Back in the 1960s “What Me Worry” was the masthead motto of a little counterculture publication known as Mad Magazine that is still around somewhere to this day. Some of you more senior readers out there may remember it. At that time, my brother and I were deeply involved in establishing our contracting firm and I spent most of my time worrying. I found it ironic that the main character (Alfred E. Newman) in Mad Magazine never worried. I am still wondering to this day whether never worrying meant he was mad or always worrying meant I was mad.
All Contractors Worry
Every busy construction professional knows that construction transactions are fraught with pitfalls and that financial risk is hidden in the structural bones of the industry. Construction transactions are so complex and long-lasting that we never stop thinking about the financial dangers lurking in ongoing projects. Once a project kicks off, the construction professional’s brain goes into high gear and doesn’t turn off until the project is complete and the final invoice is paid. This is further complicated because as one project is winding down another project with new dangers and unknown pitfalls is starting up. And then another. And another.
How the Brain Works
The human brain is a problem-solving machine. It solves problems and avoids danger by remembering setbacks and traumas from the past and developing avoidance techniques to prevent the same traumas from recurring in the future. Every experienced construction professional “fears” the unknown project pitfalls that threaten success in the future. If you know that dangers lurk out there, but you don’t know where, what, or when they might strike; you can slip into a state of intensifying anxiety. A state of constant worry might be considered a serious problem if it were not so common that it is considered normal. It is hard for a construction professional to turn off the worry. Particularly because some projects cause worry seven days a week along with some sleepless nights. Contractors are tough and most say that if you can’t handle risk, you shouldn’t be in the business. Risk and worry just go with the territory.
Is Constant Worry Good Business Practice?
Contractors can handle all these problems when they’re running a small business. But as the business grows many that I have worked with enjoy the success but fail to realize when their business outgrows their ability to avoid all the unforeseen financial risks. Risks that are inherent and every present in every substantial construction company.
But what if I were to tell you that there is a way to run a construction company free from constant worry?
- Without surprises?
- Without cash flow problems?
- With a plan in place to mitigate the negative effects of any unforeseen setbacks.
- That there might be stumbles but they will only result in trips, not falls.
- That when your brain stops worrying it will confidently take up the task of improving financial and project results.
All you need to do to achieve this professional pinnacle is engage the talents of a risk management expert. An expert that is already employed in your organization.
Risk Management Expert
Modern Chief Financial Officers are finance professionals, trained to recognize transaction risk and to install mitigation measures throughout the course of the construction transaction. An experienced construction CFO takes the “worry” out of the contractor’s life.
- Experienced CFOs recognize the reality that there are multiple types and magnitudes of business risk in construction.
- No one can prevent risks from existing because risks exist on their own.
- But CFOs can reduce the likelihood of risks occurring when they engage in risk control, which we call risk management.
- CFOs can and do reduce the impact when the risk does occur.
Chief Financial Officer
To be effective, the risk management expert CFO must be elevated to a senior corporate officer in the construction organization. The CFO’s ability to take the worry out of construction transactions must be taken seriously. The CFO must have a seat at the top management table and have decision making power equal to all other top managers that report directly to the CEO.
There is no reason why a competent construction professional should see a company fail while completing successful construction projects. But it happens all the time. Which brings me to Schleifer’s common-sense business rules:
Leave construction to construction professionals.
Leave business to business professionals.
Don’t confuse the two.
Next Week: A little deeper dive into financial risk.
For more information on the importance of a CFO, read more at: CFO
For a broader view of the causes of business failure, read more at: CAUSES
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Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
