Chris Smith

In the 1990’s it wasn’t uncommon to define success from risk management as limiting the number of deaths on a project site and purchasing and renewing insurance policies. Over the last 25 years, the risk manager role has evolved considerably.

In today’s construction marketplace, risk achievements are measured, in part, by the number of lives saved through proactive safety measures. And the list of insurance policies purchased and renewed—from workers’ compensation, general, auto, professional and environmental liability, builders’ risk and equipment—has grown to include some of the management and employee covers like directors and officers liability, fiduciary, crime, etc. These lines not only cover company operations but also insure the liabilities and risk of an organization’s human capital. 

In addition, risk managers are now tasked with finding ways to enhance return on investment and drive real dollars to company bottom lines. 

Traditional risk management approaches required separate contracts and insurance policies for every contractor on a project site. Now, it’s common to include controlled insurance programs and subcontractor default insurance. Contracts are also evolving, with integrated project delivery and progressive design-build becoming the next wave of quality improvements.

These changes, made since the early 2000s, have paid bottom-lline dividends, enhancing safety and claims and improving overall ROI and project success.

Recently, a new marker of the next level of construction risk management has appeared: the chief risk officer (CRO) as a C-suite position. This emerging role expands beyond the standard territory to recognize the complexity of the challenges. CROs, in conjunction with other C-suite leaders, think about risk from an enterprise perspective. They no longer worry only about what insurance policies can do. Instead, they focus on human capital decisions and staffing, labor and performance issues, supply chain management and subcontractor pre-qualification.

Dick Walterhouse, former CRO of Pankow Builders, talked about the importance of a seat in the C-suite. “We advanced the importance of risk management as a corporate initiative and developed a strategic plan for enterprise risk management that dovetailed seamlessly with our operations plan." That changed the culture of the company, he said.

I also like the way the issues were put by Scott Hobza, vice president for enterprise risk management at SpawGlass.

 “Having good insurance and processes is a must, but only scratches the surface,” said Hobza, who is also an employee owner. “True risk management starts by having a proactive mindset, setting a culture of risk management. Risk is managed or not at the lowest level, in the field at the project level, where the decisions are made. What client will we work for? What subcontractor do we sign up? How will we set a culture of safety on our project? Will everyone follow our quality control program?"

The CRO at SpawGlass, he added, empowers our project teams with the knowledge of how their daily decisions affect" the company and answer the questions of whether to avoid, transfer or retain the specific risk. 

While the growth of the industry has played a big role in the elevation of risk managers to CROs, the Covid-19 pandemic truly galvanized the focus of the construction risk manager position. Not only did every contractor have to address operational issues around risk, but they also needed to coordinate supply chains and performance management. While LEAN construction is still at the forefront of contractors’ minds, risk evaluation is also part of the consideration.   

Defining the Chief Risk Officer Role 

The CRO role brings all risk issues together under one roof, aligning risk management with a company’s goals and objectives and overseeing risk managers on their team. As a through-line for risk, the CRO would evaluate the urgency of a risk. The CRO may use an enterprise risk management approach, or rely on technology to shape policies in ways that would have been impossible without benchmarking, artificial intelligence and the use of risk management information systems.

Beyond the assumed risks of the construction industry, CROs also need to watch for financial stability and monitor compliance and legal issues, and other factors that could affect project success. Continuity is also a concern, as are labor shortages. 

Smith is senior vice president for construction, infrastructure and casualty at broker NFP.