In an average year, construction activity represents approximately 10 percent of the American gross national product. Given its size and diversity, one might therefore conclude that the industry would be both stable and profitable. This is hardly the case however, as the construction business is instead known for its volatility and slender profit margins. The reasons for this are easy to understand: fierce competition and cut-rate pricing exists within all sectors, tiers and geographies of the industry; and in addition, the technical, managerial and administrative components that characterize today's development process have grown concurrently more elaborate and expensive. These trends are particularly pronounced in the housing and apartment sectors where there are more competitors and fewer barriers to entry.
In spite of these challenging macro-dynamics, it is important to recognize that each construction project begins with the best of intentions. Unfortunately, in a highly competitive and complex climate that is fraught with risk, unfavorable outcomes often plague these projects and their participants. Such outcomes might include cost overruns, budget shortfalls, compromised quality, schedule delays, third-party meddling, heightened regulatory burden, confusion about scope of work, smeared reputations, bruised relationships, bankruptcy and increased underwriting expenses. Troubling situations frequently surface because owners, developers, contractors, architects, engineers, oversight agencies, and vendors cannot reliably predict the future, and so are rarely able to assess the true impacts of their decisions until late in the construction program. By then it is often difficult - if not too late - to recover.
This overview describes the various risks and common mishaps that are inherent in today's complex construction process. Once identified, they can be both monitored and mitigated in a manner that is distinctive to the circumstance, and thereby increase the probability that each project will achieve its respective schedule, budget, and quality criteria.
The Construction Cycle
In most cases a project contains four distinct phases which together constitute the construction cycle: programming, design, construction and close-out. Although they can be viewed as discrete stages of the process, they are, in fact, interdependent and often overlap. Moreover, at fast-track or design/build projects, the degree of dependence and overlap is much more pronounced than in traditional design-bid-build scenarios. On any project there exists the potential for many other issues to surface - and in various combinations - during the course of the construction cycle. These issues can introduce substantial risk. As a consequence, it is critical that project personnel recognize these interdependencies so that the salient risks in each phase of construction can be identified, monitored and mitigated to avoid costly mistakes.
The first phase of any construction project defines how the facility will be used, what appearance it may take, and whether it is financially viable. During the programming period a variety of preliminary studies are performed, which are then commonly summarized and packaged for a variety of constituencies such as owner groups, investors, financial institutions, potential occupants, neighborhood groups, municipal review boards, third-party oversight groups and political agencies. Since the programming phase serves to justify the project, it is critical that its underlying assumptions be as carefully considered and appropriately factored as possible. It is equally important to then weave this complex - and abstract - vision into a message that is clear and concise, so to gain needed consensus and approval. In today's construction climate, it is not uncommon for the time horizon needed to adequately program a project to be as long as - or perhaps even exceed - the time needed to build it.