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. OOver 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. And the list of insurance policies purchased and renewed (from workers’ compensation, general liability, auto, professional and environmental, builders and equipment risk) has grown to include some of the management and employee coverages , such as directors and officers liability, fiduciary, tort. , etc. These lines not only cover the company’s operations but also insure the liability and risk of an organization’s human capital.
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 managed insurance programs and subcontractor default insurance. Contracts are also evolving, with integrated project delivery and progressive design-build becoming the next wave of quality improvements.
These changes, made since the early 2000s, have paid off, improving safety and claims and improving overall ROI and project success.
Recently, a new indicator of the next level of construction risk management has emerged: the chief risk officer (CRO) 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 CRO 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 business model that perfectly suited our plan of operations.” That 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. “True risk management starts with having a proactive mindset, establishing a culture of risk management. 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 target? How will we establish a safety culture in our project? Will everyone follow our quality control program?”
The SpawGlass CRO, he added, empowers our project teams with the knowledge of how their “daily decisions” affect the business and answers questions about whether specific risk should be avoided, transferred or retained.
While the growth of the industry has played a large role in the elevation of risk managers to CRO, the Covid-19 pandemic really galvanized the spotlight on the construction risk manager 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 part of the consideration.
Definition of the role of Chief Risk Officer
The CRO role brings all risk issues under one roof, aligning risk management with company goals and objectives and overseeing the risk managers on their team. As a risk hotline, the CRO would assess the urgency of a risk. The CRO can 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 information systems of risk management.
Beyond the assumed risks of the construction industry, CROs must also monitor financial stability and oversee compliance and legal issues, and other factors that could affect project success. 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 with a seat in the C suite, risk can be addressed more comprehensively and holistically, making construction a safer, more efficient and profitable business .
Smith is senior vice president of construction, infrastructure and casualty for the NFP corridor.
