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Risk Management in Procurement Processes (KPIs to consider)

by | September 10, 2018

Managing risk is still an important aspect for CFO’s according to the Deloitte Survey Report, 54% of the financial specialists surveyed mentioned that managing risk is a priority for the next 12 months.

CFO’s feel that Brexit represents one of the biggest risks to the procurement landscape and in general, for businesses, according to the Deloitte Survey.

deloitte most significant market risk

Procurement leaders continue to keep a close watch on global macroeconomic risks, with the top three being:

  • uncertainty and outcomes of trade negotiations, e.g. Brexit, NAFTA
  • weakness and/or volatility in emerging markets and rising geopolitical risks in the Middle East/Asia
  • spillover effects of a slowdown of Chin.

Risk management is a very important aspect of the procurement function. Whenever procurement specialists carry out activities associated with purchasing and supply chain management, they should be aware of the risks these activities may bring.

Chartered Institute of Procurement and Supply Chain suggests that risk can be defined as ‘the probability of an unwanted outcome happening’. Risk management involves three key activities: risk analysis, risk assessment and risk mitigation all of which facilitate the taking of decisions and actions to control risk appropriately by providing a disciplined and objective approach.

Risk Analysis – is a process that grants risks to be identified and determined according to their importance. Undertaking risk  analysis helps improve both the chances of success and  the overall strategy.

There is no right or wrong regarding risk analysis. The main point is to be able to identify all the risks related to a particular procurement situation including the impact of that situation on the business, and also to make a decision on what level of effort is needed in order to resolve the situation.

Risk Assessment – this is a process of assessing a risk and analyzing the impact it would have in that scenario. It may happen that some risks are easier to control or manage than others. Questions like How severe will the risk impact be? or What is the possibility of the risk occurring? will help to assess the risks.

Risk Mitigation– after risks are identified and analyzed a plan needs to be drawn and set in motion. An important aspect is to determine who is the best person to handle this task and for that person to become the owner of the risk mitigation.

The control of risk must be clearly defined and agreed with the individual owners. This will ensure understanding of roles and responsibilities. Individual owners should have the competence, authority and experience to deal with risks allocated to them.

Organisations are aware of the importance of managing and assessing risks. At some point, every organisation will face risks while working on achieving its goals. Risk management can become a influential tool to empower competitive advantage.

Interested on how to reduce risks in your organisation? Have a chat with one of our procurement specialists!