Construction Today - December 2009 - (Page 162)
INDUSTRY TRENDS Institutional T Jeff Cavignac is president and principal of Cavignac & Associates, a commercial insurance brokerage firm providing a broad range of insurance and expertise to design and construction firms, law firms, real estate-related entities, manufacturing companies and the general business community. More information, visit www.cavignac.com. here is no line item on a construction company’s income statement titled, “Cost of Risk,” but this is typically one of the industry’s largest and most volatile expense items. Some construction companies pay 5 percent or more of their gross income for risk-related costs. In an industry with tight profit margins, effectively managing risk can sometimes make the difference between making a profit or not, and in some cases, the survival of the business. Cost of risk is typically defined to include: • Insurance Premiums – These include but are not limited to general liability, auto, property, excess, workers compensation, professional liability, pollution liability, employment practices liability, inland marine, surety and employee benefits. • Time spent analyzing and managing risk – This includes the time invested to identify potential losses and their causes and deciding on a strategy to manage those losses. It also includes time spent managing your safety program, human resources and claims. • Time spent dealing with losses – This could involve efforts to work with employees and designated clinics for a workers compensation claim, dealing with an insurance adjuster on a property claim, or participating in the defense of a lawsuit against your company. • Retained Losses – Losses are either retained on purpose in the case of deductibles, self insured retentions or self insurance, or by accident. Effective risk management should help to avoid retaining a loss accidentally. What is Risk Management? Traditional risk management focuses on what is called hazard risk. Hazard risk as opposed to business risk deals with accidental or fortuitous losses. These risks involve the potential for loss without any corresponding possibility of gain. Business risk, on the other hand, deals with the risk of conducting business. It includes the possibility of loss, no loss or gain. Investment in a new piece of machinery or acquiring another entity are examples of business risk. Collectively hazard risk and business risk make up what is known as enterprise risk management. Most construction companies focus on hazard risk or traditional risk management. In its simplest form, risk management involves the identification, evaluation, and management of a company’s exposures to loss. A loss exposure is defined as any condition that could result in financial loss to an organization. In other words, risk management attempts to mitigate the occurrence of losses while initiating advance planning to assure that adequate funds will be available to cover those losses that occur. The primary function of risk management is to protect the assets and financial viability of the company, and secondarily to lower the total cost of risk. The first step in an effective risk management program is to designate that indi- Risky Business Managing risk in a construction company is the difference between survival and closing the doors. BY JEFFREY W. CAVIGNAC CONSTRUCTION-TODAY.COM DECEMBER 2009
Table of Contents for the Digital Edition of Construction Today - December 2009
Construction Today - December 2009
2010 Construction Forecast
Product Showcase: Hand Tools
F&R Construction Group Inc.
Suffolk Construction: Met 2
Weitz Co.: Solaris at Crossroads
Chance Construction Co.
Allied Building Products Corp.
Bird Construction Co. Inc.: Condado Vanderbilt Hotel
Broccolini Construction Inc.: EDC Headquarters
CJ Pink Ltd.
Cobra Corporate Management Inc.
DDRM: The St. Regis Deer Crest Resort
T.N. Ward Co.
EllisDon: North Park Quad Pad Arena
Blumenfeld Development Group & Forrest City Ratner – East River Plaza
Clark Construction: Michigan International Speedway
Morton Buildings Inc.
Triangle Associates Inc.: The Gallery on Fulton
Vogel Bros. Building Co.
Walsh Construction: Mercy Corps.
Wasatch Advantage Group: San Tropez
John W. Danforth Co.
Shore Environmental LLC
American Civil Constructors Inc.
Archer Western: I-75/I-475 Reconstruction
Cleland Site Prep Inc.
Delaware DOT: Indian River Inlet Bridge
Goodfellow Bros. Inc.
International Construction Equipment Inc.
Kiewit Pacific Co.: SR 519 – Seattle Intermodal Access Project
Plaza Construction Corp.
B. Gottardo Construction Ltd.
Bergmann Associates: Walkway Over The Hudson
Craig Olden Inc.
G.M. Sipes Construction Inc.
Idaho Sand & Gravel Co.: Ten- Mile Interchange
Malcom Drilling Co. Inc.
Mid Eastern Buildings Inc.: Southampton Wastewater Treatment Plant
Minnesota Department of Transportation: I35W Crosstown/ Urban Partnership
Nicholson Construction Co.
Papich Construction Co. Inc.: Route 46 Expansion Project
Tilcon New York Inc.: Interstate
Tyam Excavation and Shoring Ltd.
W.C. English Inc.: U.S. 321
West Electric Corp.
Turner Construction Co.: Eastern High School
Gafcon Inc.: Carlsbad High School Modernization Project
DASNY: Gouverneur Healthcare Services
Stuart Olson: University of Lethbridge Markin Hall
University of Houston Student Housing
HDR Architecture Inc.
Marshall-Lee Construction Corp.
RA-LIN & Associates
Suffolk Construction: Boston Renaissance Charter School
Suffolk Construction: FIU School of International and Public Affairs
Tower Construction: Huntington Memorial Hospital expansion
Absher Construction Co.: Chief Sealth High School and Denny International Middle School
Casey Middle School
Cedar Ridge High School
Clark: Lowell Reception Center
Gilbane/Banks Joint Venture: Coppin State University
Hensel Phelps Construction Co.: FORSCOM/USARC New Headquarters
Shaw Construction: Mesa State College Student Center
Shiel Sexton: Butler University
SpawGlass Contractors Inc.: Austin Community College Rio Grande Campus Parking Garage
Stuart Olson: New Edmonton Remand Centre
The Christman Co.
Turner Construction Co
Weddle Construction Ltd.
Kite Realty Group Trust: Eddy Street Commons at NotreDame
Last Look: DANSY
Construction Today - December 2009