Important Risks Faced by the Competitor in Preparing Its Budgets

FROM THE FORM 10-K DESCRIPTION OF THE BUSINESS, LIST AND BRIEFLY EXPLAIN THE TOP 5 MOST IMPORTANT UNCERTAINTIES (RISKS) FACED BY THE COMPETITOR IN PREPARING ITS BUDGETS.
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LIST AND BRIEFLY EXPLAIN THE TOP 5 MOST IMPORTANT UNCERTAINTIES (RISKS) FACED BY THE COMPETITOR IN PREPARING ITS BUDGETS.
The top five risks faced by Lockheed Martin during budget preparation are:
1. Procurement laws and regulations, including the power of the U.S government to terminate contracts for purposes of convenience.
2. Changing government procurement policies and increased emphasis on cost over performance. These two can adversely affect Lockheed's ability to control costs
3. Variable profitability and cash flow dependent on a mix of Lockheed's contracts and programs, performance, and cost control strategies
4. Increased competition and bid protests in a budget-constrained environment. Bid protests make it difficult for Lockheed to maintain financial performance and customer relations
5. Inaccurate estimates and financial projection may predispose certain company assets to impairment risk
6. Variable future earnings and cash flow risks due to overdependence on pension funding, costs, and economic assumptions.
DISCUSSION
1. Procurement laws and regulations, including the power of the U.s government to terminate contracts for purposes of convenience
Lockheed is subject to U.S. government contract laws and regulations that impose certain risks and costs on business. There is the risk of hefty fines, penalties, and contract termination in cases of violation. Unpredictability in the termination of contracts increases cash flow uncertainties, thereby complicating the budgeting process (SEC-10K, 2021).
Subsequently, the company will be unable to bid and win contracts, resulting in a loss of goodwill and future business. There is the risk of contract cancellation based on performance and convenience. Contract termination resulting from default could expose the company to losses and liabilities and impede its potential to bid future contracts (SEC-10K, 2021). The risk of contract cancellation increases uncertainties and hence impedes the budget-making process.
2. Changing government procurement policies and increased emphasis on cost over performance adversely affects Lockheed's ability to control costs.
There is the risk that the U.S. government could implement procurement policies that could adversely impact future cash flow and profitability. Uncertainty in future cash flows and profitability makes the work of budgeting difficult since a budget is prepared based on future cash flow projections (SEC-10K, 2021). There...