Consider several factors to avoid risk

This is the second part in a four-part series on proactive risk management. As mentioned in part 1 of the series on page 44 in the March issue, each of our risks is different and it is necessary to assess individual risk for companies and projects. Once that risk is assessed, implementation of the PAT principles can be applied. PAT stands for Prevention, Avoidance and Transference. In future segments of this series, we will discuss Prevention and Transference. This segment addresses risk Avoidance.

Each builder has a different tolerance for risk and exposure to risk. Risk is more than litigation. Risk can be brand risk, profit risk, employee risk, culture risk, equity risk and more. Here are a few things we should consider when avoiding risk.

Project selection is a great way to avoid risk. We’ve all met the customer that we immediately know is not the perfect fit. Maybe it’s the customer that demands to live in the house during a full remodel. Most of the time this gut check is a good way to avoid a bad project. Bad projects lead to a lot of wasted time and potential risk of litigation. Maybe it’s a project out of town, a project that is bigger and more complicated than anything your team has ever tackled. We all want to stretch and increase our capabilities, but taking a planned approach is much better than taking a job that is well beyond our skill set. Understanding our skill set, our capabilities and understanding our current limits is a great way to avoid project selection risk.

Employees are another way to avoid risk. Hiring the right person with the right skill set is critically important. Hiring someone that is kind of good is like stepping to bat with two strikes. Most of the time a poor employee hire is one made in haste. We need someone so we promote someone internally without the skill set we really need and no time to develop it, or we hire someone externally that is not the best choice but they will do. In each of these cases we tell ourselves we have the time to train, but the reality is we normally don’t. Unfortunately daily tasks normally take all our energy and time pushing training to the bottom of the list. Always looking for new people, even when not needed, is a great way to be prepared when the need arises.

The last two great additions to our company have been on our radar for years. We’ve met, discussed and kept them interested so when the opportunity came we already knew who we wanted. They have not disappointed us. Hiring the right person is a simple way to avoid risk.

Growth and Expansions. Several years ago I was president of a large production builder. We expanded into a new county and immediately grew our business by 100 homes a year. At the end of the day, however, we made less money than the year before. We had added the risk of 100 homes a year and had nothing to show for it. Our customers were unhappy and we needed to take immediate action. We raised prices to slow sales and dropped back to the previous level of production. We retooled and got rid of people hired too quickly that lacked our commitment to quality and systems. It took about 18 months to right the ship, fix the systems and get the right people in place, and then the business was growing again. Managing growth, while investing and preparing for future growth, within your capabilities is a way to avoid risk.

There are many other ways to avoid risk. Only we know our own capabilities in our companies. Being honest with the limits of those capabilities may be the simplest way to avoid risk. Take a minute and write down some of the risk you think you should avoid. Then, if there is something on the list you really want to do some day, plan and prepare for it so when that opportunity arises you can take full advantage, limiting the inherent risk.

 

J. Bradley Simons has more than 30 years’ experience in managing construction companies. Brad is past president of the Utah Valley HBA and a licensed real estate broker. Currently Brad is CFO of Magleby Construction and vice president of the Utah Valley Habitat for Humanity. He has served more than 15 years on NAHB’s Board of Directors.

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