Running a construction business means making decisions that affect your money, your people, and the future of your company. Sometimes those decisions are small, like what equipment to rent for a job. Other times they involve much bigger questions. Do we take on this huge project? Do we add another crew? Do we expand into site prep or concrete work?
That is where risk analysis comes into play. During a recent episode of ProfitDig Live, Chris, Jeff Spencer, and Jeff Givens had a long conversation about what risk analysis actually is and why contractors need to understand it. They approached the topic with humor, real experience, and some genuine insights that every contractor can use.
If you are thinking about growing, changing direction, or bidding jobs that are bigger than what you normally handle, this is a concept worth paying attention to.
So, what is risk analysis in construction?
At its core, risk analysis is a way to predict what might happen if you take a certain path. If you have a growth goal, a milestone you want to hit, or a bigger project you are considering, risk analysis helps you figure out what it will take to get there and what could go wrong along the way.
Think of it as a snapshot of your possible future.
Jeff Spencer described it simply. You start with where your company is today, your production rates, the people you have, the jobs you are taking, and the vision you want to reach. Then you look at what it will cost, how long it might take, and what percentage of success or failure you might be facing.
Done well, it gives you a realistic picture. Maybe you have a 75 percent chance of success, but a 25 percent chance that things could go sideways. That information is important before you put your money, time, and reputation on the line.
Can you do it yourself or should you hire someone?
Some business owners try to do this in-house. If you are financially savvy and you understand how to model profit, labor, equipment, overhead, and growth, you might be able to handle a basic risk analysis yourself.
But for most contractors, Jeff explained that it is better to outsource it to a company that specializes in financial evaluations. These companies work across different industries, including construction and industrial markets, and they take your goals, data, and projections to perform a full analysis.
It is not cheap, but if you are talking about major growth plans, buying a business, or expanding into new territory, it could save you from a very expensive mistake.
Bad data equals bad results
Chris brought up a great point. The process itself can reveal weaknesses in your company that you did not even notice before. These professionals might ask simple questions like, “What is your monthly productivity?” or “How many hours does each crew produce per week?”
If you cannot answer those questions, it shows you there is a visibility problem inside your business. You should be able to pull basic performance numbers without digging through random notes, old texts, or guesswork.
Sometimes the greatest value of a risk analysis is finding out what you don’t know.
Why every contractor should do at least one full risk analysis
Jeff suggested something smart: even if you are not planning a huge expansion, you should go through a full risk analysis at least once in your career. Doing it once teaches you the thought process behind it.
After that, you can use those skills for your day-to-day bidding.
Let’s say a big job pops up that is outside your usual comfort zone. Before you decide to go all in, you can do a quick internal risk check. Ask yourself:
- With the people I have, can we realistically produce at the level required?
- Would I need to hire more crew members?
- Does the job require equipment I do not have?
- How long before I see a return?
- What happens if production falls behind?
This is especially useful when you are tempted by a high dollar project but you know it would stretch you thin. A simple risk analysis helps you decide whether to chase it or walk away.
Market cycles matter too
Risk analysis is not only about your company. It is also about the market around you. Construction follows cycles, and Jeff explained that many areas tend to run in five to seven year booms followed by two or three year downturns. You may feel invincible during the good years, but nothing grows forever.
Even in cities like Nashville, where the boom has lasted longer than normal, there will eventually be a correction. Knowing this helps you make smarter decisions about growth, hiring, and equipment purchases.
What about mergers or acquisitions?
If you are ever considering buying another construction company, or merging with one, you absolutely need a risk analysis. That involves digging through financials, understanding how the other company operates, and figuring out whether the combined structure will actually benefit you.
No contractor should skip that step.
The bottom line
Risk analysis is not some corporate buzzword. It is a tool that helps you understand the possible outcomes of your decisions before you make them. Every contractor who wants to grow should understand it, practice it, and use it.
Whether you bring in a professional firm or learn how to do your own version for bidding, it can help prevent financial disasters and guide you toward smarter, safer growth.