PCCA Journal|1
st
Quarter 2013
16
cash-flow analysis of investment decisions. Although outside
advisors are available in the form of your outside account-
ing firm or other consultants, success in identifying issues
and making the correct ultimate decisions depends upon a
diligent and proactive CFO.
Systems Administrator
Growth can strain systems, procedures, and staffing capa-
bilities. The accounting and administration for construction
contracts is an onerous task with enormous amounts of detail
and complexity. Change orders, for example, are constantly
taxing organizations for pricing, approval, and payment.
Some contracts may have hundreds of change orders. A
compounded annual growth rate (CAGR) of 10 percent
doubles the size of a contracting business in 7.2 years. A
fully functioning system that works effectively at $100 million
may be inefficient and ineffective at $200 million. People
who were competent at lower volume levels may exceed their
competencies at the higher volume levels. In the construction
industry, this pace of growth is not unusual. The exception
is the current recessionary period, but the question becomes
more relevant as the industry begins to recover. Planning
and developing the software, hardware, document flow, and
support staffing in an organization require constant diligence.
Technology developments only compound these challenges.
CFOs are at the center of all these practices. The CFO
ensures that practices remain efficient and effective in light of
current activity levels. The choices of software and hardware
packages support capturing transactions and operational
practices. Compliance with procedures is also important.
The very essence of higher productivity is consistency of
procedural execution. Variability is the enemy of productivity.
CFOs not only select and implement systems, but also ensure
that people in the organization comply with best practices
put in place.
The administrative support staffing must also be adequate
and competent to maintain organizational administration.
The best CFOs recognize that they do not have to master all
of the disciplines to achieve effectiveness, but they have to
identify and select the right talent. They constantly evalu-
ate staffing and make the necessary additions and changes.
The CFO should never let the administration fall behind the
operational needs of the organization.
Risk Manager
CFOs are proactive risk managers, constantly vigilant to avoid
unnecessary liabilities. Financial management is managing
risk. Risk is a cost driver and comes from several sources,
such as safety, contract provisions, relationships with em-
ployees, customers (owners or general contractors), subcon-
tractors, vendors, bankers, and sureties. The first steps in risk
management are identifying and analyzing sources of risk
so that they are manageable. Insurance is a tool in the risk
management arsenal, but the transfer of risk by insurance
coverage is generally the most costly alternative. Other risk
management techniques include risk avoidance and loss con-
trol. The primary defense against the consequences of risk is
avoidance through advanced planning, coupled with proce-
dural compliance. Proactive safety management programs
can generate significant cost savings through reductions in
insurance premiums, diminished lost time from accidents and
injuries, and avoidance of legal costs and disruptions caused
by claims. Most insurers serving the construction industry
offer ongoing safety training as a supplement to training from
other sources.
Contract analysis identifies the most significant risks in any
given contract. Pricing contract risks fairly into the cost of the
work is one method to manage risk. Understanding con-
tract terms and conditions and having open and consistent
communications of those items among project personnel are
imperative to effective risk reduction.
Effective communication is the underpinning of relation-
ship management. Recognizing issues and open, honest, and
prompt communication to all parties involved help to avoid
escalation of resultant negative consequences. The CFO is of-
ten the company’s voice and, with the project team, is a key
to successful project completion that meets targeted profit
objectives.
Leader and Manager
CFOs are effective leaders and managers. Leadership and
management are two different skills. Leaders set direction
and align and motivate people, while managers plan, orga-
nize, and control the environment. Most of the CFOs in the
construction industry tend to have stronger skill sets in the
managerial area. Their background and training build depth
in the managerial practice disciplines of planning, organiz-
ing, and controlling. Those skills are a significant asset and
resource to an organization because all organizations require
planning, organizing, and financial control. CFOs tend to
have less operational experience, and their focus is narrow in
scope, more managerial in nature. The operational focus of
the CFO role can limit leadership skill development.
Where a CFO has evolved as the leader and CEO, he or
CFO Feature
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