Risk management is integral to the procurement process. It is a critical and ongoing process that never really ends, meaning that you will always need to undertake appropriate risk assessments for every level of the supply chain.
As a procurement professional, you should engage with suppliers to identify the risks that may arise from doing business with them. Not only does this encourage greater honesty between both your organisations, it also gives your suppliers the chance to offer details on how to best achieve the results you want. In addition to this, suppliers will also provide you information about timelines, affordability and feasibility.
Maintaining a risk register
It may be a good idea to create a risk register with one column containing all the issues that you might encounter for a particular supplier and another column listing the actions you will take to mitigate those risks. Always make people accountable for the actions and set a review date so that you can go back and check whether the necessary action was taken. It’s also good to have a column for resolutions to record the outcome and whether any further action is needed.
Importance of risk management
Risks bring uncertainty to any transaction, and this may affect the entire procurement chain. Therefore, to any prevent disruption for your end client, it is important that you learn to identify the potential risks to prevent it from compounding and affecting your deliveries in the future.
Having an effective risk management strategy in place will help you to improve your performance in the following ways:
- Uncertainties are removed from the equation
- Enjoy more effective management of change
- Use resources more efficiently
- Provide enhanced service delivery
- Minimise waste
- Improved decision-making
- Ability to innovate
- Manage maintenance activities more efficiently
The risk management process
The risk management process is divided into four stages. These stages are as follows:
Stage 1 – Identification: ascertaining any potential risks
Stage 2 – Risk assessment: evaluating the likelihood of a risk occurring and the severity of the impact
Stage 3 – Controlling risk: putting measures in place to avert the risk and reduce its impact
Stage 4 – Monitoring: re-evaluating the adopted measures
Arguably, stage 4, routinely checking if your strategy is functioning and minimising the anticipated risks, is the most important step in the whole process. This is a continuous procedure which helps you to assess the efficiency of your risk management strategy and to monitor your processes for any new potential risks.
It is also good practice to remember that managing risks is fundamental to good management and the effective procurement of goods and services. Always keep risks in mind and never ignore it; if you’re not proactive then you’ll always be putting out fires and rarely progressing.
Steve has over 28 years of success as CPO, MD and Procurement BPO leader in a range of industries. Steve is COO at Odesma, responsible for Odesma’s delivery capability & infrastructure.