Many businesses find themselves in situations where they need to make hard decisions that could impact their reputation, income, or both. For example, the first page of a recent ACEC research project showed that almost half of all firms indicate they have a backlog of at least one year. So, how does one ensure that their own business handles risk management in such circumstances?
Read on to learn how ACEC Colorado recommends you govern your organization to define things like:
- The risks you are prepared to accept
- What rules exist when risks bear true
- Roles authorized to make relevant decisions when risks trigger
- How to improve your risk responses over time.
So, discover more about what ACEC has learned in this area and what they can do for you.
Why Forging a Risk Management Strategy Matters for Engineering
Risk is a wide-ranging concept that can have far-reaching consequences throughout the company. It could cause problems in areas such as:
- Revenue
- Profit margins
- Health of your backlog
- How selective you might need to be
- Existing reputation
When you have a well-forged risk management strategy, you can often offset a lot of this, preparing to react to the issue by shoring up each area to help you overcome the problem.
Having a robust plan will also reduce the likelihood of surprises, as you can often have advanced notice of many of the issues you predict by identifying their triggers or warning signs.
Because of these Key Risk Indicators (KRIs), you can ensure that you are transparent with your clients. You can then sustain their trust due to their better understanding of your plans and how these will affect them.
You should also ensure that your risk management strategy includes steps to:
- Analyze contracts for clauses that could cause problems in case of risks
- Schedule in buffer time to prevent the excessive growth of your backlog
- Re-define the scope of existing projects based on the risk
- Define stoppage or escalation triggers to protect the organization
- Ensure you continue to follow OSHA standards when adjusting your strategy
To ensure long-term gain, a strategy can also clearly define what success means in the case of a specific risk coming to fruition. Then, you can use this as a new KPI to adjust your expectations and reassess them over time.
Similarly, define key individuals in your company with experience handling similar risks. You can then position them in the organization to help the business ride out the worst of any risk.
Building a Risk Governance Strategy Framework
Engineering risk assessment should never be a one-person role. It demands insight from all areas of the company. As such, when you start to put this project together, form a small “risk council”, including areas such as:
- Operations
- Finance
- Legal
- IT services
- HR
If you believe you need assistance, bring in consulting engineers to help you define these areas of your business.
Make sure that the group understands that risk mitigation techniques are the priority, rather than addressing the root cause. This approach is often less costly than resolving the issue once it escalates. For example, any individual OSHA violation can cost a business up to $16,550 for each day the organization fails to improve its engineering project safety.
The group should then define the roles of each person required by a strategy, including the chief risk officer, so that they can take over when a challenge appears and make key decisions.
You can then ask them to start by defining the “risk appetite” of the company, which is how much the business is comfortable in facing risk. Then, based on this, set up a set of clear rules that define what to do in the case of any key issues, such as:
- Market cost variance
- Damage and loss
- Defects in production
- Subcontractor problems
You should also define the steps you need to take after near misses to ensure that the business learns from them rather than ignoring them. Similarly, clearly define what should occur if an employee willfully fails to follow these steps, to ensure that all employees maintain the same risk management trajectory.
Document all decisions carefully, and ensure that it is shared among all who might need to use them later.
Defining the Likelihood of Risks
Delegate an individual or team in the organization to define how likely each highlighted risk is, to ensure that you appropriately assign assets to mitigate that possibility. To do this, you have several options available to you:
- Run workshops or roleplays
- Use simple “what if” checks to estimate risk likelihood
- Use digital Monte Carlo simulations if unsure about quantifiable elements
- Draw on experience from past jobs for specifics
- Apply Failure Modes and Effects Analysis (FMEA) to critical business areas
Selecting the best combination of methods will help you understand the probability of each risk and its potential impact. These insights will help you boost your engineering risk control, keeping you informed and helping you make more confident decisions about your documented project risk strategies.
Continuous Monitoring and Learning
With a set of KRIs, you can build a dashboard visible to all project owners in the business. Doing this will help them understand the ongoing status of their projects, as well as the larger organization. Your teams can then watch out for whether the data indicates something is amiss, or if they are approaching the KRI in an area, allowing them to iterate on their process and avoid the potential of stoppage.
Make sure that those assigned to manage risk are the ones to make these decisions, and give them the authority to do so, to avoid potential issues of authority.
Work With ACEC for the Best Risk Management Outcome
When attempting to handle risk management, having the right insights can help you plan every step of the process, and having the experience and expertise on hand can also help you avoid wasting time and effort addressing the wrong areas of your business.
Work with ACEC of Colorado to learn the best methods of assessing risk and how best to mitigate it among your team.
To learn more about the key engineering information we provide, contact us at the American Council of Engineering Companies of Colorado. Access up-to-date research and learn how we can meet the needs of your business today.
