A Guide To Risk Management in Construction Projects

The construction industry is no stranger to complexity. With multiple contractors, tight deadlines and strict regulatory compliance, it’s also one of the most high-risk industries in the UK. That’s why a clear and proactive approach to risk management is essential.

In particular, companies operating under the Construction Industry Scheme (CIS) have the added responsibility of maintaining accurate payroll, protecting contractors and subcontractors and ensuring CIS compliance to avoid a costly HMRC reclassification. Risk isn’t just confined to what happens on site; it also extends to administration and workplace management.

At Contractwise, we understand all the intricacies of CIS payroll, but also the bigger picture of helping construction firms run more efficient projects by supporting them when it comes to compliance. In this article, we’ll explore how risk management for construction projects plays a pivotal role in construction success - and how it all connects to smarter CIS solutions.

Read on for more…

The importance of risk management in construction

The construction industry is inherently risky. According to the Health and Safety Executive (HSE), the construction industry continues to report some of the highest rates of workplace injuries and fatalities in the country. Risk is baked into nearly every aspect of a project, from physical safety to budget overruns and changing regulatory requirements.

Having effective risk management procedures in place allows construction companies to:

• Reduce workplace accidents and safeguard employees

• Avoid costly project delays

• Maintain budget control

• Achieve compliance with regulations like CDM 2015 and CIS

• Strengthen reputation and client confidence

Construction projects are always dynamic and multi-faceted, which is partly why they’re so risky. You should ensure risk management is proactive and built into your project, and not just a box-ticking exercise.

What are the main risks in construction?

Let’s take a look at some of the primary risk categories in construction, starting with the most critical one of all.

Health and safety

This is the most pressing risk category in the industry. With heavy machinery, working at height, manual handling and the use of hazardous materials, it’s easy to see why construction sites are so high-risk. Common health and safety hazards include:

• Falls from scaffolding or ladders

• Slips, trips and falls

• Equipment malfunctions

• Electric shocks

• Exposure to hazardous materials

• Collapsing structures

Poor health and safety can lead to injuries and, in the worst cases, fatalities, which will lead to project shutdowns and severe legal consequences.

Project delays

Delays can be caused by weather, design changes, supply chain disruption or miscommunication between project leads. Every delay has implications, including cost, and delays can severely impact the success of a project.

Financial risks

From high material costs to payment errors as part of CIS, financial risks can undermine the viability of a project. Poor cost estimation or failure to adhere to HMRC’s CIS requirements can result in penalties, cash flow problems or strained subcontractor relationships.

The core principles of risk management for construction

A solid risk management plan needs to follow a clear framework. There are several key principles that offer a structured approach to identifying and mitigating risks in any construction project.

Risk identification

The first step is to identify all the potential risks before they become major problems. This involves:

• Reviewing past projects

• Talking to site managers and subcontractors

• Conducting site inspections to spot hazards

• Considering external risks like the weather or economic changes

Risk analysis

Once risks have been identified, you can assess their likelihood and potential impact. This step will help to prioritise which risks need to immediate attention.

A risk that is unlikely but would have devastating consequences (such as a building collapsing) should still be taken just as seriously as one that is more likely but minor (like material deliveries being delayed).

Risk response planning

In this step, construction teams should develop strategies for each risk. This can include the following:

• Avoidance: Recreating processes to remove any risk

• Reduction: Adding safety measures or training for employees

• Transfer: Subcontracting specific work to experts

Implement risk response

Planning for a risk is only half the job. Actions should be communicated and implemented effectively, and this might include protocols like:

• Installing safety barriers

• Re-training staff

• Updating work schedules

• Changing to more reliable suppliers or contractors

Monitor and review

Construction sites are always fluid. What was a minor issue last week can soon escalate into a major problem, so regular reviews are essential. They help to:

• Reassess risks based on site developments

• Check the effectiveness of your safety measures

• Update your list of risks

Site managers should be conducting regular safety talks with their team and making sure they stay on top of risks.

Communication and documentation

Everyone on a construction site, from senior managers to subcontractors, should be informed about potential hazards and the mitigation steps you have in place. Documentation is essential for:

• Legal compliance

• Insurance claims

• Future project learnings

• HSE investigations

Well-kept records demonstrate due diligence and can protect the company in the event of a dispute or incident.

Risk assessment guidelines in construction

A structured risk assessment process is the foundation of all workplace safety. According to the Health and Safety Executive (HSE), a suitable and sufficient risk assessment should follow these guidelines:

Identify hazards in the workplace

Walk through your construction site and identify things that could potentially cause harm. This could include:

• Physical hazards like moving machinery and scaffolding

• Hazardous substances like chemicals and dusts

• Environmental hazards like noise and the weather conditions

Build a complete picture of your site by scheduling regular inspections and seeking the input of other workers.

Identify who might be harmed

Construction sites are full of different workers who are faced with a variety of risks. This includes:

• Scaffolders who work at a height and are at risk of falls

• Electricians who are at risk of electrocution

• Groundworkers who are at risk of tool or machinery malfunction

Don’t forget to include visitors, delivery drivers and members of the public where relevant.

Evaluate risk and put in protective measures

Once the risks have been identified, assess the severity and implement control measures. This can follow the structure below:

• Eliminate the hazard

• Substitute it with something not dangerous

• Implement controls (such as barriers)

• Apply administrative controls (training, signage, etc)

• Provide PPE (hard hats, gloves, goggles and more)

Record findings

You should always keep a written record of your risk assessment, especially if you have more than five employees. The risk assessment should include:

• All the identified risks

• Who might be affected

• Protective measures

• Who is responsible for implementation

Follow up to check all actions have been taken and are being recorded.

Constantly review risk assessment

Construction sites are always changing, sometimes even daily. Therefore, a risk assessment needs ot be regularly reviewed and updated, especially when significant changes have occurred. You should review a risk assessment when:

• New subcontractors arrive

• A serious incident or near miss has occurred

• The layout has changed

• New equipment or processes have been introduced

It’s vitally important that a risk assessment is always evolving with your project.

The role of CIS in construction risk management

You might be wondering, how does the Construction Industry Scheme fit into risk management?

Well, the answer is fairly simple. People are central to managing construction risk, and CIS is how you legally and efficiently manage subcontractors. Failing to pay or register a subcontractor properly under CIS won’t just lead to hefty fines; it can damage trust and cause labour disputes. These things are likely to cause delays and impact the success of the whole project. Delays in payment or bad communication can create ripple effects that then lead to workforce disengagement, errors and even safety issues.

At Contractwise, our CIS payroll solution goes beyond basic compliance. We support your risk management efforts in several ways:

• Accurate CIS verification: We work with you, providing advice on how to verify subcontractors. This avoids HMRC penalties and ensures legal compliance.

• Timely payments to subcontractors: This maintains trust and increases morale and performance among your team.

• Digital record keeping: We guarantee audit trails for organisations like HMRC

• Compliance support: We provide guidance on legal responsibilities that relate to subcontractor management.

• Tailored payroll solutions: There’s no need to worry about administrative errors that lead to disputes or legal claims when you work with us.

By properly managing your CIS obligations efficiently, we help eliminate major administrative and financial risks in the construction world.

Construction will always involve some level of risk. But, with the right systems in place, risks can be managed, controlled and even turned into opportunities for improvement. Whether it’s a safer site, a smoother schedule or a more motivated workforce, risk management can help you in what is always a challenging industry.

Let the team here at Contractwise handle your CIS payroll, so you can focus on delivering projects that are safe and compliant. For more information, get in touch with the team at Contractwise today.