Connecting the dots between technology and capital

You may have noticed that a number of articles I’ve penned in the last year have had a strong technology leaning. It isn’t a coincidence.

There’s absolutely no doubt that over the last few years Silicon Valley has discovered the potential of applying software to the construction industry. In that time, I’ve had the pleasure of meeting with well over 1,000 technology companies, at various stages of development, that are preventing and mitigating major risks normally encountered during construction or once an asset enters its operational phase.

As discussed in previous columns, several advancements in the tech sector are creating a massive wave of innovation in the technology serving the physical world. To name a few: the internet of things, machine learning/artificial intelligence, virtual and augmented reality, computer vision data capture, robotics, 3-D printing, innovations in engineered systems, and the list goes on.

Within construction, I’ve seen many of the leading design firms and contractors in Canada, as well as globally, making changes to keep up with the pace of innovation. Several of these firms have created a new position related to technology and/or innovation. Titles like chief technology officer, chief innovation officer, enterprise intelligence officer, virtual design officer, and head of strategy and innovation are new to the construction sector and are growing at a rapid pace. These individuals are scouring the world looking for innovative solutions that will improve productivity and reduce risk. Further, these new breeds of executives are collaborating with like-minded individuals at other construction stakeholders to develop new solutions for their joint projects.

As I’ve been exposed more and more to the people taking on these new roles over the past few years, a few things stand out. While they seem to be very well connected to the operations leaders within their organization, they don’t seem to be working as closely with their risk management leadership or their banking/finance leadership.

The risk manager and finance manager, usually a CFO or vice-president of finance or equity services, are vital roles within any construction organization. They control the relationships to key sources of capital – insurance capital in the case of the risk manager and surety/banking/project finance capital in the case of the finance manager. These individuals must also team up with external broker partners to map out and assess how their construction organization is managing risk.

The story of how your organization manages risk is vital to helping your firm secure the best insurance, surety, banking and project finance terms. Given how influential some of these new technologies are in preventing and mitigating key risks to your business, it’s paramount that risk and finance managers are plugged into the changes the new technology leadership is implementing.

The most compelling reason for all the leaders within your organization to align themselves more closely on these technologies is that those supplying the capital for the projects you work on base their terms on their perception your organization – particularly how you manage risks that could lead to an insurance loss or a credit default. With new technologies reducing the risk of loss and credit default quite dramatically, conveying this to your sources of capital could create significant savings as insurers, surety companies, banks and sources of project finance improve their terms. If you choose the right technology stack for your company and projects, you could potentially pay for the tech stack solely from the savings realized on better terms from your sources of capital.

Not only will the implementation of these technologies provide your company, and your projects by association, a greater likelihood of being on-time, on-budget, and operationally sound from project delivery standpoint, but you could have them paid for by the capital that supports your company and your projects.

Given these compelling facts, I strongly encourage you to work with your trusted advisors to develop the best narrative you can to share with insurers, financiers and owners. Such stories will require more than anecdotal evidence of risk reduction. Empirical proof is a must in order to achieve the optimal improvement in terms. Ensure you have full access to the growing sources of data that provide clear evidence of the risk-impacting benefits new technologies offer and that you’re able to project the impact of these solutions on loss ratios and credit defaults.

In the long run, fostering closer communication between your technology implementors and those that manage relationships with your sources of risk and finance capital is a move you won’t regret.

This column originally appeared in the March 2019 issue of On-Site. To read through the entire issue, click here.