Funding Risks

You probably have been on a project when funding was suddenly cut, sending management into a panic to reduce staff or cut scope to accommodate the new funding realities. Much as with political risks, you need to apply some detective work to uncover funding risks.

The first step is to identify the type of organization your customer works for. In my experience, I've conducted projects for public companies, private companies, and government organizations. Of the three, you have the most difficulty identifying and obtaining early warning of potential funding changes with private companies. There simply isn't as much information available in the public domain.

If your customer (the outsourcing organization) is a public company, take a close look at the company's financial health. Is the company profitable? Is it meeting analysts' quarterly expectations? Here are some other questions to ask:

• Is the product you are building mission-critical to the company's line of business?

• Does the company have other alternatives to the product you are building for it?

• Is the company undertaking new business initiatives that compete with the product you are building?

• Is the company undergoing a reduction in force or other cost-cutting measures?

• Examine the competitive landscape. Is the company facing new competition in the marketplace?

• How is your project going? Is it on time and within budget?

The answers to these questions will help you determine the likelihood of budget cuts happening to your project.

Funding on Government Projects

Understanding the source of your project's funding within the government, as well as who controls those funds, is key to understanding the funding's stability. Have funds been set aside for your project? Does your customer directly control how those funds are allocated and how they get spent?

Sources of Funding Often Are Not Straightforward

One project I ran for the Department of Commerce was actually funded by the Department of Defense (DoD). This led to some strange circumstances. Multiple contractors were involved on this project. The DoD actually used only a portion of the system. For the portion of the project I ran, the Department of Commerce was the customer. Difficulties arose when another contractor delivered its system. It was deemed unusable by the Department of Commerce, and it could not pass the User Acceptance Test despite multiple attempts. Unfortunately, the Department of Commerce had no contractual authority over that contractor, even though it was the system's principal user, because that contractor was hired and compensated by the Department of Defense. Sadly, this was rendered a moot point after September 11, 2001. The Department of Defense reallocated its funds for the war effort. That system never saw the light of day, despite millions of dollars spent.