Risky Business

I read a great article in the most recent issue of Risk Management magazine, http://www.rmmagazine.com/Magazine/PDF/culture.pdf, about the differences in risk acceptance between national cultures. US corporations are considered risk-tolerant, as compared to the more risk-averse businesses of Japan and many other nations.

As I read the article, though, I was struck by how easily it could have been written about the contrasts between the general risk-tolerant US population and the highly mission-focused, risk-averse US Government. For example, risk-averse cultures are extremely analytical, have rigid policies and procedures, easily accept authority, and far prefer the familiar.

The latter sentiment keeps those of us engaged in small business "on our toes". We have an arsenal of brilliant products, top scientific minds and rapid, responsive delivery of systems and services, but our most important assets are our customer relationships and our history of trustworthiness and success.

When a customer starts to get very comfortable with a high-performing small business, however, we also may hear from a competitor that familiar old saw, “oh, but small business is too risky for this mission”.

Is this vague assertion true? Let’s take a look at how risk typically plays out on system development programs for both large business and small:

Cost & Schedule Risk- The risk your project will cost more and/or take longer than agreed
This is often a reality on Government acquisitions, where virtually no major development project has met its cost and schedule targets, as described in the November 2008 IEEE article on weapons acquisitions, http://spectrum.ieee.org/aerospace/military/whats-wrong-with-weapons-acquisitions.

Program work by both large and small businesses is susceptible to cost and schedule risk, and the larger and more complex the program, the larger the risk, regardless of the size of the business performing development. However, there is a development element that significantly reduces this risk: code reuse.

Use your supplier’s (1) on-time, under-budget delivery record and (2) level of proven code reuse to predict lower risk.

Technical Risk- The risk your project will not deliver what you specified it to
This risk applies to both large and small businesses and is discussed in the IEEE article. There are ways to lower risk and, again, they are not tied to business size. Code reuse is a significant risk reducer here, as are proof of concept methods.

Proof of concept methods include early product demonstrations, simulations, mockups, and pilots to ensure timely requirements and design verification/validation. Despite what Alan blogs at http://definition-it.blogspot.com/2009/04/remember-days-of-proof-of-concepts.html, savvy businesses still rely on proof of concept methods.

Use your supplier’s (1) simulator availability, (2) timeliness and frequency of demonstrations and other proofs of concept, and (3) level of proven code reuse to predict lower risk.

Resource Risk- The risk the right resource won’t be there when you need it
Although this risk applies to both large and small businesses, I give the risk reduction edge here to small business. Out of necessity, successful small businesses maintain closer networks and resume pools, and, unlike large business, can typically hire on a dime!

Small business staff members are often skilled and experienced in multiple areas of contract performance, and can move between tasks and programs with great fluidity. Small businesses are able to add and remove equipment and support services with high efficiency, too. During program and industry contraction and expansion, small businesses already have the skills and tools to cope.

Use your supplier’s (1) time to hire, (2) resume pool size, and (3) key personnel resumes to predict lower risk.

Corporate Risk- The risk the company won’t be there when you need it
As the current economy has shown, small businesses may receive less support than large businesses during hard economic times.

Use your supplier’s (1) corporate health to predict lower risk. Note: If your supplier has performed and grown during a tough recession, you know they’re for real!

So, it sounds as if we can rely on small business to provide effective, low-risk solutions, especially using the above-described techniques. Time to challenge that old urban legend.