Chris Smith
meIn the 1990s it was not unusual to define successful risk management as limiting the number of deaths on a project site and purchasing and renewing insurance policies. But orOver the past 25 years, the role of risk manager has evolved considerably.
In today’s construction market, risk achievements are measured, in part, by the number of lives saved through proactive safety measures. In addition, the list of acquired and renewed insurances has increased, from workers’ compensation and general civil liability, automobile, professional and environmental to construction risk and equipment. They now include those that not only cover business operations, but also insure the responsibilities and risks of an organization’s human capital: employees and management, such as board officers and directors, and related matters such as tenure fiduciaries and crimes.
In addition, risk managers are now tasked with finding ways to improve return on investment and drive real dollars to the company’s bottom line.
Traditional risk management approaches required separate contracts and insurance policies for each contractor at the project site. It is now common to include contractor-controlled insurance programs and subcontractor default insurance. Contracts are also evolving, with integrated project delivery and progressive design-build delivering a new wave of quality improvements.
These changes, made since the early 2000s, have paid substantial dividends, improving safety and claims and improving overall return on investment and project success.
As a result, a new indicator of the next level of construction risk management has emerged: the chief risk officer as a C-suite position. This emerging paper expands beyond standard territory to recognize the complexity of the challenges. CROs, along with other C-suite leaders, think about risk from a business perspective. They no longer only care about what insurance can do. Instead, they focus on human capital and staffing decisions, labor and performance issues, supply chain management, and subcontractor prequalification.
Dick Walterhouse, former chief risk officer of Pankow Builders, spoke about the importance of a seat in the C suite. “We advanced the importance of risk management as a corporate initiative and developed a strategic plan for risk management of enterprise risk that fit perfectly with our operations plan,” which changed the company’s culture, he said.
I also like how Scott Hobza, VP of Enterprise Risk Management at Spawglass, framed the issues.
“Having good insurance and processes is a must, but it only scratches the surface,” said Hobza, who is also an employee-owner of the contractor. “True risk management starts with having a proactive mindset, establishing a risk management culture. Risk is managed or not managed at the lowest level, in the project-level field, where decisions are made. Which client will we work for? Which subcontractor do we hire? How will we establish a safety culture in our project? Will everyone follow our quality control program?”
Hobza adds that as chief risk officer at SpawGlass, he “empowers our project teams with the knowledge of how their day-to-day decisions affect” the company and answers questions about whether to avoid, transfer or retain specific risk .
While the growth of the industry has played a role in elevating risk managers to become CROs, the COVID-19 pandemic really drove the focus on the construction risk management position. Not only did all contractors have to address risk-related operational issues, but they also had to coordinate supply chains and performance management. While LEAN construction is still at the forefront of contractors’ minds, risk assessment is also a key part of the consideration.
Definition of the role of Chief Risk Officer
The CRO role brings all risk issues under a single person’s responsibility, aligning risk management with company goals and objectives and overseeing all risk managers on their team. As a risk line, the CRO would assess the urgency of each.
Incumbents may use an enterprise risk management approach or rely on technology to shape policy in ways that would have been impossible without benchmarking, artificial intelligence and the use of risk management information systems.
Beyond the risks assumed by the construction industry, CROs must also monitor a company’s financial stability, compliance and emerging legal issues and other factors that could affect project and project success. organization Continuity is also a concern, as is labor shortages.
Risk management can no longer be isolated in its own separate area of the business, especially as the industry continues to grow. By making risk management a more integral part of the leadership team and the CRO a member of the C-suite, risk can be addressed more comprehensively and holistically to make construction safer, more efficient and profitable
Chris Smith is senior vice president of construction, infrastructure and casualty at insurance brokerage NFP.
