Does this construction project worth the risk?

Risk management

Schleifer, Ph.D., is a former professor at Arizona State University and wrote that “many construction professionals believe they can design or build anything". When presented with a project opportunity, many contractors quickly respond with enthusiasm like Bob's before thoroughly considering whether taking on the project makes sense for their business.

If profit potential is not already a criterion in a contractor's business development efforts, it should consider incorporating a risk matrix into the discussion before saying yes to the next opportunity.

While there are many criteria that can impact project profitability, the most important ones relate to how well the project aligns with your previous project success.

For example, a design/build contractor is asked to bid on building a new 50,000-square-foot, $5.5 million athletic complexes in a nearby suburb. For this scenario, project size and type are the two key considerations because they differ from the contractor’s experience. A standard rule is that a project up to 10 percent larger than past profitable projects is low risk.

Using the same example, but changing the project size to $3 million dollars (closer to the 10 percent acceptable increase), a different analysis occurs. While there are many factors to consider when pursuing a project, evaluating the risk of the four critical experience criteria should be part of the process.

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