Filed Under:Risk Management, Cybersecurity

A deeper insight into the risks and challenges facing senior construction executives

Deconstructing risk

According to the data, the most prominent fears for construction executives are the geopolitical instability and regulatory changes that are manifesting across the globe in a sometimes volatile manner. (Photo: Shutterstock)
According to the data, the most prominent fears for construction executives are the geopolitical instability and regulatory changes that are manifesting across the globe in a sometimes volatile manner. (Photo: Shutterstock)

The role of construction has changed dramatically in recent years. Growth in the developing world, increasing numbers of megaprojects, large-scale investments in infrastructure and globalization of the industry are adding complexities to projects. Fragmented and sometimes inadequate workforces, uncertain regulatory frameworks and political climates, and the inescapable rise of technology have resulted in a host of interconnected risk landscapes that impact each other in difficult and unpredictable ways.

To gain deeper insight into to this dynamic risk environment, Willis Towers Watson recently launched its Construction Risk Index, a boardroom view of the industry as seen by 350 senior executives from across the globe.  As part of this comprehensive study, we asked the executives to rank the greatest threats to their businesses – both today and ten years from now.  We asked them about their attitudes toward 50 specific risks from five megatrends. Subsequently, we conducted in-depth interviews to gain greater insight into the challenges they face. The result offers a deep look into the concerns and expectations of construction leaders and highlights the most significant megatrends that will shape the future of the industry.

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The primary risks

 

According to the data, the most prominent fears for construction executives are the geopolitical instability and regulatory changes that are manifesting across the globe in a sometimes volatile manner. The top risk, “negative changes to government financing, policies and priorities”, illustrates the industry’s intimate relationship with public spending and the impact of regulations. Geographically, executives are almost unanimous in their concerns. This risk ranks among the top three in every region except North America, which identifies “capital availability, funding and liquidity” as the greatest threat.

WTW Construction Graph Figure 1

The top risk, “negative changes to government financing, policies and priorities”, illustrates the industry’s intimate relationship with public spending and the impact of regulations. (Photo: Willis Towers Watson)

The construction industry can only be as effective as its workforce, so it’s not surprising that the workforce management and talent optimization megatrend ranks a close second. The industry clearly faces structural challenges related to the workers it employs. Complex contracting decisions and a physically dispersed labor pool add to inherent difficulties in managing people risks. Our index also uncovers concerns about increasing competition, access to funding and macroeconomic uncertainty. Many executives told us how these factors are forcing them to diversify their business models and operations.

Consistent with these worries, the megatrend in third place is business models and strategy challenges. Construction finds itself having to deal with changes that sit outside the current boundaries of the industry, and this is having a profound effect on the way things get built. One such concern is the impact of technologies. Many construction firms have already made great strides in digitally enhancing their operations, most commonly through 3D printing, drones or Building Information Modeling (BIM). In addition, the promise of increased quality and productivity from emerging uses of modular methods and augmented reality (AR) are just now gaining momentum, and they pose consequential risks that cannot yet be accurately measured. Four of the top ten risks for the industry fall under the risks resulting from the digitalization and new technologies megatrend, indicating that there are challenges as well as opportunities to innovate.

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Construction viewpoint

Rising competition for projects in more stable countries has forced companies to explore new opportunities in regions with added risks and complexities. (Photo: Shutterstock)

An interconnected world

 

The rapid growth in populations, continued globalization and increasing scale of megaprojects will be key factors shaping the future of the industry. These changing market dynamics give reason to be optimistic. Many governments appear keen to encourage construction as a driver for economic growth, and funding sources are seeking investment opportunities in construction. But making promises about infrastructure spending and then delivering on those pledges are two very different things. Even the most effective governments can struggle to get projects conceptualized and capitalized.

Emerging markets present the most likely source of growth. Rising competition for projects in more stable countries has forced companies to explore new opportunities in regions with added risks and complexities. And while infrastructure development is crucial in many developing countries, unstable governments and threats to national security can also be prevalent. As construction companies enter new territories, they may find it more difficult to maintain their working cultures and find the expertise they need. Workforce management remains high on their list of concerns. The industry faces a persistent labor shortage, so key to success will be in both increasing diversity in the current workforce and attracting the next generation of talent. New technologies will also offer opportunities for progress, with sensors, data and analytics, and AR enhancing operations across the value chain. But as the industry embeds these tools, cyber-security will become a greater issue, forcing construction companies to protect themselves more efficiently. Clearly, a cohesive, continually updated risk management strategy is a top boardroom priority if construction companies are to protect themselves from emerging risks and build competitive advantage.

Related: Construction could be the next target for cyber threats

Click on the graph below to enlarge. 

WTW Construction Graph Figure 2

New technologies will also offer opportunities for progress, with sensors, data and analytics, and AR enhancing operations across the value chain. (Photo: Willis Towers Watson)

Ten-year outlook

 

Our respondents’ assessment of the biggest challenges to their businesses over the next decade focuses on a few common themes: government priorities, diversification, talent management and innovation. But the most worrying problem is uncertainty – not being able to predict a political crisis or cyber-attack – making risk management more crucial than ever. We hope the Construction Risk Index 2017 will help our clients, prospects and strategic partners better understand the complex and connected world we work in, and the risks and opportunities that lie ahead.

To access the full report visit http://www.willis.com/documents/Deconstructing_risk/

Related: Are courts narrowing access to coverage in the construction industry?

Paul Becker leads Willis Towers Watson's construction and engineering industry group globally working with regional leaders to provide services to clients worldwide. He can be reached at paul.becker@WillisTowersWatson.com

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