risk_analysis_score_3_29-08-2014 (1)

Construction Risk Analysis Report September 22, 2014

Contents I. Risk Assessment II. Risk Scoring III. High Risk Exposure IV. Risk Control Recommendations V. About This Report 2003-2013 ALL RIGHTS RESERVED February 04, 2014

I. Risk Assessment Risk Assessment Likelihood of a Decrease in Profitability Accounting Procedures High Medium Low NA 0.05 Inaccurate accounting 0.10 Mismanagement of cash flow 0.14 Sporadic collection of receivables 0.08 Late payment to subs and suppliers 0.11 Overspending on equipment 0.07 Lack of inventory control 0.09 Late preparation of financial statements 0.12 Poor costing of equipment 0.16 Uncontrolled purchases 0.17 Unexpected insurance premiums 0.18 Unexpected tax consequences Bid Process High Medium Low NA 0.22 Non-attentiveness to backlog 0.24 Random estimating procedures 0.21 Inadequate budgeting of projects 0.19 Failing to consider availability of resources 0.20 Inaccessibility to new job information 0.23 Poor pre-qualification of subcontractors Business Approach High Medium Low NA 0.28 Failing to be watchful for economic change 0.34 Inattentiveness to political and judicial environment 0.41 Poor business planning 0.38 Outgrowing available manpower and cash 0.39 Performing projects much larger than the norm 0.43 Gross inefficiencies, unproductively, and disjointed project performance causing losses 0.47 Unorganized business structure 0.30 Failing to plan for succession 0.32 Failure to maintain a risk diverse project portfolio 0.33 Frequent lawsuits 0.42 Poorly defined positions and responsibilities 0.46 Undertaking a wide variety of work & conditions 0.29 Failing to plan for loss of key personnel 0.40 Performing work much more difficult than the norm 2003-2013 ALL RIGHTS RESERVED February 04, 2014

0.45 Transacting with related parties 0.27 Disorganized office layout 0.31 Failure to adopt change 0.35 Investing resources in outside endeavors 0.37 Non-existent company policies 0.44 Short term facility leases Construction Management High Medium Low NA 0.49 Contract non-compliance 0.51 Inaccurate work-in-progress reports 0.54 Mismanagement of project managers 0.55 Passive handling of construction claims 0.48 Blind execution of contracts 0.52 Inattentiveness to construction cost information 0.56 Poor management of subcontractors 0.53 Loss of construction tools Credit Status High Medium Low NA 0.58 Loss of surety credit 0.59 Misguidance by management or board of directors 0.60 Non-compliance with lending agreements Information Transfer High Medium Low NA 0.63 Ignorance of technology 0.64 Indifference to backing up computers 0.65 Lack of communication 0.66 Non-standard computer systems 0.67 Poor record keeping and archiving Insurance Coverage High Medium Low NA Safety Practices High Medium Low NA 0.76 Poor implementation of safety programs 0.75 Omitting new-hire safety orientation 0.77 Poorly handling insurance claims Sales Methodology High Medium Low NA 0.78 Conducting business with doubtful payers 0.79 Failing to maintain a quality corporate reputation and brand 0.80 Misrepresentation of the company's services 0.81 Non-attentiveness to market changes II. Risk Scoring The DGR score is 51 as of August 29, 2014. DGR rating: Blue. 2003-2013 ALL RIGHTS RESERVED February 04, 2014

51 Your DGR score of 51 is comprised of the following risk categories: The higher the score, the better your comnpany manages its risk exposure; companies with higher scores carry less failure risk than companies with lower scores Your DirectServ Score of 51 breaks down as follows: Category Risk Relative Contribution of Risk to the Score Uncontrolled Controlled Accounting Procedures 9.65 % 10.58 % Bid Process 5.95 % 4.91 % Business Approach 9.66 % 16.95 % Construction Management 6.68 % 7.12 % Credit Status 7.90 % 2.94 % Information Transfer 1.00 % 1.95 % Insurance Coverage 1.48 % 0.00 % Safety Practices 8.15 % 1.72 % Sales Methodology 1.74 % 1.71 % Total 50.99 % 49.10 % Uncontrolled Risk Controlled Risk III. High Risk Exposure Accounting Procedures Risk Exposure Consequence Inaccurate accounting Misstated financial results mislead management causing poor decision making Late payment to subs and suppliers Disgruntled sub and suppliers holding back services and charging a premium Overspending on equipment Developing a debt burden that is difficult to meet and impossible to meet at lesser volume Bid Process Risk Exposure Consequence Inadequate budgeting of projects Allowing no means to neither manage a project from a cost standpoint nor develop historical costs Business Approach Risk Exposure Consequence Failing to be watchful for economic change Missed opportunities or un-preparedness for lower margins Inattentiveness to political and judicial environment Inability to enforce collection of monies or protect property 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Poor business planning Losing money as a whole and threatening longevity of the company Unorganized business structure Inability to efficiently expand revenue to cover overhead while maintaining control Disorganized office layout Inefficient function of employees and performance causing higher overhead costs Construction Management Risk Exposure Consequence Blind execution of contracts Taking on liabilities that can cause either insured or uninsured losses Credit Status There are no high risk exposures in this category. Information Transfer Risk Exposure Consequence Ignorance of technology Loss of competitive advantage over competition due to inefficiencies Insurance Coverage There are no high risk exposures in this category. Safety Practices There are no high risk exposures in this category. Sales Methodology There are no high risk exposures in this category. IV. Risk Control Recommendations The following recommendations address how to control the risk factors impacting your DGR score. Recommendations are shown by category and listed in order of those having the largest potential impact on your score. In certain instances a lower impact recommendation may be listed prior to a higher impact recommendation if it is a prerequisite. Financial statements drive critical decision making. Strict accounting procedures can Accounting Procedures ensure that job cost and other financial reports are accurate and reliable. Decisions based Risk Level on inaccurate financial data are a key cause of business failure. Develop a written procedure for staff members to follow requiring a monthly audit of general ledger accounts. Assign specific GL accounts to each staff member to make them take ownership. Require Internal Accounting each staff member to perform the monthly audit of the assigned accounts. Require each staff High Controls member to submit a month-end report to the accounting manager to verify that all accounts have been audited. Regularly perform spot audits of job-specific labor, material, and equipment cost coding to identify breakdowns in the cost coding system, from the field to financials. Regularly perform cash flow projections to avoid sudden cash shortages. Use a spreadsheet model for projecting cash flow or the appropriate accounting software, updated on a regular basis, to Cash Flow Management provide forewarning of potential cash shortages. Routinely conduct such projections at least three Medium months forward to allow adequate time to obtain additional capital. [Work in Progress (WIP) Reporting Prerequisite] 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Implement a clear concise collection procedure. Exercise a continuous collection effort. Identify the individual that is best suited for collection efforts and create a well-defined schedule for collection. Receivables Collection Keep track of the time and date on which calls are made and the response to those calls. Make Medium return calls according to a specific schedule, typically within one week for each call to each company owing money. Determine available cash, profitability and the speed at which payables are processed. To increase cash, collect receivables faster and obtain additional outside funding. If union or tax payments are Delinquent Payments High delinquent, take immediate action and retain a consultant familiar with contractor turnarounds. [Fraud Prevention Prerequisite] Develop a payment schedule to monitor equipment debt and payment durations. Perform a cash flow analysis for each proposed equipment purchase prior to the decision to buy. Give adequate Equipment Debt Burden consideration to down markets or availability of jobs that utilize the equipment proposed. Limit High purchases to equipment that can be fully utilized in many types of work with a swift payback, or equipment that can be readily sold if work is no longer available for it. Implement a procedure to properly cost inventoried materials having a repeat use to appropriate jobs. Charge the costs to the jobs based upon the total number of projected uses. Install a procedure Inventory Control to transfer excess materials between jobs for proper job cost accounting. Conduct a physical Medium inventory on a routine basis, preferably every three months. [Internal Accounting Controls Prerequisite] Review the accounting schedule to make certain that it includes specific tasks and cut-off dates for each position within the accounting department. Assign specific tasks and deadlines to each position Scheduled Accounting within the department, culminating with a finalized financial statement. Follow a monthly closing Medium procedure with no exception. [Indirect Cost Allocations Prerequisite] Reinforce equipment accounting systems and procedures to capture all costs of repairs, both in the field and in the shop. Establish a means to account for maintenance costs, such as oil, filters, hose, etc., even if spread uniformly to the entire equipment fleet. Establish a means of tracking the costs to Equipment Costing operate a shop, including mechanic's down time and apply those costs to the cost of equipment Medium repair. Once accurate, use the equipment cost information for bidding, purchasing and disposal decisions. [Job Cost Tracking Prerequisite] Make certain that the necessary personnel are in place to meet purchasing demands from the field, and then reinforce the requirement to use the purchase order system. Establish a strict set of written rules for superintendents to follow to demand full utilization of the system. Firmly establish the lead Purchase Order Control Medium time required by the purchasing agent to fulfil purchase orders, forcing the superintendent to think in advance about material needs. Eliminate last minute orders as they disrupt the work of the purchasing agent and delivery personnel. Prepare a spreadsheet that calculates your audit premium liability in advance, taking into account OCIPs and CCIPs and the proper classification of employees. Provide the calculations to the auditor Insurance Audit Process Medium upon arrival. Stay with the auditor to explain how the numbers were calculated and to ensure that the numbers are used in preparation of the audit. Make quarterly tax estimates based upon realistic projections of volume and profitability. Record the tax liability and tax expense within the financial statements accordingly. Use a cash management Tax Estimates method for setting aside the expected cash. To prevent an unexpected negative impact to cash flow, Medium consider using a separate interest bearing account that holds all committed burden related monies including monthly tax set asides. While it's true that money is made or lost in the field, there must be enough money to start Bid Process with. Utilizing consistent decision-making processes and techniques to win and launch Risk Level new projects is a key to dependable job profitability. Identify start dates and the overlapping demand for labor, material purchases and equipment. Clearly Backlog Scheduling identify peak volume and manpower needs to ensure that the necessary cash is on hand. Provide Medium the reports to estimating to drive bidding strategy. Develop a standard bidding format or use industry specific estimating software. Require all estimators to use the standard format to prepare bids so that they can be easily reviewed. Determine Bidding Procedures Medium proper bid approach and pricing by conducting an upper management review of each bid at least one day prior to bid day. 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Require the estimating department to prepare budgets on a routine basis for every project bid. Prepare the budgets with the intent to (1) easily track labor costs in the field to monitor progress, and to (2) receive valuable cost feedback upon completion of the self-performed work. Require the Budget Preparation estimating department to assemble the budget upon first notice of award of the contract and place a High time limit on its preparation. Require that a copy of the budget be submitted to accounting, contract administration and project management. Direct the project's lead estimator to review the budget with the project manager at the turnover meeting. Continue making bid adjustments for known labor, material and equipment shortages and implement Resource Requirements Medium a procedure to consider potential shortages prior to every bid. Although information is being passed between the Estimators and Project Managers, schedule a more formal turnover meeting for all projects of any appreciable size. Require the project manager, project assistant, superintendent, operations manager, and contract administrator to be present and Turnover Meetings Medium follow a strict agenda. Structure the meeting to first pass information to those who do not need to be present during the entire meeting, leaving the more technical discussions to the operations people for the later part of the meeting. Do not use subcontractors on larger portions of work unless (1) a letter from the Surety is obtained Subcontractor Pre- indicating bonding capacity, (2) a bond for the scope of subcontracted work is submitted, or (3) Medium qualification financials and references are obtained and verified. Effective planning ensures an organization is headed in the right direction. Implementing Business Approach sound business policies and practices drives company profitability and make its future Risk Level more secure. Develop a means to monitor the economic climate in regions where work is performed. Routinely obtain or create regular economic forecasts for these regions to identify potential economic Economic Environment High changes. Establish a contingency plan to act upon forecasts that could be detrimental and an action plan to take advantage of potential economic opportunities. Implement procedures to assess potential exposures due to political instability and/or a weak judicial environment. Determine which exposures can be accepted or must be rejected. If an exposure Country Risk cannot be accepted, determine whether operations should be scaled back in the country of concern High to remove the exposure. Establish guidelines for reviewing country risk when seeking future bidding opportunities. Establish a business plan as a regular guide for initiatives and a measurement of success. Hold an outside consultant or senior manager responsible for preparation of the plan. Establish goals and objectives with input from leadership and key decision makers. Develop a financial model with input Business Planning High from the head of the accounting department. Once complete, promote implementation of the plan. Ensure that the plan is scheduled for a yearly review and that the financial model is adjusted to account for past performance and market conditions. Slow further growth. Take time to identify the growth model and plan for the capital resources needed to achieve planned growth. If existing capital is insufficient, identify a source for capital and Speed of Growth Medium then obtain the capital needed. Once capital is sufficient, determine personnel needs. Allow time to obtain and train the personnel necessary to support growth as it takes place. Reassess targeted project sizes and the anticipated margins, but most importantly the overall impact that the mix has on financial performance. Examine past project sizes and historical gross profit margins for the previous several fiscal years. Analyze job sizes and margins to determine the most Project Sizes Medium profitable job sizes. Determine the mix of job sizes that generates the greatest profit margin while avoiding large project sizes. Give consideration to available management, field forces, and bid opportunities when determining the mix. Ensure that an effective pre-hire process is in place. Require each candidate under serious consideration to complete an employment application. Contact the provided references, check Hiring Practices Medium criminal background and obtain an MVR. Closely assess any irregularities and resist hiring those with questionable records. Separate the company into profit centers. Establish an organizational chart that departmentalizes the company, by division if applicable. Give due consideration to the hierarchy within each department. Include both existing and potential positions to accommodate future expansion. Once complete, Organizational Structure High distribute the organizational chart to managers and discuss it for clarity. Regularly refer to the defined structure as the company grows and personnel are brought on board. Make continual updates as changes take place and then redistributed it to appropriate company personnel. Succession Plan Formalize the succession plan in writing and obtain approval from an expert. Medium 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Implement a structured process for reviewing overall project portfolio risk. Establish guidelines for the Project Portfolio Risk Medium review of portfolio risk when considering projects to pursue. Immediately adopt an initiative within your company to mitigate potential disputes that can cause Pending Lawsuits lawsuits. Train project managers in dispute avoidance and resolution at the project level. Conduct Medium training on a scheduled basis with professionals in this field. Create a complete set of specific job descriptions and responsibilities that are rigidly defined. Firmly Responsibilities & Job establish each position with clear responsibilities and hold employees accountable for their Medium Descriptions performance. [Organizational Structure Prerequisite] Limit any attempt to perform a new type of construction work until assessing the availability of qualified labor and the materials necessary to perform the work, especially in different territories than normal. Gain a thorough understanding of the administrative requirements, inspection needs, Focus on Expertise Medium bureaucratic environment, typical behavior of owners, likelihood of claims, construction techniques, and profit margins before taking on new types of work. After doing a thorough analysis, test the market by bidding and performing small amounts of work before contracting for larger projects. Perform an analysis to determine the cost of losing key employees presently covered by a life insurance policy to determine if adequate coverage is in place. Estimate the time and cost to replace these individuals and the inefficiencies or lost profits that are likely to occur during their vacancy. Key-Person Insurance Medium Convert the assumptions into cost estimates to determine the level of insurance required for each key position to compensate for projected losses. Finally, compare the cost of loss to the projected cost of insurance over time to determine whether or not to pursue additional coverage. Estimate the potential duration that weather can prevent or reduce production. Determine the amount of cash that should be in reserve for weather-related delays. Ensure that backup cash Type of Work reserves or funds from a line of credit are available to bridge down time. Prior to bid, consider job Medium difficulty and the potential impact on insurance costs in the event of loss. Avoid a concentration of projects with higher than normal degrees of difficulty. Perform a cash flow analysis of each firm to determine their working capital requirements. Pursue Related Party Transactions separate working capital lines to eliminate any inter-company loans or advances, or unusual Medium payment cycles. Consider hiring an office planner. Analyze the flow of work in the office to determine where breakdowns in communication exist or where the workflow is difficult due to layout. Move the location Office Layout & Workflow of individuals and departments as necessary. Consider making physical changes of the office spaces High and opening up walls that dissuade necessary communication. Change storage locations of documents and files to improve efficiency. Develop a plan for conversion to a paperless office. Fully adopt and implement planned changes. Assign a responsible individual to develop a plan to Adoption of Change implement the change and fully enact planned changes. Provide full management support of the Medium responsible individual. Since outside interests are a distraction from the business, consider removing the distraction and Outside Interests Medium avoid future high dollar purchases on such distractions altogether. Have an attorney review your policy manual and upon completion of the review, prepare it for distribution. Become fully familiar with the policies set forth and call a company-wide meeting to Company Policies Medium inform employees of its adoption. Identify key components of the policy and have each employee sign for receipt of the manual. Pursue a plan for ownership of your facility if it meets growth needs over the next five years. If the facility does not meet long term growth needs, or can not be purchased, conduct a search for a Property Control Medium facility that will meet your needs at a cost of ownership meeting cash flow constraints. Factor any increased cost into current overhead projections to determine an acceptable burden. Money is the lifeblood of an organization. Having strong controls in place can greatly Construction Management increase job profitability and decrease the cost of purchases thereby immediately Risk Level improving cash flow. File an immediate notice of potential claim as soon as issues arise for which payment is in doubt. Contract Compliance Get tags signed for extra work performed. Request change orders on a timely basis and resolve Medium open issues. 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Install a routine disciplined system for project managers to follow for estimating the cost to complete ongoing work. To achieve the desired level of accuracy, require project managers to perform a Work in Progress (WIP) jobsite walk and audit the completed quantities for each phase of a project. Ensure that project Medium Reporting managers perform this audit and record the information at the end of each month for later calculation of the estimated cost to complete. [Scheduled Accounting Prerequisite] Fully document all existing project management procedures. Introduce all new hires to the project Project Management management system and train them accordingly. Make project information widely accessible. Medium Procedures [Responsibilities & Job Descriptions Prerequisite] Take a more proactive approach to bring open claims to a close. Conduct a monthly review of open Contract Withholdings and claims with senior managers and project management to determine the probable financial impact Medium Claims and the actions that can be taken toward resolution. Adjust accounts receivable accordingly. Immediately establish a company policy requiring review of all contracts. Assign an individual within the company to conduct the reviews and provide the individual with adequate training. Train with an insurance professional to gain an understanding about contract insurance requirements. Train with a legal expert to gain an understanding of indemnity language. Establish a contract review checklist procedure that guides review of all contract language potentially exposing the company to risk giving Contract Review High close attention to insurance requirements and indemnity language. Seek the advice of a consultant or attorney whenever language is difficult to interpret. Make certain that scope, schedule, pricing, payment terms, liquidated damages, claims handling, and release of retention provisions are all reviewed in detail by the estimating department. Upon complete review of each, attempt to negotiate any language that places the company at unacceptable risk. Provide regular job cost reports to project managers while jobs are in progress, at least monthly. Make project managers accountable to routinely compare real-time actual labor production versus Cost vs. Budget Analysis budgeted labor allowances to identify underperforming items of work. Improve productivity when Medium necessary, or find alternate less expensive means of construction. [Budget Preparation Prerequisite] Hold construction management personnel accountable to strictly follow the procedure requiring subcontracts to be executed and insurance coverage to be verified before a subcontractor begins work. During construction, require the personnel to strictly follow the procedures to maintain Subcontractor Management additional insured status and protect against liens and claims. Make use of checklists to ensure that Medium construction personnel strictly follow procedures. Update the standard subcontract on a yearly basis to revise indemnification and insurance coverage language as case law unfolds and the insurance industry changes. Assign an individual to manage and monitor the storage and tracking system, making sure that Small Tools and Equipment superintendents are held accountable for possession and return. Provide full management support to Medium Control the individual responsible since he/she will hold limited authority over superintendents; and this level of authority must be made clear. Establish a method for routine repair. Creditors and guarantors have a high expectation for specific behavior to maintain positive relationships with them. Failing to meet expectations can cause irreparable harm Credit Status Risk Level to a company reliant upon outside parties for support. Meet with your Surety to discuss the potential for establishing a surety line so that the company can better plan its workload. Provide regular work-on-hand schedules to indicate runoff and ease the Surety Credit Limits Medium Surety's concern about open guarantees. Consider making adjustments to operations or financial structure to accommodate Surety requirements. Regularly schedule corporate governance audits and ensure the findings and recommendations are Corporate Governance considered in making adjustments to the board of directors or management. Consider an Medium independent corporate governance audit if one has not been conducted. Review existing lending covenants. For the remaining term of the loan, negotiate a waiver for all Lending Agreements covenants that repeatedly fall out of compliance. In any future lending agreement, negotiate Medium covenants that can consistently be met to ensure that lending agreements are in force. Intelligently applied technology enhances productivity and efficiency. Having systems in Information Transfer place to leverage IT and secure data from potential destruction ensures the organization Risk Level will have fast, consistent, and efficient access to information. 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Examine all internal systems to determine the most cost effective methods for creating and sharing data. Conduct a cost/benefit analysis to determine where technological improvements can be made. Utilization of Technology High Encourage all employees to watch for new hardware and software advancements that would improve the efficiency and productivity of the company. Assign an individual to control the backup process. Install a written procedure that verifies the data is Computer Backup successfully backed up every day and ensures that it is valid and can be restored if necessary. Store Medium Procedures the backup data offsite. Develop a plan for backing up each work station. Communication Means and Fully standardize electronic verbal and written communication to increase efficiency. Medium Methods Phase out old equipment and replace it with new equipment fitting a standard. Adopt a standard Networking and suite of software for regular use. Consider hiring a technology consultant to expand the computer Medium Computerization network, providing access to all personnel. Clearly identify all plans, specifications, job records and financial information that must be stored to Record Keeping and protect the company from potential claims and lawsuits of all types. Once the materials are identified, Medium Archiving establish a place that provides sufficient dry storage and clearly label all the information stored. Unanticipated events often lead to monetary loss when not properly insured against. Insurance Coverage Following sound practices and procedures to secure the needed insurance coverage Risk Level avoids potential liability and provides financial protection at least cost. It seems you did not complete your assessment. There are no recommendations for this category. Accidents lead to a poor safety record, higher insurance costs, and lost bid opportunities. Effective safety plans, programs and practices are trademarks of an organization that Safety Practices Risk Level cares about the well-being of both its personnel and others, and therein reaps the benefits. Fully implement and maintain the safety plan with your assigned Safety Officer. Track claim Safety Program frequency and severity on a regular basis. Hold regular monthly safety meetings with managers and Medium Implementation superintendents and share safety results. Implement an incentive plan to maintain enthusiasm and reward managers for top safety records. Require the Safety Manager or a trained substitute to personally participate in the new hire's training process. Ensure that he/she has the ability to perform the assigned tasks and comprehends the New Hire Safety Orientation Medium safety training materials by written testing. Assign the new hire to a trusted employee in the field for an evaluation of the employee's conduct and safe practices. Formalize the claims management program in writing with clear procedures to mitigate the cost of a claim. Place an emphasis on documenting and recording conditions, facts and circumstances of a loss with attention to digital photos and video. Review all claims on a regular basis and consider Insurance Claims possible ways to mitigate each of them. Quickly return all injured employees to the workforce with Medium Management modified duties whenever possible. Consider hiring separate legal representation to promote settlement of large third party claims which could potentially run out of control, particularly if insurance limits are threatened. [Delinquent Payments Prerequisite] Using prudent sales strategies and techniques is the key to developing beneficial Sales Methodology customer relationships and a desirable reputation. Lacking either can lead to costly Risk Level relationships and great difficulty achieving profitable work. Change the informal approach to a routine and disciplined approach that identifies potentially doubtful accounts. Conduct a weekly review of payment status for each project in the regular project Doubtful Accounts manager meetings and identify cause for late payment. Require a financial manager to be present Medium during discussions of doubtful accounts. Make certain that the financial statements reflect the amount determined uncollectible or in doubt. Apply public relations efforts in a consistent manner. Routinely marketing to ensure a consistent Reputation & Branding Medium message and untarnished reputation and brand image. When presenting marketing materials, make certain they are discussed so the client has an Marketing Exposure Medium understanding of their representation. 2003-2013 ALL RIGHTS RESERVED February 04, 2014

Market Analysis Formalize the bid tracking process and incorporate the information into the bidding strategy. Medium V. About the Report DGR System This computer generated report uses a scoring system developed by Druml Group based upon the standard entitled \"Statements on Standards for Risk Analysis Services (SSRAS)\", authored by David F. Druml. The Risk Analysis System provides a standardized means for assessing and analyzing forward-looking risk in a business enterprise. The derived Risk Analysis Score ranges from 0 to 100. To simplify identification of risk within a construction company, the system uses the following color-coded ratings: Red rating - Risk Analysis Score 0 to 39: Contractors in this range can expect to receive resistance from banks and sureties to extend credit. The companies may find it difficult to fund ongoing work and meet debt obligations. A complete restructuring may be in order and outside assistance is almost assuredly required to control risk. Blue rating - Risk Analysis Score 40 to 69: Contractors in this range can expect to find it difficult, but not impossible, to convince banks and sureties to extend credit. Companies may encounter pressure to prepare business plans, produce routine financial information, establish a WIP process and institute job cost controls. Meeting these requirements may seem burdensome, however management must embrace these improvement measures to decrease risk and maximize profitability. The contractor will be expected to reduce reliance on a line of credit over time. Credit from vendors and suppliers will be limited and potentially cut off due to late payments. Silver rating - Risk Analysis Score 70 to 89: Contractors in this range can expect to produce more accurate financial information and prevent Work in Progress reports from exhibiting profit fade. In general, banks and sureties will welcome business with such companies but expect performance results to align with expectations. Sales volume will likely be on the rise and the contractor will be expected to maintain controls in place as revenue increases. Performance of projects will be more closely scrutinized by those granting credit, particularly sureties. Vendor, supplier and subcontractor relationships will be healthy and well maintained. Gold rating - Risk Analysis Score 90 to 100: Contractors in this range will be sought after by banks and sureties. They typically will be flush with cash, perform a large amount of volume, and have well-established controls. Jobs incurring a loss will be infrequent and generally unexpected. Banks and sureties will negotiate on rates and terms, possibly waiving personal guarantees. The companies will exhibit consistent profitability on jobs and obtain the most attractive discounts from vendors and suppliers. Subcontractors will seek to do business with the entity. Failure risk is low if the contractor does not deviate from specialties or resident geography. Report Certification The source data required to produce a Risk Analysis Report comes from a standardized risk assessment. The risk assessment can be performed either by a Certified Assessor of Enterprise Risk (CAER) or by a construction company's own personnel. Although both approaches can produce accurate reports, company personnel could have inherent biases or lack a full understanding of all the risk factors. The necessary qualifications of a Certified Assessor of Enterprise Risk are defined in SSRAS. Assessors are trained to be fully knowledgeable about each risk factor to ensure the greatest accuracy and neutrality of the resulting risk analysis report. Reports produced by Certified Assessors will be signed by the Assessor, labeled \"Interview\", \"Inspection\" or \"Examination\" in conformance with SSRAS. How Contractors, Creditors and Guarantors can benefit from a Risk Analysis Report A Risk Analysis Report is generated by examining over 75 risk factors representing controls that impact profit-making ability of an entity. The controls consist of existing systems, plans, procedures, methods, and safeguards present within an enterprise. The accurate assessment of these controls and subsequent analysis generates a report that is a strong indicaftor of a company's future financial performance and an excellent guide for needed improvements. Although a forward-looking risk analysis does not predict with total certainty whether a company will incur a business interruption or failure, when used in conjunction with rearward looking financial data, it provides the greatest possible risk awareness. At times, however, current and historical financial data and ratios, or special circumstances, may give reason to extend credit or guarantees even if a low Risk Analysis Score is reported, or to decline a request even if a high Risk Analysis Score is reported. Nonetheless, the report provides an excellent guide for recognizing and monitoring the changes a company must make to mitigate risk when providing it credit or guarantees. The accurate means used for measuring risk combined with the consistent scoring and rating provided by the Risk Analysis System make a Risk Analysis Report an excellent tool for determining forward-looking risk and an important component in any credit decision. 2003-2013 ALL RIGHTS RESERVED 2003-2013 ALL RIGHTS RESERVED February 04, 2014 February 04, 2014