Sage Advice US

6 construction business risk areas you can’t ignore

Are you a risk taker? Or do you avoid risk at all costs?

Chances are if you own or work in a construction company you have a greater tolerance for risk than most business leaders. Construction by its nature is a risky business. With slim profit margins and an over-abundance of challenges, the building industry is not for the faint of heart.

Obviously, if you want to grow any business you have to take a number of calculated risks. On the flipside, there are certain risks you need to manage carefully in order to protect your company. That’s especially important in construction. Having multiple companies involved in projects that can span many months creates a prime environment for inefficiency and mistakes that can lead to litigation and other business-damaging issues.

For any size construction firm, identifying risks and proactively managing them is both smart and critical to long-term success. Here are six common areas of risk to monitor:


From a project performance standpoint, effectively mitigating risk means avoiding issues that would negatively impact a project’s schedule, budget, quality, and profit margin goals. Some of the greatest risks to a successful project are changes and scope creep, cost overruns, and project process approval. Equipping your project team with the tools to immediately identify and address these and other issues will go a long way to reducing your overall project risk.


The foundation of a successful project starts with the contract. So, it’s vital to understand the details and stipulations buried within a contract’s layers of legalese. Pay extra attention to the scope of work and always have a licensed lawyer, who specializes in construction, review all your contracts prior to signing.


Number one on every construction companies risk list should be the safety of its workers. Instead of viewing safety as just meeting OSHA requirements, adopt a safety-first policy and culture that proactively addresses how to reduce safety incidents.

Subcontractor compliance

If you subcontract work, you are taking on a degree of risk when it comes to uninsured workers on the job site, lien laws, and certified payroll requirements. This responsibility is becoming more important every year as regulators tighten their enforcement. Understanding compliance requirements, creating an automated process, and spot checking to assure nothing falls through the cracks can reduce your risk and the compliance burden for your team.


Do you trust your job cost and financial numbers? Do you fully understand your cash flow? How can you protect your cash position? These are some of the questions you need to answer so you don’t leave anything to chance when it comes to your financials.


Just because you’re insured doesn’t mean you’re covered. Both your business and coverage policies change. As a result, your current insurance may not be as effective at protecting your business as it once was. Work with your attorney and a construction-knowledgeable insurance agent annually to access possible exposure.

While there are uncontrollable factors such as the economy, fluctuating material prices, and Mother Nature, many risks are within your control. Proactive risk management prevents litigation and fines, profit fade, and injuries. It also protects your company’s assets, reputation, and the ability to get work. Learning to identify and manage risk related to your construction company is key.