Project Procurement and Risk

Sidney Phiri

Module 5 Assignment

MAF6211 / Project Risk and Quality Management

Prof Maja Zelihic

25 October 2020
Project Procurement and Risk

In the last two decades, there have been significant changes in the technical and economic

conditions prevailing in the construction industry. To overcome the shortcomings of the

traditional procurement methods, the construction industry has developed a large number of

different procurement systems. A systematic approach for selection of the most appropriate

system is now needed. This paper summarizes and provides a general overview of the elements

of project procurement. Also, includes a review of how risk and level of control influence the

procurement process.

Project Procurement Process and Elements

This includes the processes required to acquire goods and services from outside the

performing organization to fulfill project scope requirements, the procurement management

processes are:

Plan Procurements: Identifies which project needs can be best met by acquiring products and

services from outside the project organization, against those that can be accomplished by the

project team. It involves consideration of whether to procure, how to procure, what to procure,

how much to procure, and when to procure

Conduct Procurements: The phase comes after the procurement manager answers the above

question is now ready to conduct the actual acquisition of products and services by way of

preparing necessary documents and communicating with sellers and collecting and reviewing

responses from the sellers that allows the procurement manager to select a buyer

Administer procurements: This entails ensuring that all contractual obligation between the buyer

and the seller are clear and adhered to. The success of this element largely depends on the type of

contacts entered into i.e.

Project Procurement and Risk

Types of contracts include: a) Cost-plus percentage fee b) Cost-plus fixed fee b) Cost-plus

guaranteed maximum c) Cost-plus guaranteed maximum and shared savings d) Cost-plus

incentive (award fee) e) Cost and cost sharing f) Fixed price or lump sum g) Fixed price with

redetermination h) Fixed price incentive fee i) Fixed price with economic price adjustment j)

Fixed price incentive with successive targets k) Fixed price for services, material, and labor at

cost (purchase orders, blanket agreements) l) Time and material/labor hours only m) Bonus-

penalty n) Combinations o)Joint venture

Close Procurements: Verifies that all work and deliverables from the contract are acceptable.

Early termination of the contract is a special case of procurement closure. Tools and Techniques

used are: a) Procurement audits b) Negotiated settlements c) Records management system

Outputs are: a) Closed procurements c) Organizational process assets updates. (PMI, 2008)

Type of Procurement Management and Risks

Risk management plays an essential role in good purchasing and supply practice. It is

essential to address the ‘right’ risks and devise the ‘right’ strategies. Thus, organizations should

recognize the sources and drivers of risk before devising risk mitigation strategies which may

require adding capacity, increasing inventories, having redundant suppliers, increasing

responsiveness, increasing flexibility, aggregating or pooling demand, increasing capability, or

having more customer accounts Moreover, supply risk management activities can involve

process improvement, buffer strategies, forming strategic alliances and developing suppliers

(Lloyd & Walker 2015).

Project Procurement and Risk

Below figure summarizes risks involved in the procurement system as explained by Project

Management institute (PMI, 2008)

Conclusion

Procurement has gone global and it is not new by any means. Historically, references to

procurement were limited to automotive spare parts, oil, gas and construction. Government

regulations were either restrictive or interpreted differently. Lately, it is a different story. With

the advent of information technology and knowledge awareness, regulations have either been

revised or interpreted accordingly. With procurement going global, outsourcing and off shoring

are getting to be very familiar terms in the market

Project Procurement and Risk

Reference

Project Management Institute, (2008). A Guide to the Project Management Body of Knowledge,

(PMBOK® Guide) – Fourth Edition, Project Management Institute, Inc., (pages 313-344)

Lloyd-Walker, B., & Walker, D. (2015, April). Collaborative project procurement arrangements.

Project Management Institute.