When it comes to rapid acquisition, we should be rethinking risk–or rather, our risk tolerance. What if we considered risk in acquisition the same way we look at risk in financial planning?

Risk is about more than our resources. It’s also about the time we live in, whether that’s facing impending retirement personally or losing our technological edge as a country.

We need a way not only to assess program or contract risk, but also to assess the amount of risk decision-makers are willing to support. The latter drives the former –– a program labeled high risk may be dead in its tracks because the person approving it can personally stand only low risk, regardless of what’s happening on our planet. That may mean not pushing a technology or an innovation as hard or it may mean fudging on the perception of risk so that a moderate risk acquisition is reinvented as low risk in order to ensure approval.

Risk doesn’t necessarily mean the same thing to everyone either. Ever sit on an Acquisition Strategy Panel for a manpower support contract with a bunch of Colonels who run high-tech programs in production? Ever hear the lot of them grousing under their collective breath that a services contract can’t possibly be higher risk than theirs, even though recruitment, retention, and appropriate clearances may be nearly impossible for the strategy under consideration? It’s hard not to compare, I’m sure, and yet the needs may the different and the level of risk the same.

In the early days of the Acquisition Center of Excellence, back around 2002 or 2003, I ran risk assessments with dozens of teams, ultimately populating a red, yellow, and green “Rubik’s cube” on a briefing chart. We’ve gotten pretty good at risk assessments and risk mitigation plans over the years–maybe too good in some cases–but there’s still a big part of risk that I have yet to see addressed–or maybe it has been but I’ve not seen it. That part is why we need to be rethinking risk when it comes to the “Fast but Right” world of rapid acquisition, aka “Speed with Discipline.”

We look at the risk of the program but not the risk tolerance of the individual responsible for approving the program. We may talk about it among ourselves, depending on what the rumors are, but few decision-makers tell us up front how much risk they can tolerate before we waste time in developing our strategy. Even the ones who say, “Make it happen,” may actually mean “Make it happen in a way that won’t rock the boat and get me moved somewhere I’m told I can do the least amount of damage.” Exceptionally few will tell you upfront, “I’m willing to take a risk so bring me something cutting edge and I’ll provide top cover.”

I’ve always known that there are certain PEO’s, for example, who are true visionaries and willing to take a risk on a program based on a 60% or less certainty of the outcome. Other leaders, by comparison, can’t seem to get enough data to make a decision, and it takes 2 years to do what should’ve been accomplished in 3-6 months.

If we are to move faster, reduce our lead times, lessen the sometimes oppressive regulations and policies regarding acquisition, then we have to be willing to take more risks. Decision-makers can say, “Go forth and do risky things,” and at the same time insist on “contract excellence,” (aka “contract perfection”), but their Program Managers and Contracting Officers will have to use black magic to satisfy two masters that are never going to agree.

There. I said it. Go Fast and Contract Excellence, as represented currently, will never agree. We must find a better solution than the polar opposites, and that hinges on risk tolerance.

To truly go fast, we must lighten the oversight and that requires trusting people, trusting the process, or trusting both, and the tolerance for an occasional error. Middle layers of management often complain that 1. they have no authority to exploit rapid acquisition tools fully because they must still comply with Policy and that 2. the same leaders insisting on embracing rapid acquisition have not yet lightened that load of Policy that would allow our gatekeepers to fling wide the barriers.

Rethinking Risk Tolerance

I never really thought about risk tolerance until I sat in my new financial planner’s office. I thought primarily about program or contract risk – – technical, schedule, cost, do we have the manpower to even run this program, etc – – and about how to get things through policy offices that seem risk-averse in all multiverses.

Truth is, I never thought much about financial planners either. Back in my 20s and early 30s, I was exceptionally good at playing the stock market. Like many innovative thinkers, I was willing to take some crazy risks, but I was also very young and had plenty of time to recover. Then I lost half of everything in a mid-life divorce and didn’t have that much money to plan with for a while. Not exactly a risk I had ever thought I’d face. Eventually I got back into the game, and the financial decisions I made were again based on my more innovative mindset. That met some really high successes and a few…er, learning experiences. I still came out far ahead of doing nothing.

Most of my financial decisions came straight from the gut, regardless of how much data I gathered. My hunches worked well up until I realized I could retire in six months and that making wild and crazy stock choices might not be the safest thing once I got into a post-retirement career or for my future in another 25 years. In other words, my risk tolerance was changing according to what was happening in my world. Not my mental tolerance for risk because in my mind I’m still 33, but my financial tolerance for risk because in my body I’m…not 33.

I needed help with reconciling risk tolerance, sort of like how many of us now need to look at the state of our defense systems and figure out how much risk needs to be accepted or not.

So I found a financial planner who could put a few reins on me to keep me from doing things that were too risky for the place I am in the world right now. I expected at our first meeting that we would sit and talk about my portfolio and how to rebalance it and maybe even add a few boring bond funds, but it took a lot of discussion to get that far because before we looked at individual assets, which might be viewed as similar to acquisition programs, we had to look at me, at me as the decision-maker, and at my personal tolerance for risk given my assets, my liabilities, my age, my plans for the future.

As you might imagine, we talked about what level of risk would keep me up at night. I’m already kept up at night by our peers and near-peers, so how much more insomnia could I take?

What did I feel comfortable with? How would we balance my portfolio so that I could take the risk that I, in my heart of hearts, am so comfortable with and yet not do my future self a disservice.

Together, we established my risk tolerance as a decision-maker–in other words, my comfort level with occasional failures that I could shake off while moving my net worth substantially forward through my willingness to try something different or something where the stakes were bigger. Big risks can mean big failures but they can also bring big payoffs. I did my homework and spent a few days rethinking risk in my own life and finances. Once my risk tolerance had been established, and only then, we began looking at how to spread my portfolio to get the right amount of push I want but without doing something stupid that couldn’t be fixed. My own risk tolerance became the overarching theme for how much risk I was willing to accept in different programs. Er, I mean investments.

In rethinking risk when it comes to rapid acquisition, we are on the cutting edge to make up time and advance our standing in the world. If the innovations and processes are to be higher risk, then that risk must fit within the risk tolerance levels of the decision-maker. To my knowledge, our decision-makers are not taking the time that I did on my own retirement planning to figure out what their risk tolerance is, in an acquisition world that to me seems much more desperate than it did 20 years ago to push technology out there. Not only do I not see leaders taking a hard look at their own risk tolerance, at least not publicly, but I don’t see that information flowing down to the acquisition corps. Wouldn’t you like to know if this or that decision-maker is more likely to spend a sleepless night over failure to meet a deadline downrange or if what keeps him up at night is how he might look on “60 Minutes” if he makes a hard-to-explain business decision?

Personally I think it would be fantastic to know if a policy chief who points to an acquisition strategy and says,” That’s too risky!” has a risk tolerance of a 65-year-old retiree with all of his eggs in the G fund TSP basket or the risk tolerance I had in my 20s playing penny stocks. That’s two entirely different views of risk. I’d like to know the same of senior leaders, but the honest truth, not what they think we want to hear or what they think they should say.

Want to cut out so much of the middle layer of resistance? The ability to move fast has way more to do with senior decision-makers knowing their risk tolerance–and that risk tolerance being communicated down to Federal employees and contractors to know how far, how fast, and how hard to push innovation without getting skewered if every result isn’t perfect.

Yeah, my kingdom for a leader who will say aloud and mean it:

“The state of the world keeps me up at night so I’m willing to take a bigger risk on how you strategize than on a failed defense. I’m willing to take a big risk and I’ll cover you if it doesn’t work out because when it does work out, it’s pure magic. Oh, I’ll help you, too, by waiving rules and decimating policies that keep you from being more innovative.”

 

c 2018 Lorna Tedder

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Lorna Tedder

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