Global construction risk review

6 common construction risks in Asia

Financial risk

• Primary financial concerns: Financial risk remains the top concern for businesses, as highlighted in both annual reports and survey responses, reflecting ongoing economic challenges.
• Impact of economic factors: Firms in Asia are particularly focused on the current economic climate and inflation, with almost 30% recognising these as significant risks that could affect their business, along with rising material costs (17%).
• Mitigation strategies: To address financial risks, businesses are implementing various strategies, such as diversifying funding sources, enhancing cash flow modelling, and adopting efficient budgeting processes, while also using risk data and cost quantification to inform their pricing strategies.

Bidding and contracting risk

• Risk management in bidding: Ranked as the 2nd most significant risk in Asia, effective management and consistent recognition of bidding and contracting risks are essential for project viability.
• Selective bidding practices: Construction businesses are adopting more cautious approaches, conducting thorough prequalifications and more aggressive negotiations on contract terms to mitigate risks effectively.
• Opportunities for improvement: Many firms are experiencing capital capacity challenges and acknowledge the need for enhanced surety usage and capital management strategies, indicating a strong potential for improvement in these areas.

Supply chain and project delivery risk

• Understanding project delivery risk: Scheduling delays, unexpected costs, and technical issues are all challenges affecting contractor’s supply chains, further disrupting project completion. Effective management requires identifying potential risks and developing mitigation strategies.
• Supply chain challenges: Staying on budget and schedule remains difficult due to fragile supply chains, with 76% in Asia reporting that project timelines were either moderately or significantly affected by supply chain constraints and 67% impacted by cost increases. 
• Risk management strategies: Firms are focusing on building stronger partnerships with suppliers, negotiating better contract terms, and increasing contingency budgets, while also recognising the importance of crisis management and regular emergency response training to enhance resilience against unexpected events.

People risk

• Rising people risk: Concerns about people risk, particularly in hiring and retention, have significantly increased, reflecting a growing awareness of workforce challenges in the construction industry.
• Workforce availability: Businesses are increasingly worried about the availability of a skilled workforce, recognising that high employee turnover negatively impacts financial sustainability, productivity, and overall job expertise.
• Attraction and retention strategies: To attract and retain talent, firms are focusing on providing career development opportunities and promoting work-life balance, as 38% believe that employee well-being and mental health support is the most important trait to retain and attract talent in Asia. 

Cybersecurity risk

• Growing concerns: Construction businesses are increasingly worried about cybersecurity risks, recognising it as a significant threat to their operations, especially as digital tools become more prevalent.
• Adoption of technology: There is a strong trend toward adopting various technologies, such as mobile apps, drones, and cloud-based project management systems, with many contractors planning to expand their use of these tools.
• Rising cyber threats: As the industry modernises digitally, the frequency and sophistication of cyberattacks are also increasing, with many contractors reporting a notable rise in phishing (29%), ransomware attacks (33%), and data breaches (25%).

Climate and sustainability risk

• Increasing climate risks: Businesses are recognising climate and sustainability as critical risks, driven by more frequent adverse weather events and heightened regulatory pressures. 50% of contractors in Asia anticipate that climate risks will cause physical damage to their projects, citing rising costs as the most significant impact. 
• Limited risk management strategies: Despite acknowledging these risks, the adoption of climate risk management strategies such as physical risk modelling and risk engineering design review among survey respondents was low, with a significant portion still developing or lacking any framework.
• Cost and supply chain impacts: Firms expect climate risks to significantly affect their costs and regulatory burdens, underscoring the need for proactive management strategies, such as utilising Marsh’s Sentrisk tool to address supply chain vulnerabilities.

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