Jeff Cavanagh is the Vice President of Risk Management at Royal Electric Company, based in the Greater Sacramento area. With over 16 years of experience, he is a seasoned leader in negotiating and administering contracts across both the public and private sectors. His expertise spans labor relations, regulatory compliance, dispute resolution, contract management, and supplier relationship management.
Through this article, Cavanagh emphasizes that risk management is a multifaceted responsibility that extends beyond insurance and requires the active participation of all employees within a company. Too often, risk management is considered primarily, if not solely, a function of insurance and indemnification—limit your indemnification obligation to something palatable and then procure insurance with sufficient coverage to address those indemnification responsibilities. This means that, presumably, between your risk manager and your contract manager, your risk should be known, proactively controlled and of relatively little concern. Risk management is a far more expansive responsibility that belongs to virtually every employee within a company. In the construction industry, we deal daily with an abundance of risk, including extensive exposure to actual physical harm. But risk management goes well beyond just damage to people or property. Faced with an overall skilled labor shortage, our workforce development team is managing risk through manpower planning, personnel development and recruitment. Our estimating team is managing the risk of future losses through thorough reviews of plans and specifications, accurate takeoffs and ensuring that we properly price work to keep the company profitable. Our foremen manage the risk of cost overruns by creating production plans and ensuring our crews meet those goals. Our labor compliance department manages the risk of fines or penalties by ensuring our teams understand the wage requirements and working conditions and by monitoring the company’s enforcement of these. "What technology cannot do, however, is dictate our appetite for risk. Every industry has different levels of plausible risk, and every company has different levels of acceptable risk. How much risk we’re willing to shoulder will always come down to a business decision." Suffice to say to pigeonhole risk oversight into one department or one position is, itself, extremely risky. It’s imperative to impress upon your entire team that everyone is accountable to the company for risk recognition and mitigation. It is then contingent upon the company to provide its many risk managers with the tools and resources necessary to recognize, address and control risk. This includes leveraging the growing number of technological advancements to recognize and analyze risks. Virtual Design and Building Information Modeling allows us to literally build a structure virtually, performing clash detection and detecting constructability issues before a shovel ever even goes into the ground. Iterative artificial intelligence will review thousands of pages of specifications and contract documents, instantly identifying key contract clauses and provisions that present risk. ERM systems will scour the internet to discover market trends, determine geopolitical implications and comb social media sites to provide 360-degree analyses of our business outlook. ERP systems provide real-time access to cost data, allowing project teams to determine trends, establish projections and establish accurate project financial reports. Businesses are more equipped than ever to perform thorough and meaningful risk analytics. We have seemingly endless amounts of historical data, forecasts, trend reports and market analyses literally at our fingertips, so not having at least some understanding of our business risk is a result of our own lack of due diligence. What technology cannot do, however, is dictate our appetite for risk. Every industry has different levels of plausible risk, and every company has different levels of acceptable risk. How much risk we’re willing to shoulder will always come down to a business decision. A large aspect of risk aversion is a desire for predictable outcomes, and modeling likelihoods of different outcomes is something technology can do. So, to that extent, maybe technology is not far from also being able to define what our stomach for risk is.