RISK AND PROCUREMENT MANAGEMENT

Project Risk and Procurement Management



Project Risk and Procurement Management

Introduction

Organisations need to procure different resources in order to fulfil their obligations. These obligations can be in the form of a project as well. Project Procurement management can; therefore, be defined as the process of purchasing resources (products, training and consultancy) that are needed for the project at hand. (Chapter 12: Introducing Project Procurement management, PP. 1-2).It further includes the responsibility of administering the project and ensuring that all the objectives have been fulfilled.

With every project come certain risks, and the process of minimising these uncertainties is known as risk management. Risk is an unwanted consequence and can have either a positive or a negative effect on the outcome of the project. It is important to manage risks effectively to create a balance between the threats and opportunities of an organisation and, therefore, make informed decisions that minimise uncertainty.

Moreover, Procurements frauds have become increasingly common in every enterprise, so the risk managers need to address the procurement fraud through the concept of risk management. For example, it is very easy for unethical employees to state a false high price in the financial books for a low-priced product and then keep the additional money in their pockets.

Stages of Project Risk and Procurement management

There are fives process groups or stages of Project Risk and Procurement management, including initiation, planning, execution, controlling and closing (Lane. S, 2002). At the initiation stage, the project team decides what products or services are needed for the project and comes up with a Work Breakdown Structure. The planning stage involves the 'how' function. The plan of how to procure the identified products effectively and efficiently is formulated at this stage. Factors such as time constraints and scope of the project are kept in consideration. Project managers should not invest heavily on a low-cost project. The phenomenon of risk management enters the Procurement management process at this stage. During the planning process, not only does the project team determine how to carry out procurement but also decides how to manage the risk element.

After planning comes the execution stage. The actual purchase is made at this stage, and it is necessary to have stringent quality control because this procurement will have a direct impact on the result of the project. In the end, there is the controlling process through which members keep an eye out for any discrepancy throughout the procurement process. Risk monitoring and control is an important sub-section of this stage.

Types of Risks

Risks can be of different types, such as Technological, Organisational, Market-related, Financial and Turbulence (Risk Management In The Procurement Of Innovation, 2010, pp. 6-7).

Market risks arise due to fluctuation in demand and supply. For example, when innovations in public procurement enter the reluctant private markets, it can be termed a demand related market risk. Supply-related risks include unreliable law and order situations, strikes by labour unions or if the competitor takes over the ...