What we will discuss in this article are the tools and respective functionality we need to consider employing. Each of the following steps make up the RISK MANAGEMENT PROCESS:

  1. Risk Identification
  2. Risk Analysis
  3. Risk Evaluation
  4. Implement an Action Plan
  5. Measure & Correct

RISK IDENTIFICATION: The third article, “RISK IN PROCUREMENT” provided detail information on such. Below is a summary reminder of such:

  • Loss of goods, reputation, or money (fraud, corruption, bribery or theft)
  • Loss of Intellectual Property
  • Losses from lawsuits
  • Supplier poor performance – quality, delivery

Tools to aid us in the risk identity process element are:

  • DELPHI METHOD – a group decision from EXPERTS via a questionnaire and comparison of their responses, along with a second round of questions regarding the analysis of their responses.
    • Another review/analysis of responses to the second round will provide further insight
      • The experts will then present their final findings in a CONSENSUS OPINION
  • SWOT ANALYSIS – is a methodology to guide you to identify:
    • S = Strengths and W= Weaknesses inside/outside of your organization
    • O = Opportunity and T = Threat providing an awareness of your enterprises strategic planning & decision making.
  • BRAINSTORMING – PROCESS
    • Team of involved personnel
    • Present ideas
      • Follow rules of brainstorming & respective process steps(SEPARATE FUTURE ARTICLE)
  • CAUSE & EFFECT ANALYSIS(SEPARATE FUTURE ARTICLE)

Create a RISK REGISTER:

  • It consists of:
    • Date identified/experienced
    • Description & type
    • Likelihood of occurrence
    • Severity of effect
    • Countermeasures – actions to be taken
    • Owner
    • Status – being fixed, fixed, or to be fixed

    RISK ANALYSIS & EVALUATION: (STAGES 2 & 3 OF PROCESS)

    As can be seen in the graphic above, there are both qualitative & quantitative analysis happening. There is an analysis regarding the probability and consequence of each risk – this is depicted in the next graphic denoted below entitled “RISK LEVEL”.

    This would be used to prioritize which risks should be acted upon – NOTE THAT THOSE FALLING INTO THE UPPER RIGHT QUADRANT would get the priority & then the one to its’ left the next.

    ACTION PLAN & MEASUREMENT: (STAGE 4 & 5 OF PROCESS)

    The basic Risk Responses/Plans are:

    • Avoid – Changing a plan to eliminate risk or its impact
    • ACCEPT – Take no action or unable to form a plan
    • TRANSFER – Insurance or contractual transfer to supply chain partner
    • MITIGATE – Preventative measures to reduce the probability or severity of risks

    The management of the risk and the respective plan is best depicted by the final chart/process step of measurement:

    This completes the series of articles on RISK MGT. in Procurement. Look for more articles to help address issues in Procurement!