Risk management strategies for kitchen renovation projects

Risk Management and Home Remodeling: Kitchen Renovation

Risk Management and Home Remodeling: Kitchen Renovation

Remodeling any space in one’s home is a wise investment, particularly such a high-traffic area of the house as the kitchen, as it increases the value of one’s property. However, renovating one’s home is still financially draining and can cause upset as it means a major overhaul daily existence. Furthermore, it’s crucial to engage in appropriate risk management in order to mitigate the potential liabilities that can occur at any time. It’s also worth noting that for a homeowner who has a high net worth and an expensive home, the risks become even greater as the costs and general stakes are much higher. This paper will examine the entire risk management process in terms of kitchen remodeling, discussing issues such as uncertainty, uncertainty and risk, projects and risk as well as risk and opportunity. This paper will make a case for actions that can be taken in order to properly reduce risk and still ensure the general success of the project. Understanding all of the risks involved in the kitchen remodeling process is essential in order to ensure proper risk management can even begin. Risk in this case will be defined as imperfect knowledge where the probabilities of all potential results are known and the uncertainty remains when the probabilities are unknown (Hardaker, 1999). In this case, the risks start with the selection of the general contractor, as the selection of the wrong general contractor, such as a person who is not properly competent, knowledgeable, experienced or honest, means that one is subjecting oneself to the possibility of an increased loss of money due to problems during the remodeling process or an elongation of time needed to complete it. Proper risk management means that one will be able to aptly choose among all relevant alternatives to minimize the consequences of the risk involved (Hardwood et al., 1997). Hence there needs to be a clear assessment of the tradeoff between the levels of risk, the desired returns and the competency, reputation and references of the contractor. One needs to focus upon the most pressing risk to the homeowner, something that needs to be determined on a case-by-case basis. For some homeowners, simply loss of money will be the greatest risk. For other homeowners, it will be the risk inherent in the minimized security from opening up their home to construction teams. For other homeowners the risk will revolve around the need for potential litigation. It’s worth noting again that the more the home is worth, the more the potential risks increase ten-fold: “In the absence of enhanced security during the course of construction, their homes and the expensive materials stored onsite may become attractive targets for thieves. In the event of a loss during the renovation, they may be underinsured by hundreds of thousands, if not millions. And if the contractor lacks adequate insurance, it could result in expensive and protracted litigation” (Tierney, 2015). Risk management is best conducted when it is a strong part of the planning process and not simply just a reactive endeavor. In this case, uncertainty can be minimized by selecting a contractor who has not simply a lot of experience and glowing reviews, but a contractor who has both these things and experience with the exact kitchen remodeling job that one desires. For example, if the kitchen-remodeling job requires the installation of a bay window, then one needs to select a contractor who has copious amounts of this exact experience. In this case, in order to properly minimize uncertainty, selecting a contractor who has the exact experience and mastery of precisely the desired tasks that one wants is essential. For example, selecting a contractor who has completed hundreds of new window installations in kitchen remodeling is only a partial reduction of risk. Selecting a contractor who has completed hundred of new bay window installations in kitchen remodeling is a much more significant reduction of risk. Part of proper risk management also involves addressing the uncertainties within the uncertainties. Many homeowners think that they have properly addressed risk when they select a general contractor that is fully credentialed, has earlier work histories on the Better Business Bureau and comparable organizations. However, many homeowners aren’t even aware of the uncertainties inherent in the subcontractors that work on the remodeling project. The subcontractors who perform electrical, plumbing, roofing and other tasks need to be equally reputable and experienced. If even one contractor has a shaky work ethic or knowledge, the entire remodeling project is put in jeopardy. In this case the best way to manage risk within the project is to “…require the general contractor to verify and validate the subcontractors’ licensure and experience, as well as document their background screening. Not all contractors specialize in all types of home renovations, especially homes that are older or historic” (Tierney, 2015). The key to properly managing this uncertainty revolves around the fact that one needs to have contractors and subcontractors that all have the same background and experience with these types of homes. For instance, if a homeowner has a property that contains particular forms of craftsmanship, such as woodwork or stained glass, they need to hire an entire contracting team that all unanimously have this level of experience. Moreover, this team needs to be experienced and have understanding in the various subtleties of tings like plaster and mortar composed partly of lime as these are found in many old homes (Tierney, 2015). Another aspect of the typical risk management process for this scenario is that further uncertainty should be mitigated via the selection of an insurance agent. The insurance agent is another experienced professional who can review a contractor’s general liability and worker’s compensations policies and determine how adequate the coverage is for the remodeling project. This is so important because if the contractor doesn’t have adequate coverage, it’s likely that the homeowner will be held financially liable for any losses sustained by the contractor (Tierney, 2015). This could be catastrophic if an accident or injury should happen or some other unforeseen event and could result in potential crippling debt. An additional task that the insurance agent can perform is to determine if the homeowner’s own insurance policies are adequate for the project at hand. For instance, if the property owner is planning a kitchen remodel that will cost around $100,000: if this eventual increase in the home’s overall replacement fee is not properly explained to the agent and the insurance carrier and the proper changes are not made to the existing policy, the homeowner is under severe risk of being underinsured during this process. For example, if a fire should break out during the kitchen remodeling process, and the entire home is eliminated, the coverage could be around $100,000 less than the total rebuilding cost of the home (Tierney, 2015). Thus, an insurance agent is an invaluable individual who can help protect the entire kitchen remodeling process by effectively minimizing risk and liability. The key in this case is to discuss these home improvements and their connected value with an agent before the remodeling process begins. Some insurance agents recommend that “…a builders’ risk endorsement to cover the homeowner’s insurable interest in the unfinished portion of the structure, as well as to cover the materials and fixtures being used on the project” (Tierney, 2015). This will insure that the homeowner is protected during the remodeling process from any accidents or unforeseen events. Of course, selecting an experienced and highly recommended contractor and sub-contracting team mitigates those risks, but accidents still happen even to the best of professionals. With all remodeling projects, there are smaller risks that need to be adequately addressed before the project commences, risks even outside of selecting a proper contractor and insurance package. These risks can be addressed by creating a safe work environment via commonsense for the remodeling process to occur (Smith et al., 2014). For instance, having proper fireproof storage containers onsite during the renovation process is essential. Ensuring that fire extinguishers are clearly visible in specific areas at all times is crucial. Engaging in more common sense precautions becomes crucial with older homes that have older wiring systems, which might not be able to support modern tools and appliances. The homeowner needs to ensure that the contractor is properly upgrading the electrical panels or adding a sub-panel as well (Tierney, 2015). Homeowners need to understand that construction projects and the materials and equipment that come with them can be a magnet for thieves. These materials need to be stored in designated areas within perimeter fencing; furthermore, the homeowner might need to invest in a home security system, video surveillance and lighting that possess motion-activation (Smith et al., 2014). Addressing these threats before hiring a general contractor is one of the best ways to assess and manage risk before the project is even underway. Engaging in the renovation of one’s kitchen is a wise process that will not only increase the value of your home, but also give you more joy and ease of use of all that the kitchen has to offer. The journey of remodeling is riddled with risks, though proper risk management can minimize the overall risk by removing or lessening uncertainties. Hiring the most experienced contractor to the exact needs of one’s project is essential, as is ensuring that the subcontractors hired also have the same levels and type of experience. Seeking out an appropriate insurance agent to assess one’s coverage and the contractor’s coverage to minimize liability for the homeowner is crucial. Following standard commonsense practices for a safe and secure work site is another way the homeowner can mitigate risk. Finally the homeowner should be open to risk and opportunity: with the right contractor and team, the project could get completed quickly, thus saving the property owner money.