The Role of Risk Management in Project Procurement

The process of managing the projects within the business organizations is associated with many different kinds of risks. Whether small, mid-sized or large companies, they all face the risks within their operation. However, the risks depict differences in their nature depending on the type of the project that is being undertaken (Marcelino-Sadaba et al 2014, p. 327). In all cases, it is important for the organizations to develop the approaches through which these uncertainties can be measured and ranked. The information is important in helping to come up with the approaches to curb them for effectiveness. By so doing, the organization increases the chances of success of their projects and also improves the efficiency in the procurement system management (Fang and Marle 2012, p. 625).

This paper explores the concept of risk in detail, especially in regard to the organizational projects and the procurement process. The paper unveils the different ways through which the risks can be measured and also ranked according to various factors. Further, the report discusses different risk management mechanisms, as applied in a small office move project. Therefore, the paper is important for business organizations, especially in unveiling the key aspects of the project and procurement risks and how they can be curbed for effectiveness.

The Concept of Risk

A risk is state of uncertainty that may result in losses or injury, affecting one or more of the organizational objectives. Every project within an organization is faced with one or more risks in its undertaking, which significantly undermines the possibility of achieving one or more objectives of the exercise. There does not exist any risk-free practice in the organization’s operations, however, differences only exist within their characteristics such as sovereignty among other factors. Therefore, the companies must be considerate in their undertakings to ensure that they identify the possible risks and design the suitable strategies to overcome them (Schwienbacher and Larralde 2010, p. 2). The risks have negative impacts on the project and the procurement process within the company.

Given the fact that the risks are inevitable in the business operations, it is important to adopt the risk management approaches for effectiveness. Usually, the risk management is defined as a systematic approach towards controlling the risks, through the identification, the analysis and also the adoption of the suitable response method. Some companies have adopted the risk management system which acts as a framework towards the success of the projects and effective procurement process. The model is a guide in how the organizations can manage their operations effectively considering the potential risk aspects. All the project activities must incorporate within the risk management framework. Therefore, the model plays a critical role in the organization through the provision of guidance in coming up with the risk management plan.

The process of risk identification within a project comes from the series of activities that are required to achieve the goals of the given project. In most cases, the risks and uncertainties lie within the various issues that are discussed by the team. Some risks can be controlled while others are beyond the control of the team. In all cases, the risks affect both the project and the organization in many negative ways. Therefore, it is critical for the organizations to stay alert and realize these risks for effectiveness. Once the project and procurement risks are identified, the next step is to embrace the suitable mitigation strategies depending on the prevailing factors. The common approaches employed include the transfer, ignorance, reduction, and part decision among others. Usually, both the internal and external factors dictate the mitigation approach that is to be employed.

Types of Risks

The Known unknowns: This is a classification approach that has a basis on the nature of the risks. There exist some project and procurement risks that can be foreseen by the project team, and its impact can even be measured. They occur due to the random nature that exists within the organizational operations. The nature of losses caused by these types of risks can be known but controlling them may be difficult. The level of damage caused by this kind of risks varies from one to the other, and thus, it is difficult to predict the exact amount of loss that will come about. When the organization puts in place a suitable risks management plan, it is easier to control this kind of risks.

The Known Unknown Risks: There exist certain risks within the project that can be predicted or foreseen but it is difficult to measure them using the risk management system. They usually have imperfections in their nature making it difficult to measure or estimate their impacts on the project. For example, some weather patterns within a given region may affect certain projects within the organizations, but it is difficult to come up with a clear measure of the impact of such kind of risks within the organization. Therefore, in such a case, the team can predict the occurrence of the event within the project, but they can foresee the magnitude of the impacts brought about (Bleda and Shackley 2008, p. 517).

The Unknown Unknowns Risks: Some of the risks within the project, the procurement system or the entire organization cannot be foreseen completely. The events happen unexpectedly and leave a negative impact on the project. They cannot be easily identified nor planned for because they are always unpredictable. In as much as they exist within the business realm, the project team does not even elaborate on them. Such risks include the political factors. It is difficult to predict the occurrence of such aspects and even a prediction of their impact magnitude is almost impossible.

How Risks can be Measured and Ranked

The measurement of the risks of a project or the procurement system forms one of the most challenging aspects. However, there are two main approaches that are used as the key criteria factors in measuring the risks. These factors are the probability of occurrence and the impacts caused by the risk. The knowledge of the probability and the impact caused by the risk is critical in helping the company to determine the most suitable risk management practices for effectiveness. The combination of these two main measurement criteria has resulted in a chart called the impact/probability plan. Therefore, the application of the risk impact/probability measurement form a key step towards successful management of the risks, and it makes it easier for the organization to execute the complex projects successfully.

Probability

The probability factor is used to describe the chances of occurrence for a given risk. Usually, different risks have different degrees of possibility for their happening. However, establishing the probability can be difficult in some types of risks depending on their nature. It is easier to determine the probability level of the known risks than that of the unknown risks (Acharya et al 2012, p. 59). The information on the chance level of happening for the various risks is important and helps to increase the chances of success of a given project within an organization. The information is used to determine the appropriate risk management strategy that can be employed for effectiveness.

The ranking of the risks according to the criteria of probability can be implemented in many different ways. The likelihood of their happening can be described and grouped as frequent, occasional, probable or improbable. Other conventions can adhere to the form that the risks can be possible, certain, likely or even rare (Trkman 2010, p. 125). Once these categories of probability have been established, the risks are then identified and then placed into their respective groups, as the first step in ranking. In each of the ranking category, a certain amount of weight is assigned, which can later be used for the numerical calculations within the risk management process. The approach is important because it provides a systematic way of grouping the risks according to their probabilities of happening for effectiveness.

Rank

Range

5

Certain

4

Likely

3

Possible

2

Unlikely

1

rare

Table 1.0: An illustration of the ranking of the risks within the probabilistic measure

As illustrated in the table 1.0 above, the probabilistic project risks and uncertainties can be ranked into five groups depending on their chance level of happening. Within the first group of ranking, there are the rare risks ranked as 1. It represents the type of risks that have the possibility of occurring but they are unlikely to happen. Secondly, there are the unlikely risks with rank 2, and it represents the group of events that are expected reasonably to happen but they are unlikely. The third group in the rank is the possible group, which represents the risks that can occur many times. The fourth group of the risks represents those the frequently happens, and are grouped as likely. Lastly, at rank 5, there are the certain risks, which continuously happens within the project. Therefore, the approach takes care of all the risks that can come about with the project or the procurement process.

Impact

Typically, every risk or uncertainty has a negative impact. However, the magnitude of the impact caused varies from one risk to the other. The criteria of impact measures and ranks the various risks within the project according to their level of effect to the project. Some of the major factors that are affected by the impact include the human life effect, the cost involved and other critical factors within the project (Klemm 2010, p. 315). The key aspect of consideration within this risk ranking criteria is the impact sovereignty level, which is normally measured through the evaluation of the possible consequences that are brought about by the risk. The criteria are important is important because it provides the key information that is used to guide the project team towards making sound decisions for the success of the project.

Once the risk sovereignty has been established, they are placed into various categories depending on the degree of the impact caused. The description of the various impact level groups can be different but in many cases, they represent the description of the same group. For example, the risks can be grouped according to their impact level as Catastrophic, critical, marginal and negligible risks. In this case, the catastrophic risks have high sovereignty and place first on the ranking list. On the other hand, the negligible risks have low sovereignty and thus, they get the lowest rank (Berg 2010, p. 32). Once these categories have been established, the risks identification and assessment strategies are employed to predict the sovereignty level of the risks to the organization. Thus, the information provides a guide to place risks into their respective groups.

Rank

Range

4

Catastrophic

3

Critical

2

Marginal

1

Negligible

Table 2.0: Illustration of the project risk ranking according to the impact level criterion

The illustration above in table 2.0 clearly shows that the risks according to the impacts can be categorized differently. Firstly, there are the negligible risks have low impacts when they happen and are ranked the lowest. They include factors such as minor employee illness and minimal environmental damages. This group contains the risks which do not violate the prevailing laws. Secondly, marginal risks include factors such the factors such as the environmental damages that can allow the restoration activities. Other examples of this category of risks include the injuries that may lead to the loss of the workdays.

The category of the critical risks can be ranked with the sovereignty of 3, and they are characterized by their capability to violate the prevailing laws, thus have high impact. They also have the environmental damage that is reversible within the business. Besides, they result in a partial permanent disability or an injury to three or more employees within the organization. Lastly, the catastrophic risks take a rank of 5 on the list. They are characterized by causing the irreversible damage to the environment, causing death, and lead to the closure of the business.

Impact/ Probability plan

The measurement of the risks is mainly based on the impact of the occurrence and the probability of happening. The experts have designed a chart that combines the characteristics of these two main factors to produce a suitable way of measuring and ranking the risks (Acharya et al 2017, p. 2). The approach uses a graph of the impact of the risk plotted against the probability of occurrence. The process results into four main categories of risks which include, the low impact and the low probabilistic risks, the low impact and the high probabilistic risks, the high impact and the low probabilistic risks and also the high impact and the high probabilistic risks. These groups are important because they provide an advanced way of perceiving the risks in terms of their probability and impact at the same time

How Risk Management Strategies to Management Risks in a Small Office Move Project

Typically, the risks within an organization undergo various classical stages in their management. The process starts with the risk identification, analysis, evaluation, treatment and monitoring and review for effectiveness. The steps provide an important framework that guides the organization in developing a risk plan for effectiveness (Burns 2016, p. 24). The process of managing the risks within a project entails the steps of identification, analysis, and response to any form of uncertainty that comes about with the project’s lifecycle. The practice is essential because it helps the companies to maintain the project within the planned cycle steps effectively, ensuring that it meets its goals as planned. The risks management within the project should be integrated right from the planning process, ensuring that they realize and curb the risks effectively as the project continues.

Different projects demand different strategies for managing the possible risks within the project. The nature of the project dictates the risk management strategies to be used. For example, the large-scale projects demand extensive risks planning strategies to mitigate the issues. On the other hand, the small projects will only need a simple risk management plan. The plan for small projects can only entail the grouping the risks and prioritize them in a simple way to understand, and apply the suitable strategies for effectiveness (Billio et al 2012, p. 535)

Approaches to Managing the Risks with a Small Office Move Project

Just like any other project, the office move project is also faced with the various uncertainties in the exercise. The best approach to the managing these risks starts with the identification. The project team need to establish the various risks that lie within the system. The team should come up with a list of both the specific and the general risks that could possibly exist within the project (Teller and Kock 2013, p. 817). Also, the past experiences of the project leads should also provide a guideline to determine the potential risks that can happen with the Office Move project. Some of the common risks that can be identified at this stage include the technical risks, the cost, the schedule, the weather, people and also the environmental factors. It is important to elicit all the possible risks within the project at this stage for effectiveness.

Once the risks have been identified, the next step in their evaluation. The possible risk within the project should be looked upon to determine its possibility of happening (probability), and also the degree of the impact caused. The risks within the small office move project have different measurement degrees such as the impact and probability. The criteria should clearly help to group these risks into various categories for effectiveness. The risk evaluation is important because it provides a way through they can be measured and ranked. The approach forms a foundation for the mitigation strategies to be employed, depending on the rank that these risks take on the list. Usually, the mitigation strategies include the avoidance, reduction, sharing and the transfer as discussed below.

Risk Avoidance: The risk avoidance approach is the most common risk management strategy that is used in projects. According to this model, the project team identifies and evaluates the possible risks within the project, then seeks the option that can provide an alternative solution. The approach needs skills to test various possible strategies that can lead to the avoidance of the risks (Schwienbacher and Larralde 2010, p. 2). For example, moving the office may entail the use of the transportation means that could be associated with different types of risks. Therefore, the team needs to choose the most appropriate transportation approach for use that has fewer risks.

Risk sharing: The risk-sharing approach entails the strategies that involve other parties to take part in the responsibilities, thus, taking part in the risks. The organization chooses to get a vendor or the third party organization which helps it to manage some of the activities that are involved in the project. Usually, the model brings about the advantages of the skills and experience because the contracted companies are the specialists in the area. The office move project will benefit from the shield that is created by the vendor companies because they will absorb all the negative forces for effectiveness. When the projects become successful, the organization significantly benefits from the exercise.

Risk Reduction: There exist certain risks within the project that are inevitable, cannot be transferred or shared. In such a case, the option remains in adopting the ways that can help to reduce them for effectiveness. The team need to seek ways to lower the risks level within the project. It can be done through engaging in activities that reduce the probability of the risks happening, and also, through embracing cushioning practices to reduce the impact caused when the risk happens (Kerzner 2017, p. 12). Therefore, in the case of risk reduction, the project team seeks ways to reduce the probability and impact of the risk, yet face it.

Risk Transfer: The risk transfer approach entails a total shift of all the possible risks to the other party. Some of the risks of the project that deem to possess high-risk impact and have high possibilities of happening are the main ones that are transferred. In most cases, the transfer approach works by incorporating third-party companies such as those that deal in insurance. These companies cover most of the risks that seem to be beyond the reach of the company. Within the office move project, the approach can be employed in cases where the risks are beyond its coverage.

Conclusion

In conclusion, the risks cannot be avoided in every project implemented within a given business organization. Some projects can be predicted in their occurrence possibility and impact (known risks), while others cannot (unknown risks). In all cases, the control of these risks is essential because it helps the companies to increase the chances of the success of the exercise. Usually, the project risks are measured according to two main factors; the impact caused when they happen and the possibility of happening. The two factors are combined to deliver a robust solution to grouping and ranking of these risks.

The management of the risks within the small office project entails a consideration of the various factors for effectiveness. The stages start with the risk identification, the ranking and the then, the application of the mitigation strategies. Some of the ways of mitigating the risks include the avoidance, sharing, transfer and the reduction. In some cases, these approaches are combined for effectiveness.

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