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As the weather warms up across the country (just not in Seattle), construction season is beginning to get under way. With every project, no matter how big or small, there is always risk—risk of injury, financial responsibility, or quality assurance.

If you stop to think about it, it's clear that risk carries a dollar value. This, after all, is the foundation of the insurance industry. And risk can be a profit center, since insurance companies obviously make money.

So what do construction and insurance companies have in common? Well, consider the business model of the insurance industry. Generally speaking, they do two things.

First, they understand risk. They continually gather detailed data used to calculate the odds of bad things happening. We're all familiar with the actuary tables that are used to set the rates for car insurance and that take into account many factors contributing to risk such as age, location, type of vehicle, driving record, and more.

Second, they work to mitigate risk factors. They run special incentives to reward good behavior. They sponsor programs in communities or the larger market to encourage health, reduce traffic accidents, etc.

By doing these things, they are in a position to "take over" risk from others who don't have the knowledge, resources, or desire to manage risk themselves.

Contractors work in the middle of a chain of risk passed onto them. Just like individuals, they can chose to "pass on" this risk to others, but there is always a cost involved—either the direct (and often unavoidable) cost of carrying insurance on their work performance and employees, or the risk of projects not turning out profitably.

Contractors who work to understand the risk factors in their business and work to mitigate these risks can be in a position, not unlike insurance companies, to assume more of the risk for the projects they are involved with, taking the burden of risk off of owners or subcontractors, and charging a premium for doing so. Even if this doesn't become an actual source of profit in and of itself, contractors who actively work to understand and control risk are in a position to make smarter project decisions that lead to higher profit margins.

What are you doing to understand and track risk factors in your business?

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