Across every industry, winners are reaping bigger rewards while the runner-ups fade into obscurity. The top 10% of companies in the S&P 500 are worth more than the other 90%, combined. Given what’s at stake, companies are racing to build bigger, more complex capital projects on a faster timeline. Success or failure is determined by who can build the next data center, gigafactory or laboratory faster and better.
Projects that once took a decade, are now completed in as few as three years. With BIM and FEA on powerful computers, architects and engineers are pushing the limits of project scale and complexity, while specifying higher quality and faster schedules. On the job site, modern materials allow crews to move fast and run work in parallel, while geospatial technology captures and analyzes data with unprecedented speed.
When projects are safely delivered on time and on budget, there are increasing returns to the winner. Revenue and profit grow as insatiable customer demand is met faster, at a lower cost structure. Talent gravitates to an enhanced employer brand that provides safety, success, and prosperity. Contracting partner loyalty grows. Insurance premiums and litigation expenses drop, lowering the next project’s costs.
McKinsey estimates that the lost revenue from a one-year capital project delay results in a nearly 50% drop in the project’s net present value, while PwC found that a capital project delay or shutdown leads to a decline in share price of 15%, on average. Worse, recent tragedies remind us of the worst-case consequences: loss of human life, litigation, reputational damage and even criminal charges.
Practitioners of DRM view risk mitigation as a competitive advantage, and in fact, a profit center. They design risk mitigation at the planning stages, and like CPM, they identify those critical risks that would create delays or catastrophy. At scale, they drive meaningful profit by lowering OCIPs and CCIP costs. On a large project, savings on premiums and claims can represent tens of millions of dollars in found profit.
With legacy compliance, safety assessment and pre-qualification are viewed as pass / fail exercises, even disqualifying contracting partners with good potential. Given today’s supply constraints, DRM practitioners are “leveling up” their partners to be safer and viable. Advanced analytics identify opportunities for improvement through performance plans and financial risk sharing. The partner ecosystem grows, while risk declines.
Legacy compliance relies solely on lagging indicators that can be outdated and statistically insignificant. DRM incorporates leading indicators to identify opportunities for improvement and predict future outcomes. Even partners with an unfortunate incident history can mature their safety management systems to mitigate future risk. Over time, lagging indicators reflect the improving risk profile.
Legacy compliance dictates a static risk assessment during pre-construction. DRM practitioners view this step as a vulnerability analysis, and develop performance plans to mitigate risks. Throughout the project lifecycle, risks evolve, but signals are collected and analyzed to track progress, identify trends and eliminate hazards. Results are fed back into each partner’s risk profile to drive continuous learning and improvement.
The winners in today’s winner-take-all economy are executing a transformational shift in how risk is managed – what we call Dynamic Risk Mitigation. They analyze leading indicators to predict future performance, level up their contracting partners through mutually beneficial partnerships, and continuously improve based on real-time risk signals and analytics.