The Double Down Strategy of Contract Management Risk

double down photoIn blackjack, there is a strategy known as doubling down, in which players double their bet to get one more card in addition to their two card hand. Doubling down increases players’ chances of winning, just like risk management increases the chances of success during a contract’s lifecycle.

Risk is an inevitable part of any contract—as Murphy’s Law says, “anything that can go wrong, will.” Tight budgets, short timelines, and technological complexity in today’s acquisition environment, make risk more prevalent than ever. Adverse situations, including protests, can cause schedule delays, cost growth, performance degradation, and other intangibles which can have a large, negative impact on the success of a program. Being aware of risks and developing a risk mitigation strategy early in the contract lifecycle, prevents risks from becoming crises.

As presented at the National Contract Management Association’s (NCMA’s) 2014 World Congress, here’s a look at how doubling down early and in all steps of the contract lifecycle can reduce source selection risk and increase chances of success.

The Risk Management Steps

The team working on a contract does not always know all aspects of program cost, schedule, and performance but proactively managing the uncertainty can ensure favorable outcomes.  Following a systematic risk management process grounded in best practices such as that found below keeps options open and is less costly than crisis management.

  • Risk Management Planning –   The intended outcome is a thoughtful, cohesive plan that lays out how you will identify, analyze, address, monitor, control, and communicate risks.  Activities include meeting and working with people (e.g., stakeholder input) and analyzing management plans and information assets to create a plan.  Challenges include standardizing a risk management approach or plan across an organization, or ensuring risk is planned at all levels (e.g., portfolio).
  • Risk Identification – The intended outcome is being able to identify as many things that could go wrong as soon as possible.  Activities include using techniques such as brainstorming, checklists, independent reviews, and expert judgment to ensure you meet the challenge of generating and recording as many risks as imagination and time permit.
  • Risk Assessment (Quantitative and Qualitative) – By applying tools and techniques ranging from more qualitative risk matrices to more quantitative modeling and simulation,  you stand a better chance of gaining a more broad and deep appreciation of the risk, which can help you with rationalization and prioritization.
  • Risk Handling/Mitigation Planning –   The intended outcome is to mature your readiness posture through identification of appropriate or corresponding response strategies, so that when the risks you identified (or missed) become real, you can react swiftly and decisively.
  • Monitoring, Communicating, and Controlling Risk – Using activities and tools such as risk reassessments, audits, variance and trend analysis, and risk management boards, you can increase your visibility of risk posture in attaining your project objectives.  Further, these activities and tools (such as gauging ongoing status) you can overcome the risk of not knowing if your risk response actions are effective.  Also, continuous monitoring of risks ensure your resolution of risks don’t spawn new risks.  Finally, communicating risk to stakeholders help overcome challenges of keeping people informed and minimizing surprises.

Before applying the risk management practices, it is important to understand the contract lifecycle process, or any process in which risk management is used. The more you understand the process by discerning the “known knowns” and the “known unknowns,” the more successful you will be at figuring out the next steps and the higher the likelihood of achieving desired outcomes.

Doubling Down Early – The Pre-Award Phase

Though often overlooked, the pre-award phase is just as important as the award execution phase, especially for risk management.  One way teams I have been part of have successfully employed the risk management process is by creating a mini-Integrated Project Team (IPT) early on in the pre-award phase. This mini-IPT team includes people involved in source selection who are intimately familiar with the requirement and the contracting for the requirement and a risk management expert. By developing and using risk management plans and risk registers before a solicitation is released, the IPT can reduce execution risk.

For example, many risks and issues pertaining to awarding and administering contracts can be identified and addressed head-on in previous phases of the procurement life cycle.  A risk subject matter expert (SME) working on a pre-award IPT can use various checklists and critical thinking tools to help buy down protest risk by performing root cause analysis before applying appropriate mitigation techniques.    For example, there are some common reasons behind protests underscored by a theme that the source selection team did not follow procedures IAW with the oscillation or SSP.  In other words, they did not do what they said they were going to do.  Identifying and documenting these types of items in the team’s risk register, spawns continuous visibility and attention.  Also, response planning could be identified and implemented such as scheduling independent gate reviews of procedures and documents.

Another common reason behind protests is claims that overly Restrictive Requirements prohibited or limited competition.  Employing early risk management can identify root causes behind this risk and mitigate accordingly.  For example, investing in greater due diligence countermeasures through a comprehensive vendor engagement strategy, including Pre-solicitation notices and conferences, can  offset the chance of this risk occurring or at least improve one’s standing for when it does occur.

Double Down Strategy Addresses Risk Early

While contract risk will always be present, there are ways to mitigate the effects.  Identifying risks early and applying risk mitigation strategies throughout the contract lifecycle, prevents risks from becoming crises.  That in turn increases the chance of success.

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