Risk Factor Importance

To develop a standardized means to measure failure risk within a construction company, Druml Group conducted a study to identify all relevant risk factors having an impact on the business and financial side of a construction company. The risk factors identified generally fall into categories of business structure, internal systems, accounting procedures, cost control, efficiency, preventative measures, negative exposure and contingency plans. Most factors are a detailed system, plan, procedure, method, policy, or safeguard that must exist within a construction company to achieve maximum control over risk.

The study conducted by Druml Group established concise definitions of over 55 risk factors with varying levels of importance. It became clear that the level of importance of risk factors varies greatly and so too their contribution to overall risk exposure. Certain risk factors can themselves potentially cause a business interruption or failure, while other risk factors must work in combination with factors of equal or greater importance to cause such consequences.

The varying level of importance between risk factors is more readily apparent when examining them in detail. For example, poor software system backup procedures could potentially wreak havoc if computer hardware was to fail. The task of re-creating lost information would likely cause a significant amount of unexpected work but is not very likely to cause a business failure. On the other hand, failure to have a sound succession plan in place in the event that a sole business owner becomes incapacitated could lead to the termination of banking or bonding relationships and thus cause a business to fail.

Clearly, understanding each risk factor's inherent level of importance is the key to determining failure risk. Thus, following a detailed analysis by Druml Group, exact levels of importance were ascertained and then assigned to each risk factor identified in Druml Group's study. This spurred development of a mathematical model that was subsequently tested and verified by case studies, the result of which is known as the Druml Group Risk Rating or ''digger'' rating. Following development of a mathematical model, a standardized risk assessment system was formulated to provide a means of accurately assessing and then calculating the overall risk exposure.

To accurately assess the risk level of a risk factor in a consistent and uniform manner, three levels of risk were established for each factor (low, medium, and high.) The typical characteristics of each factor at the three different levels were then distinguished from one another and well defined. Thus, differentiating between the levels of risk for each factor in such a defined way created a sound guide for any risk factor assessment performed in a real case.

By utilizing this means, a dependable assessment of risk is easily performed by associating the actual characteristics of risk performed in a real assessment to those characteristics that serve as a guide.

Each Druml Group Construction Risk Assessment Report provides detailed recommendations for reducing exposure to risk. Our recommendations for risk reduction are provided for each risk factor of high importance that is assessed at a high level of risk. Risk factors of lesser importance also receive our recommendations when determined to play a combined role in failure risk. In addition, each report identifies the risk factors assessed, describes their importance, includes the complete measurement guide used in our assessment and shares our scoring.

As a whole, this report presents a detailed assessment and rating of the overall risk exposure related to the business and financial side of a construction company. With this tool in hand, and the implementation of our recommendations, combined with your exacting control over field forces, your construction company will significantly reduce risk. We recommend a risk assessment every six months to raise awareness and promote the implementation of the recommendations we provide. Your proactive measures will make a distinguishing difference to any company that supports you with credit, insurance, or guarantees.