Why do construction projects fail?

A risk management perspective Even before the arrival of the COVID outbreak, the construction industry was struggling with myriad issues that witnessed quite a few businesses close, both national and global. The reasons ranged from having a poor internal management approach to the presence of an unfavorable external ecosystem. With the all-around instability wrought by the pandemic, the construction industry, a vital contributor to the country’s GDP, has found itself in a quandary similar to other sectors. A construction project can fail due to multiple issues. However, a key factor that could contribute to failure is the lack of preconstruction project management processes. Although it is extremely important to ensure a thorough risk assessment is done before a project goes on the ground to minimize risks, it is equally important to ensure preconstruction project management processes are followed and not compromised. 

Here at a glance are the most common risks one should take into account before proceeding with a construction project 

Cost risks: Adhering to a budget is critical for any business to survive. More so, while carrying out a construction project as it requires frequent infusions of ready liquidity. Minor miscalculations on the part of the developer during a project can turn out to be extremely expensive and can take a heavy toll on the financials and future of the business. 

Capacities and Capabilities risks: There exists a substantial skill mismatch amongst the current workforce that leads to lower productivity, encumbering the efficient execution of a project. It is recommended that a particular task should be given to the labour that has the requisite skills to complete the job ensuring quality. 

Absence of processes: The presence of rigorous and robust processes is essential to every step of a construction project. Planning, due diligence, and compliance with processes help to minimize risks. A digital representation with the use of BIM prior to the execution of a project can aide in keeping the physical and functional risks at bay. Moreover, it can help in implementing efficient, sustainable, and cost-effective solutions. A strong risk management system for both the project and the organization is crucial to prevent any lapses with respect to time, costs, quality, health, and safety for the project. Cash Flow Planning: Construction being a capital-intensive business, cash flow planning for a project is crucial. A breakdown in enough funds can result in a liquidity crunch, throwing the entire project into disarray. It can impact the overall project performance parameters leading to financial, legal, and stakeholder challenges. 

Technology adoption risk: Construction technology is resetting the way construction projects are built. Ensuring construction is carried out using global standards with the technology can lead to resilience and more energy-efficient structures that are ecologically balanced. The hesitant approach to adopting the latest technology can lead to performance and quality issues. Too much reliance on labour can result in a loss of reputation that ultimately impacts brand and business continuity. 

Procurement risks: A construction project is open to pilferage and mismanagement both within and outside the organization. It is extremely critical to have well-defined protocols and standard operation procedures (SOPs) for each stage of a project. An appropriate vendor authentication system will also assist in warding off such risks. It is prudent that construction projects use international standards and employ qualified professionals who practice ethics at work. This will foster trust, assurance, and confidence amongst the stakeholders. 

Poor contract management: The absence of clear and equitable contracts with various stakeholders can lead to the failure of a construction project. It can lead to prolonged conflicts, causing wastage of both time and money. The failure to honor payment terms can result in expensive litigation that has seen many projects fail. The situation is aggravated by the lack of an encouraging dispute resolution or avoidance mechanism, worsened by the lack of qualified arbitrators possessing the technical expertise to resolve construction conflicts.