Trust and Risk Mitigation in Construction
Updated: Jun 23
Editor’s note: Our social calendar (including blog posts) is scheduled weeks (sometimes months) in advance. The following post was written over a month ago and “calendared” at that time. In other words, we did not plan this post to coincide with the Coronavirus scare and reaction. But it has proven to be well-timed.
Trust is about taking risks
I learned of some folks who took in a young foster care child who had been abused by his parents. He was unwilling to trust. He couldn’t trust anyone or anything in the world he inhabited. His mistrust of life was so deep-seated it even included simple addition. No matter how many times his care family showed him that two apples plus two apples always equaled four apples, his response was, “What if it doesn’t equal four the next time I try it?”
This story broke my heart when I first heard it, and thinking of it now still saddens me.
Trust is a basic tenant on which we all make it through each day. From the floors we stand on, to the chairs we sit in, to the mugs we pour our hot drinks in, we trust they will continue to do their jobs. Yet, there are those times they don’t.
For example, you trust that when the traffic light is green one way, it is red the other. Further, you trust that when the light is red for the cross-traffic, the drivers in that lane will stop. And this sometimes leads to trusting that the ambulance drivers will take you to the nearest (or best) medical facility.
Every day, we get up, and without thinking about it, we trust. But sometimes we realize we must verify before we continue to trust.
Verification is about risk mitigation
From the products you purchase to the services you take advantage of, to the people you hire, there are ways to verify if you’re likely to receive that which you desire. A prudent verification process is essential.
It can be as simple as looking for the number of stars other users have given a retail item or as difficult as checking a doctor’s background and credentials.
In the end, verification allows you to eliminate, reduce, or control the impact of known risks.
Because our practice consists of management accounting, we advise commercial construction subcontractors to protect themselves from data fiascos through the process of risk mitigation.
Risk mitigation through contingency planning
There are multiple ways to lose data, such as fire, storms, cyber-attacks, employee theft, and beyond.
The key to developing a good plan is to focus on possible losses rather than events.
Think in terms of which data takes priority. What would cause the most pain if lost? With this understanding in mind, here are a few items for you to consider while developing your data contingency plan.
Rank which data are most important
Review data back-up and storage procedures
Find back-up service providers (you may find this article helpful)
Develop a back-up procedures manual
Secure outside support for payroll or other financial issues
Remember to include client and employee management strategies to be used during a crisis when developing your back-up procedures manual.
Risk mitigation through back-up
The goal is to establish data back-up systems to protect critical documents.
Remember when someone pointed out you were comparing apples to oranges rather than apples to apples? Yep, that sometimes happens. And the simple solution is to remove the oranges as you make your decision based only on apples. If only it were that easy when trying to determine which method or service to use for backing up your data.
It turns out that deciding between your back-up options is more along the line of comparing tacos to tacos. Do you prefer street tacos? How about deep-fried tacos or fast food tacos? Do you want to sit and enjoy handcrafted tacos?
The plethora of options can tend to get in the way until you determine the specific needs of your construction company’s data back-up and recovery needs. Which tastes better to you? How much time do you have available? Does location matter? Does the price make a difference?
Further, back-up is not the only piece of the equation. Fast recovery of all that backed up data is important. The point is to quickly put everyone back in touch with the information that’s needed.
Risk mitigation through insurance
You already insure your building, equipment, vehicles, life, and health. It only makes sense that you use insurance for the data you have stored in the cloud. In an article posted on The Balance Small Business, it is stated, “Cyber liability policies protect your business from claims and expenses resulting from a data breach.” The article, What Does a Cyber Liability Policy Cover? explains various components and aspects you need to look for and consider when purchasing this type of insurance.
You can check to see if your present provider offers cyber liability protection, or you can purchase this insurance as a stand-alone product.
Risk mitigation through checks and balances
Finally, as management accounting specialists, we advise contractors to mitigate risk with the simple process of checks and balances. Following is a list of checks and balances you may wish to consider for your construction company.
Use a system of double-signature requirements for checks, invoices, and payables.
Make use of the services of an accounting firm and the different services of a tax preparer.
Provide multi-department authorization for final figures.
Separate handling responsibilities from record-keeping functions and purchasing responsibilities from payables functions.
Before payroll preparation, require supervisors to approve employees’ timesheets. (Or automate time tracking for accurate timesheets using an app such as ClockShark)
A couple of other ways you can mitigate internal risks are:
Require accounting department employees to take vacations.
Make use of independent audits.
If you define risk as being the probability of an event attended by the possible consequences, then risk mitigation is the practice of using various tools to manage the risks.
Keep in mind; risk management is not a one-off exercise. Continued monitoring ensures that risks have been correctly identified and assessed and that appropriate controls are in place.
Editor’s note 2: We are working hard to see to it that our clients weather the storm. Definition of “weather the storm” from Merriam Webster — to deal with a difficult situation without being harmed or damaged too much.
We desire to familiarize you with business concepts, which will make it easier for you to be a better commercial construction subcontractor through our blog posts. Some are new ways of looking at things, and others are refreshers.
Schulte and Schulte Provides Accounting, Contract Document Management, and Advisory Board Level counsel for small to medium commercial construction subcontractors.
So you can Run With the Big Dogs! Call us 866-629-7735