Other problems may also include, defense programs being cut and inability to manage work force.
Solutions/ Recommendations to avoiding these risks
Below are possible recommendations to solving these problems.
1. Unexpected security and political events -To avoid this risk contractors can avoid being surprised by keeping up on currently political and security issues internationally and nationally and understanding about how the DOD or Congress might be thinking on these important defense issues.
2. Defense programs being cancelled could be when programs may be having some technical issues or possibly going over the planned budget. To avoid this risk, Investors should watch out for these types of risk by keeping up with how well these defense programs are doing and contractors should especially watch out for over budgeted defense programs and also look into the reasons behind why those programs exist in the first place also comparing to other programs that may have succeeded or failed in the past.
3. Percentage completion accounting- Since this is one of the most common issue for defense companies to have, contractors should be aware of this issue being a possibility and try not to overreact to positive earnings surprises. Investors should also stay in contact with management and pay attention to cash flow.
4. Inability to Manage Work Force: Sometimes companies put in a certain percentage growth rate for earnings revenue, management hired in those companies will hire employees they feel will make the growth rate percentage. And there would be certain risks with the type of people hired at these companies. A solution to this is investors must be aware of this type of risk by knowing the amount of people hired to achieve growth and also their skills.