Develop a business plan
Question:
Discuss about the Advanced Risk and Uncertainty Management.
The construction industry is categorized as a service industry. The industry provides employment to many people and market for industries manufacturing cement, iron, steel, bricks among other material used in construction. It is among the industries that play a great role in the development of any country, considering that any country needs to develop infrastructure for it to grow economically.(construction Industry Development Council of India, 2014)
Establishing a construction company needs a huge capital base which makes it be a high-risk industry. “While starting construction, one needs to consider the start-up cost and think of how they can be met. Marketing your company is also another important factor that one should think of.” (Li, P2017). The following are steps starting a construction company.
Like any other business starting a construction company requires a written business plan. This acts as a guide since it includes your goals and the way these goals will be attained. It also outlines the financial plan of the business, the clients, suppliers , and way of advertising your company.
According to Li, P(2017) A written formal business plan can be used in sourcing funds from banks in case you do not have enough start-up capital. Explain why you have chosen to start the business and the opportunities that make you believe it will succeed. Consider the option that the bank may give you for instance types of loans, interest rates and the duration given to pay back the loans.
According to Beesley, C (2012) For any company to operate in the country, it requires seeking legal licensing and permits for it to operate. A construction company also requires business insurance and surety bonds.
Business license and permits- most construction companies require special licensing to operate beside the general business licenses. It is important to seek for assistance inform the government departments dealing with licensing of businesses.
Surety bonds- construction bond is a legal requirement for the operation of any construction company. Surety bonds serve as a cover in case the contract obligation between the company and the client were not fulfilled. The regulations governing the issuance of surety bonds varies from country to country.
Insurance- the company requires different types of business insurances such as workers compensation, property and vehicle insurances among others.
It is a requirement that a contraction company should create a safe and healthy working environment for its workers to protect them from dangers posed by construction work. (Beesley, C ,2012)
Purchase the required tools and equipment
Tools and equipment are basic requirements for any construction company. Different construction work requires different tools and equipment and therefore considering the services you have planned to offer in your company purchase the required tools to work with.
There are four sources of labour for a construction company that is employees, subcontractors, labour brokers and independent contractors. One should consider the best option among the ones given above. (Beesley, C, 2012)
The advertisement is a basic requirement for any business to grow. It is a way of creating awareness about the existence of your company. It also gives information about the services that your company offers thus connecting you with your targeted clients. Advertisement can be started in through informing people close to you about your business, and they can spread the information to others. (Li, P, 2017)
Obtain legal licensing and permits
Construction companies are faced with many risks. The stakeholders in this business such as project owners, contractors, consultants, suppliers among others face different fears that come as a result of the possible risks. The risks involved in the construction company can lead to great financial losses to all stakeholders.(construction Industry Development Council of India, 2014) According to Cavignac, J (2009) below are some of the risks that face most of the construction companies.
This is referred to as seasonal slowness. Economic depression can result in financial difficulties which may affect the progress of the project. This may extend the time that was planned for the completion of a given project which leads to losses. The contractor needs to be prepared in advance in order to cover the extra expenses that may be incurred during these periods.
In the construction work, the wearing and tearing of equipment are inevitable. The equipment will need to be repaired from time to time while others need to be replaced. However, some of the equipment are too expensive to be replaced on a regular basis. Such equipment requires insurance to cover them against loss, damage or theft.
During construction, work accidents are likely to happen and may involve the workers or third parties. It is important to be aware of such hazards and take necessary steps to avoid occurrences of many accidents. General liability insurance is necessary for any construction company in order to cover the third parties who may be involved in an accident.
Faulty work
Sometimes the work done by a construction company may not satisfy the client. This may call for reconstruction or other legal steps which may cost the company a lot of money. The construction company must, therefore, comply with the building regulation of the country.
Failure to meet deadlines
Due to unpredictable reasons which may delay the completion of a project the construction company may fail to meet the deadline of the project. In case there are any inconveniences it is, therefore, advisable to keep communicating with the clients to agree on new changes that may lead to the extension of deadlines.
Risk analysis according to Prince2 (2005) is a guided process of controlling risk. Risk analysis helps in identifying and evaluating events that may have an impact on the project and come up with ways of controlling them.
There are various models of risk analysis, but I will focus on Prince2 P-1 Grid for risk analysis model and the DREAD model. According to Czagan D, (2014)The DREAD model in full stands for;
- Damage potential.
- Exploitability
- Affected users
- Discoverability
Both models rate risks from low to highest each with numerical range. Depending on the impacts that a risk may have on the business, every risk is measured and ranked between a given range of numbers, for example, the DREAD risk analysis model has a range from 1 to 15.
However Prince2 P-I risk analysis model is used for quantitative risk analysis while DREAD model is used for qualitative risk analysis. In the P-I risk analysis model, the results of the assessment are presented in a graph with x and y-axis. on the x-axis, there is the probability of a risk occurring while on the y-axis there is the exposure. To assess the severity of the risk one find the product of the probability and the impact. While on the DREAD analysis model assessment results are presented in a table according to ranges example from 1-5 low, 8-11 medium, and from 12-15 high. The severity of the risk can simply be determined by checking its rating fall between which ranges.
I would recommend the use of the Prince2 P-I model in a construction company since it uses numerical information which is available in construction work. This model would help in giving a more accurate and hence dependable risk analysis.
Managing risk in a construction company
According to Plato, A (2014), risk management is the process of identifying a risk and then making decisions on how to put the risk under control. Risk management can also be defined as a process of predicting and evaluating risks them coming up with ways to avoid the risk or reduce its effect.
As a company there are a number of steps or measures that can be taken to manage risk they are as follows;
- Risk analysis- this is the first and most step in risk management. It helps in identifying the vulnerability of the company to a given risk. Proper risk analysis of a company can be done through the reference to its documents such as financial documents, contracts among others.
- Risk control- it refers to laid down plans that will help in reducing the impacts of a given risk. For instance having a well trained human resource is one way of controlling risks.
- Risk transfer- when the risk facing the company is too much for the company to handle on its own it is considerable to seek for risk transfer, for example, getting insurance cover to cover unforeseeable risks such as accidents.
References
Bansal, S (2014) , Difference between Quantitative and Qualitative Risk Analysis. Retrieved 13 may 2015: https://www.izenbridge.com/blog/differentiating-quantitative-risk-analysis-and-qualitative-risk-analysis/Beesley, C (2012), How to Start a Small Construction or General Contracting Business. U.S Small Business Administration ArticlesCavignac, J (2009) Managing Risk In a Construction Company, Construction Business Owner, Article
Curtis, T (2014), Risk assessment Basics. Retrieved at: https://www.airsafe.com/risk/basics.htm — Revised: 19 January 2014.
Czgan, D (2014), Qualitative Risk Analysis with the DREAD model. Infosec Institutte Articles retrieved May 21, 2014 at: https://resources.infosecinstitute.com/qualitative-risk-analysis-dread-model/
Li, P (2017), How to Start My Own Small Construction Company. Retrieved from: https://smallbusiness.chron.com/start-own-small-construction-company-2257.html
National Research Council, (2005), 4 Risk Identification and Analysis, The owner’s Role in Project Risk Management. Washington DC.
Plato, A (2014),Communication Risk to Executive leadership.
Prince2 (2005), Risk assessment model assessment .Retrieved at: https://www.stakeholdermap.com/risk/risk-
Shah, N (2015), Qualitative vs. Quantitative Assessments. A journal on advisory.
Sims, S (2012) Qualitative vs. Quantitative Risk Assessment, SANS Technology Institute Journal.
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