Every construction project involves risk, and managing that risk while protecting a company’s profit margins, reputation, and people is just one of a CFO’s many responsibilities. In order to ensure a company doesn’t bite off more than it can chew risk-wise, all opportunities have to be viewed through a lens of mitigating risk, including any partnerships a company takes on. This mindset will result in more easily predictable outcomes, and eliminate one of the biggest things keeping CFOs up at night: unexpected surprises. Here, CFO Ken Blakeley breaks down his approach to risk and navigating the unexpected.
As a CFO, I see myself primarily in a fiduciary role as the protector of all the various interests of the company. This includes everyone; our stakeholders, our employees, our owners, and our business partners.
I have two main goals. The first is to ensure we have long-term sustainable, profitable growth. Second, I want to keep us out of bankruptcy. The thought doesn’t cross the mind of some people, but it’s my job to think about the things we could do as an enterprise that could cause us to stumble.
These stumbles happen for a myriad of reasons in our industry. Growing too quickly and lacking sufficient cash flow to support growth can cause you to stumble. Poor management or just plain poor execution on jobs can also cause you to stumble. Not adequately vetted general contractors and vendors can cause you to stumble as well. However, if you focus on building quality relationships with transparency and collaboration, almost everything else tends to fall into place.
In my job, protecting the company’s interests hinges upon a few key factors, chiefly relationship building and fostering an environment of transparency. The transparency piece is arguably the linchpin of the whole thing. If there’s one thing CFOs hate, it’s surprises. By working collaboratively and transparently with your business partners, we can all sleep better at night, be more proactive and have at least some idea of what potential issues might be around the corner.
What Makes a Good Partnership? Collaboration and Transparency
Construction has always been a relationship business, and a key responsibility of mine as a CFO is relationship development. I need to have a good relationship with our most important asset, our employees. I also need to have a solid and trusting relationship with our lenders, attorneys, bankers, insurance carriers, major customers, vendors, suppliers and so on.
But how do I choose those relationships? The truth is, a lot of them are chosen for me. My role is to manage and enhance those relationships over time. When you’re talking to CFOs, they want to collaborate. They value your input, and they want to be transparent so there are no surprises. If something could go wrong, they want to know about that upfront to help manage the potential risk.
Another hallmark of a good collaborative partnership is alignment when it comes to ingenuity. A shared passion for putting your heads together and solving a complex challenge is a rock-solid foundation for a good relationship.
With these pieces in place, you are better prepared to enter into a project because you’ll have a better handle on its overall risk profile and be ready for a range of potential outcomes.
Managing the Unexpected
In the construction space, there’s a lot of risk. There’s a whole range of things that could possibly happen that we need to be concerned about. When evaluating opportunities, we have to consider what risk we’ll potentially be subjecting ourselves to and how to reduce or eliminate it.
Risk can come from almost anywhere, and evaluating it requires asking yourself a lot of questions and scenario planning. When it comes to contractors, who are the subcontractors they’ll be partnering with? Do they share our values? Do they have the resumes, the personnel, the executive sponsorship to do what they say they’re going to? Do we have the capital resources to execute the work? Do we need to increase a line of credit or find other forms of financial flexibility? What people do we need to free up in our own organization to increase the project’s success? There’s a whole range of things we look at in terms of trying to identify and manage that risk.
Having asked those questions, we can evaluate whether a project is consistent strategically with what we want to do from an overall company standpoint. If we decide to take it on, we’ll understand the risks ahead of time and have a plan for managing them, ensuring we can drive maximum value with as few surprises as possible.
With a plan for success in place, all that’s left is ensuring everything stays on track. This entails developing benchmarks, whether they’re KPIs or milestones, whatever you want to call them. The important thing is to set these benchmarks out there so that we can track each opportunity to make sure it works out the way we hope for it to. This typically includes making sure we have the right executive sponsor and periodic reviews – the process must be proactively managed.
Risk will always be part of our industry. Building relationships based on transparency and shared values helps ensure we all have the awareness to identify risk, and the tools and partnerships to address it early on. Having that trust and openness means we’ll be more aware of potential project risk factors and less likely to be caught flat-footed if something unexpected comes up.
Take it from a CFO: The last thing we ever want is surprises.