KPMG’s 2012 Global Construction Survey, highlights the “great global infrastructure opportunity” for engineering and construction firms. In today’s turbulent economy, it’s the organizations that can manage project and program risk most effectively right from the start that will benefit through improved margins and profitability.

 

For the 2012 survey KPMG interviewed executives from 161 engineering and construction firms around the world, varying in size from $250M to more than $5B in annual revenue. Key findings include:

 

  • 46 percent of respondents say few projects exceed the original bid margin; in Europe, Middle East and Africa this figure rises to 56 percent
  • 54 percent failed to identify upfront the issues that later caused margin erosion
  • Only 36 percent feel their project review processes are “very efficient”

 

Now, more than ever, construction firm needs a robust project risk management program in order to stay competitive in the marketplace. The key is to understand the direct connection between project risk management and profitability – and in the construction industry especially, the link with project margins.

 

When asked about projects that significantly underperformed, the majority of respondents (54 percent) admit that they failed during the bidding process to identify the risk that ultimately materialized and caused margin erosion.  This high percentage identifies a clear need and a direct connection between strong project risk management and project margin from the outset.

 

With margins incredibly tight across the industry, one poor performing project can wipe out the profits of an entire project portfolio. I am encouraged to see that the majority of construction executives surveyed openly identify the value of risk management at the very beginning of a project, and ultimately made the connection between a missed risk and margin erosion.

 

This is a step forward for the industry.  While cost reduction still remains a top priority in today’s difficult economic times, I am confident that by better understanding the relationship between risk management and margin erosion, executives will look at project risk management as a tool for maximizing the performance of their projects and protecting margins.

 

Two great examples of organizations that “get it” are the Olympic Delivery Authority, responsible for much of the successful preparation for the 2012 London Olympics (read Caroline McDonald’s article at CFO.com), and Crossrail, Europe’s largest infrastructure project (watch the video about the Crossrail risk management program).

 

As the KPMG survey shows, project risk management is critical for global engineering and construction firms. Use our ERM Readiness Guide to assess your own organization’s risk management readiness.

 

Let’s continue the conversation about project risk management and margin protection – please leave a comment below or via Twitter at @ActiveRisk or @ERMTrends.

 

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