The concept of risk is ubiquitous in construction, from health and safety risks on site to commercial risks – and, depending on the severity of both, a possible impact on reputational risk. Every stakeholder on a project will have their own form of risk management, including identification and subsequent analysis to try to mitigate the risks from their own perspective. The ultimate goal is the preparation for risk mitigation. Mitigation consists of reduction of the probability that a risk will occur and, in the event that it does, reduction of the impact it will ultimately have.
Part of this mitigation is the understanding of the risk – where it will emanate from and root causes – and then the formulation of a strategy and a specific action plan to avoid, or at least reduce, it. However, strategising is difficult, implementing strategies is more difficult and sustaining changes is the most difficult of all. Hence the need to continually roll out this action in its entirety for every project, which in itself begs the question: is there any continuous learning occurring?
Continuous learning is the ability to apply strategies which support learning and the ability to adapt to change. It is an iterative process of continuous improvement that develops the company into a learning organisation.
Many organisations are now looking towards lean as a platform to improve their business. In recent years in Ireland, the interest in lean concepts has grown in construction, with many companies adopting at least some lean tools, if not the philosophy. Lean is well equipped towards managing risk. Whilst there is nothing new in lean, it is a way of thinking that leads to continuous improvement through the eradication of waste in a process, and the resulting increase in value add actions and behaviours of the people involved.
It begins with the concept of looking at value from the customer’s perspective, on the premise that if a customer will not pay extra for a product or service, it has no value. A situation many in construction will no doubt have encountered several times in final account negotiations.
One of its tools is value stream mapping, whereby the process is mapped to identify the value add steps, the non-value add steps and the necessary non-value add steps. By simply taking out the non-value add steps, the process is optimised towards value creation only. The relevance of this to risk mitigation is the understanding developed from simply carrying out this process. One of its core concepts in the inclusion of everyone, so the process gets mapped from everyone’s perspective using systemic thinking. The old adage, ‘if you want to understand something, try and change it’ rings true in this regard, as quite often the complexity in these processes is where the risk lies.
Customers in construction
There are many customers in construction and simply defining who the customer is can be challenging. This enhances the difficulty then to look at value from the customer’s perspective or be a customer centric organisation. The traditional model for construction tends to be a tiered model, with the end user (client) engaging an architect, an employer’s representative and a design team to design the building, and then manage the construction team in the build process.
The construction team in itself tends to be multi-tiered of subcontractors, specialist subcontractors, and nominated or equal or approved suppliers of capital equipment. The complexity is added to in the form of contracts consisting of clauses designed to manage any eventuality that may arise during the period.
This multi-tiered system, in conjunction with legislative contractual parameters, make it difficult for knowledge transfer to occur. Given that every building is bespoke design, issues such as scope definition, programme duration and cost implications are always a dichotomy to manage: each one will have a direct implication on the other two if change occurs, which inevitably always happens. This model also makes it difficult for value creation, as the party offering the value may be too far removed from the key decision-maker to share the knowledge.
An example might be that the client may identify value as being over the lifecycle of the building, as opposed to the build duration and initial build cost. One of the other stakeholders ranging from the design team to the capital equipment suppliers may identify an opportunity that will offer value in this regard in the form of a piece of equipment that will be longer lasting or future proofing in the event of expansion.
However, there may be a price increase or decrease for initial outlay, but the main implication could be an extension of time required for the programme due to lead time. This may penalise other stakeholders, either through contractual obligations or simply overhead costs for the extra duration, so the value is lost.
Lean model
A lean model would identify this opportunity early and allow all stakeholders to voice their opinion through collaboration and an integrated project delivery strategy, designed to identify value from the client’s perspective and also all the other stakeholders. It would further allow understanding of not only the risks to the project, but also the individual stakeholder’s risks.
Quite often, value is lost simply because a stakeholder might have to manage a risk that proportionally to the contract is minimal and could be factored in by the client as an acceptable outlay in the event of occurrence. The main difference between a lean model and the traditional method would be the perspective of value as opposed to cost, as the cheapest cost does not necessarily offer the best value. This concept is widely acknowledged globally, yet construction remains a cost model.
Looking at lean from an individual organisation’s perspective, whilst the industry is unlikely to change at least in the short term, there are still significant advantages to be had from adopting a lean mindset. The implementation of a 6S programme would address housekeeping issues as well as keeping health and safety to the fore front of everyone’s thoughts. 6S incorporates:
- Sort;
- Set in order;
- Shine;
- Standardise;
- Sustain; and
- Safety.
6S is a powerful visual tool in organising an operation and links the organisation’s values to its behaviours and also keeps safety to the forefront of everyone’s mind. But 6S need not stop at housekeeping, it can be extended to areas like filing, computer networks and contract administration and is a great tool to engage an organised and clutter free mind-set.
Linking values is an important element of lean. Lean is simply about managing behaviour and behaviour is driven by values. Most companies start their journey using lean tools, but to sustain lean thinking it has to be linked to the organisation’s governing principles and values. Academic research shows that less than 10% of companies succeed in implementing lean (Bhasin & Burcher 2006).
Due to the analytic nature of lean tools and philosophy, problems are incessantly broken down step by step to identify solutions. This creates understanding of root causes and behaviours, and as a risk mitigation strategy is powerful in not only identifying risks, but changing organisational processes. These changes can add value and ensure that a learning occurs that mitigate the event of the risk in future projects. It helps build the DNA in the company to engage all employees to align their thinking with the company’s objectives and goals.
Issues or ‘elephants in the room’ get named early and as a result, get dealt with. Accountability and responsibility increases in the workplace as senior managers delegate autonomy and include all stakeholders in process improvements. Contractual clauses still apply, but companies serious about implementing lean will see the benefit of creating value add practices other than engaging in processes that may or may not generate payment, but will definitely leave their mark. This will all lead to enhancing reputations as customers recognise the value add behaviours associated with engaging such companies, and as a result the customer relationship moves from purely transactional (cheapest) to one of identifying and creating value.
Conclusion
Of course the last point would be a seismic shift from the current paradigm but, to get a different result, we have to apply different behaviours. Lean is a simple concept, but difficult to achieve. It involves a lot of energy from senior management to ensure their actions consistently align with their intentions.
Due to the fragmented nature of construction and number of different stakeholders involved in a project, it may be difficult to align certain practices, but there are significant gains to be got from eradicating wasteful practices that do not engage in identifying risk early due to reasons such as overburden, lack of engagement or simple understanding. At its simplest, it is a continuous improvement exercise. Can any organisation afford not to improve?
Michael Healy has over 25 years’ experience in the electrical services sector in areas such as project management, commercial management and also at director level, primarily in London and the UK, but in more recent years in Ireland. He holds an MBA and more recently an MBS in Lean Practice from WIT. Two years ago he moved industries as General Manager of Ecuphar ltd, the Irish subsidiary of the Belgian Group Ecuphar, to manage their manufacturing facility in Ireland and further development of their brand Nutriscience across Europe.
He has been applying lean principles in construction for the last ten years and more recently in his current organisation and has been involved in a number of lean implementations in organisations in both Ireland and the UK. He regularly advises companies in the adoption of lean tools and principles in the SME sector and has experience in both construction and manufacturing processes.