Procurement Strategies: Management and Risks, Essay Example

Introduction to Risk Assessment and Management in Project Procurement

In order to understand the risks associated with the corporate project, it would be beneficial to understand what risk management is, and how it can be applied to this project.  Quentin Fleming provides a useful definition of risk management when he states:

Risk managementis the systematic process of identifying, analyzing, and responding to risk. It includes maximizing the probability and consequences of positive events and minimizing the probability andconsequences of adverse events to project objectives (Fleming, 2003).

Fleming’s analysis is useful in that provides a greater framework for understanding the importance of understanding and assessing risks in any procurement project.  Indeed, there are three identified stages in the risk management process: 1) The identification of potential project risks; 2) the assessment of the probability of a risk’s occurrence, and determination of the impact consequences should the risk materialize; 3) the development of a risk closure plan to bring identified risks to an identifiable level but not necessarily eliminating them altogether (Fleming, 2003).

Risks Associated with the Procurement Project

In order to understand the potential risks associated with the project, and ways to mitigate their risks, this section will outline the main risks in three areas: 1) Risks Associated with Technology, Quality Performance; 2) Risks with Scheduled Performance; 3) Risks with Cost Performance.  This section will address each category in turn.

Risks Associated with Technology, Quality, Performance

This type of risk is typically associated with the quality of goods procured for the project.  The risks can vary based on the type of goods procured: For example, if the project involves the procurement of sophisticated technological devices, a main risk lies in whether those goods perform and other issues related to compatibility with other components used in the project.

In this project dealing with shrubbery, there are a manifold of risks associated with what type of products are being procured.

• The quality of shrubbery used in procurement is a key concern. The transfer from the store to the corporate landscaping site is a key consideration in this risk category.
• The quality of the other products involved including the soil and auxiliary items could also suffer from similar issues. However, such risks seem to be a lower magnitude than those associated with the shrubbery proper.

An assessment of the above risks rests on the probability of having issues and the mitigating choices that can be made to prevent the occurrence.  The probability of the shrubbery having some type of quality issue is pretty high- indeed, it is likely to be expected with the arduous process of replanting shrubbery.  The question then arises how to mitigate the risk associated with quality issues.  One answer is to take extra precautions up front in order to pick shrubbery and materials that look presentable.  Even with extra attention, however, there will likely be the need to set aside money to purchase more shrubbery- particularly if there is an issue with disease.

Risks Associated with Cost Performance

As the first risk category has already showed, many of the risks are interrelated, and thus must be managed as part of a holistic whole. If there is a problem with quality, those risks quickly bleed over into the cost performance category.  The cost performance category uses the mutually agreed upon procurement budget as the baseline for expenditures.  Although there may be fiscal room built in the initial budget to plan for the purchase of goods of poor quality, there is limit to what extent that can be budgeted into the process (Booth, 2010).

In this project dealing with shrubbery, there are a manifold of risks associated with the cost of procurement.

• The main risk in this category is the need to purchase extra goods or goods not accounted for in the original budget. Regarding the first risk, the store of purchase may be amenable to providing a discount or giving free goods in order to make up for  the loss.  But there is also a risk they will not; in addition, there is a risk that additional goods will need to be purchased that was not part of the original budget.

There is a substantial risk that there will be extra costs with the project not included in the current budget.  The risk could manifest in any of the areas mentioned above.  The real question will be how the risk is ultimately mitigated.  The main mitigation technique will be to budget for an extra amount beyond that required for the procurement of goods.  It would be wise to allocate more than needed because if there is ultimately a problem, the procurement department can address the problem right away without having to go through the budgetary process again that would delay a solution to the problem (Pandit, & Marmanis, 2008).

Risks with Scheduled Performance

The last and equally important risk category is risks associated with scheduled performance.  This type of risk can be the most difficult to predict and most costly due to lost opportunity costs associated with missing a deadline.  This type of risk is usually associated with the holding of a major, planned event that requires a certain level of procurement in order to go on.  In that case, the risks associated with missing the deadline are treacherous, and  the possibilities for mitigation are few and far in between.

The risks with schedule performance in this project are limited.  Although there may be risks associated with missing the deadline resulting in inability to finish the project because of winter- it is by no means a deal breaker regarding mitigation strategies (Sollish & Semanik , 2007).

• The main risk is that due to a delay in procuring the needed products, or an unpredicted change in the weather for the worse would lead to a later than expected delivery.
• Risks also emanate from the fact that the company might receive the goods but they are unable to use them due to a weather or unexpected change.

The probability of risk manifestation in this category is probably underestimated.  There is extreme volatility in the acquisition of planted goods that need to have water and be planted within a certain time frame.  The main mitigation technique for this risk would be to schedule the project immediately after winter in order to ensure that there will be enough time to plant for the new season.

References

Fleming, Q. W. (2003). Project Procurement Management: Contracting, Subcontracting, Teaming. FMC Press.

Booth, C. (2010). Strategic Procurement: Organizing Suppliers and Supply Chains for Competitive Advantage.  Kogan Press.

Sollish, F. & Semanik, J. (2007).  The Procurement and Supply Manager’s Desk Reference.  Wiley Press.

Pandit, K. & Marmanis, H.  (2008). Spend Analysis: The window into strategic sourcing.