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Construction Insurance Bulletin


By June 1, 2011No Comments

Weather forecasters say a hurricane is coming that will threaten the half-completed multi-million dollar industrial building a contractor is erecting. After completion of a new 20-story hotel, the media reports that executives for the general contractor rigged bids so that subcontractors in which they had financial interests got the jobs. A scaffold collapses with five men on it, killing one and severely injuring the others. These are all examples of crises that could strike a construction business. If not managed properly, a crisis can cause a firm great damage and even put it out of business.

Good crisis management involves six stages:

  1. Defining what a crisis is for the contractor. It could be a catastrophic injury, a loss of financing for a project, a major fire, the loss of a key employee, the failure of a vendor in the supply chain, or a strike. Whatever form it takes, it is an event that can cause significant harm for the contractor.
  2. Assuming that a crisis will occur and anticipating it. Managers look at worst-case scenarios and predict how likely they are to occur. They can then take steps to prevent them from happening. These steps might include safety measures, arranging for backup suppliers, protecting the structure against the elements, and financial controls.
  3. Recognizing a crisis as it is occurring. If managers have planned for the possibility of crises during the previous phase, they will be more apt to spot them when they happen. Since a number of people with different roles in the project might be able to identify things that are going wrong, managers should seek updates from a variety of participants.
  4. Managing the crisis. The key to crisis management is advance planning. A sound plan will include: Who will participate in managing the crisis and what their responsibilities will be? How individuals will communicate with each other and how the contractor will communicate with others, such as customers, vendors, regulators and the media. The resources that will be available to confront the crisis. What the organization will do to get back to its normal operating state.
  5. Resolving the crisis. This involves implementing the plan, gathering information about the situation, analyzing it, weighing options, choosing one or more options and putting them into effect. Managers and other leaders must effectively deal with the emotions involved, including confusion, fear, anxiety and frustration. Because crisis situations evolve rapidly, leaders will have to make quick decisions and be ready to change course if need be.
  6. Learning from the crisis. After the situation has reached a resolution, the participants reflect on what they learned during the crisis, what worked and what the firm should do differently the next time it faces an emergency. Questions they should ask include:

How effective was the pre-crisis planning? Did it anticipate the problems actually faced or was the firm left unprepared? Were there sufficient financial, material and human resources to handle the crisis? How effective was the communications process? Did team members get the information they needed when they needed it? Did the firm keep other organizations and entities fully informed? How can the process be improved? Were the decisions made the right ones? If not, why not? What can the contractor do next time to improve decision-making?

Check with one of our insurance agents to see if your insurance companies have consultants available to help put together a crisis plan. Because a solid plan will help limit the size of an insured loss, companies are usually eager to help. With preparation, you can survive and even thrive after a crisis.