Mitigating in procurement
May 12, 2011
PROCUREMENT is an industry that involves a lot of risks. Therefore, service providers need to study each project because failure to detect a risk or mismanaging it could be fatal, leading to the collapse of a business.
By Brenda Asiiimwe
PROCUREMENT is an industry that involves a lot of risks. Therefore, service providers need to study each project because failure to detect a risk or mismanaging it could be fatal, leading to the collapse of a business.
Procurement risk can refer to an action or event relating to the acquisition, management or disposal of goods, works or services which adversely affects the ability to deliver on a project.
It is, therefore, important that measures are taken to reduce risks by putting in palce mechanisms to reduce their severity or prevent them.
Risk identification
When a service provider wins a tender he/she should identify the likely hazards it would face so that measures are put in place to counteract them.
The associated risks can then be analysed and evaluated and appropriate steps taken to lessen their severity. It may be that the price of a particular commodity is very unstable, meaning that it may eventually become so expensive and unaffordable.
Risk analysis
Alexander Bbosa of the International Procurement Agency (IPA) says to achieve a comprehensive risk analysis, even for the smallest projects, all stakeholders need to carry out timely assessment of the project.
He adds that risk analysis is critical, especially before the project is implemented.
He, however, explains that most project managers are not aware of the importance of risk assessment.
“Many times risk assessment is looked at on the basis of its underlying cost and time of undertaking rather than its purpose,†Bbosa says.
Even when it is carried out, but the assessors fail to declare the technical threats, this may result into the project being blocked, he says.
“Whereas failure to report risks is common in public projects where absorption of funds rather than efficient spending drives many procurement decisions, similar cases are likely to occur in the private sector, especially where approval mechanisms are non-existent or not clear,†he explains.
Bbosa emphasises that firms should ensure some kind of progressive three-step processes where risks are identified, analysed and managed.
He adds that if this is done with a project team approach by competent personnel and adequate resources, it will help discover and unlock potential bottlenecks likely to affect the success of the project.
However, Belew Kebede Ayalew, a director at the Uganda National Roads Authority, argues that most firms fail to manage risks because they do not identify them in the first place or when they are identified, they are never taken seriously.
He cites road construction, saying some contractors do not take into consideration soil types.
“This later poses a problem if the soil is hard and needs more work than was anticipated,†he explained.
He says such ignored aspects of a project can later delay most contracts.
Kebede advises that contract management should always be proactive in identifying the susceptible areas so that mitigation mechanisms can be put in place.
Risk management
Monitoring of risks should begin in bid preparation. Forecasting price volatility, for example, should be included in the bid documents, Kebede notes.
He adds that the contractors can also always carry out risk assessment before they submit the bid documents.
Bbosa explains that the project team can make a random collection of potential risks, either through brainstorming, past experience or structured research.
“Risk assessment and management require a lot of time and objectivity since every issue pointed out, provided it is relevant to the context at hand, could be vital in making a thorough analysis of the project,†he adds.
He says after identifying all the possible risks, a well-structured analysis is then undertaken with proper documentation.
Every issue identified should be exposed and objectively assessed for its likelihood and significance (cost and time) in the event that it actually occurs,†Bbosa says.
He adds that various techniques, qualitative and/or quantitative can be used to screen the risks following a clear formula.
He explains that risk management is a continuous process, which occurs simultaneously with project execution.
“Unless the right actions are undertaken before the risks occur, it may be impossible to reverse potential occurrences or their impact on the project,†he adds. While executing a project, there is nothing else to manage, but risk. He, however, notes that one can only manage what they are aware of.
He says a manager’s competence is always measured by how well they forecast and effectively counteract failure.
“To do this, managers must not work in isolation, but in teams of multi-skilled personnel because the scope of risks is crosscutting,†Bbosa advises.
PROCUREMENT is an industry that involves a lot of risks. Therefore, service providers need to study each project because failure to detect a risk or mismanaging it could be fatal, leading to the collapse of a business.
Procurement risk can refer to an action or event relating to the acquisition, management or disposal of goods, works or services which adversely affects the ability to deliver on a project.
It is, therefore, important that measures are taken to reduce risks by putting in palce mechanisms to reduce their severity or prevent them.
Risk identification
When a service provider wins a tender he/she should identify the likely hazards it would face so that measures are put in place to counteract them.
The associated risks can then be analysed and evaluated and appropriate steps taken to lessen their severity. It may be that the price of a particular commodity is very unstable, meaning that it may eventually become so expensive and unaffordable.
Risk analysis
Alexander Bbosa of the International Procurement Agency (IPA) says to achieve a comprehensive risk analysis, even for the smallest projects, all stakeholders need to carry out timely assessment of the project.
He adds that risk analysis is critical, especially before the project is implemented.
He, however, explains that most project managers are not aware of the importance of risk assessment.
“Many times risk assessment is looked at on the basis of its underlying cost and time of undertaking rather than its purpose,†Bbosa says.
Even when it is carried out, but the assessors fail to declare the technical threats, this may result into the project being blocked, he says.
“Whereas failure to report risks is common in public projects where absorption of funds rather than efficient spending drives many procurement decisions, similar cases are likely to occur in the private sector, especially where approval mechanisms are non-existent or not clear,†he explains.
Bbosa emphasises that firms should ensure some kind of progressive three-step processes where risks are identified, analysed and managed.
He adds that if this is done with a project team approach by competent personnel and adequate resources, it will help discover and unlock potential bottlenecks likely to affect the success of the project.
However, Belew Kebede Ayalew, a director at the Uganda National Roads Authority, argues that most firms fail to manage risks because they do not identify them in the first place or when they are identified, they are never taken seriously.
He cites road construction, saying some contractors do not take into consideration soil types.
“This later poses a problem if the soil is hard and needs more work than was anticipated,†he explained.
He says such ignored aspects of a project can later delay most contracts.
Kebede advises that contract management should always be proactive in identifying the susceptible areas so that mitigation mechanisms can be put in place.
Risk management
Monitoring of risks should begin in bid preparation. Forecasting price volatility, for example, should be included in the bid documents, Kebede notes.
He adds that the contractors can also always carry out risk assessment before they submit the bid documents.
Bbosa explains that the project team can make a random collection of potential risks, either through brainstorming, past experience or structured research.
“Risk assessment and management require a lot of time and objectivity since every issue pointed out, provided it is relevant to the context at hand, could be vital in making a thorough analysis of the project,†he adds.
He says after identifying all the possible risks, a well-structured analysis is then undertaken with proper documentation.
Every issue identified should be exposed and objectively assessed for its likelihood and significance (cost and time) in the event that it actually occurs,†Bbosa says.
He adds that various techniques, qualitative and/or quantitative can be used to screen the risks following a clear formula.
He explains that risk management is a continuous process, which occurs simultaneously with project execution.
“Unless the right actions are undertaken before the risks occur, it may be impossible to reverse potential occurrences or their impact on the project,†he adds. While executing a project, there is nothing else to manage, but risk. He, however, notes that one can only manage what they are aware of.
He says a manager’s competence is always measured by how well they forecast and effectively counteract failure.
“To do this, managers must not work in isolation, but in teams of multi-skilled personnel because the scope of risks is crosscutting,†Bbosa advises.