are resolved, contingency and risk allowances can be reduced accordingly.
Quantitative Risk Analysis (QRA)
For larger or more complex projects, quantitative risk analysis using Monte Carlo simulation provides a statistical distribution of possible project costs, rather than a single-point estimate. This allows clients to understand:
QRA is particularly valuable for clients making investment decisions based on project viability.
Common Construction Risks — and How to Manage Them
Ground conditions: Commission a thorough ground investigation before tendering. The cost of a good geotechnical report is a fraction of the cost of unforeseen ground conditions during construction.
Inflation: For long programmes, consider inflation-linked contracts or fixed-price supply chain agreements for key materials.
Subcontractor insolvency: Require performance bonds from key subcontractors. Maintain a list of alternative subcontractors.
Design changes: Implement rigorous change control. Any change to the approved design should go through a formal assessment of cost and programme impact before approval.
Weather: Build weather allowances into the programme. Identify weather-sensitive activities and plan them for favourable seasons where possible.
How Volarex Approaches Risk Management
We treat risk management as a core part of quantity surveying, not an optional add-on. From the first cost plan through to final account, we maintain a risk register, quantify risks, and advise clients on appropriate contingency and mitigation strategies. Our goal is to ensure there are no financial surprises on your project.