Procurement insight!

Risk Management in the Public Procurement Context

Risk management in relation to procurement services within the public domain can be identified in two dimensions:

1- Procurement Process Risks, for example : Public Authority does not have legal capacity to procure, No allowance made for whole life costs, proper procurement process are not followed in accordance with the Policy, delay or not obtaining appropriate approval; lack of enough or inappropriate budgeting; and conflict with existing contact.

2- Product and/or service Risks, for example : delay in the delivery process, failure of new technologies, incompatibility of the new products with existing systems; product/service doesn’t meet the desired outcomes; and lack of in-house knowledge to develop effective specification or scope of works.

To identify, manage and mitigate these risks, a Risk Management Framework (RMF) should be used; generally consisting of the following steps:

a) Identify what are the key activities in each phase of the procurement process or what are the key features of the products and or services.

b) Identify what are the critical success factors in each phase of the procurement or what are the most important factors in the products / services and identify “what may go wrong” – the Risk.

c) Identify what controls are in place to manage these risks.

d) Assess the level of the risk in terms of Consequences and Likelihood; each organization would have different “Risk Reference Tables” and the level of the risk should be based on that table.

e) Decide whether the level of risk is acceptable, if not put an action to reduce the risk (e.g. indemnity and insurance clause in the contract).

d) Monitor, learn and adapt control as necessary.

Risk management is an integral part of the procurement, commercial and contracting processes and RMF together with risk registers should be used to achieve an effective and sustainable outcomes