When starting a procurement exercise, it is necessary to make an assessment of risks that may arise during the exercise. Factors such as the value, political profile, marketplace and the importance of the proposed procurement will determine the potential for risk and indicate the time and effort required in completing an assessment. For example, generally a minimal risk assessment will be given to low value routine requirements however larger or complex requirements, generally need a more consideration in terms of risk.
Potential risks that should be considered include but are not limited to:
The procurement exceeds allocated budget
In major procurements it is important to assess budget requirements so that in the first place, a source of funds can be identified and then, later, an assessment made of the likelihood of the final project being completed within the figure identified. Budgets can be exceeded for several reasons:
Unforeseen problems such as ground conditions making the setting of foundations in a new building difficult; inclement weather causing delays in a construction project; delays in the supply of materials/equipment needed before a project may proceed
Initial costing exercises failing to identify all the possible elements, for example: a failure to take all operating costs into consideration when pricing a proposal for new equipment
Legislative changes that require the institution to have to carry out some work that was not originally identified or where there is a change to the wage expectations of staff provided under a service contract (for example: where hourly rates are near to or at the minimum wage level)
Actions to reduce risk of exceeding the allocated budget include:
Detailed preparation at an early stage in the project where the institution should try to identify what could go wrong. Try to estimate the likelihood of each problem happening and estimate the additional costs if it does. Then, try to see what can be done to minimise that risk happening and/or reducing the potential costs/problems.
The Whole Life Costing model can help determine the likely cost of ownership. The model contains a list of likely costs that may arise at installation stage, during its operational life and at disposal. The list can be continually updated as new issues arise, helping improve the quality of costing exercises in the future. Work completed at this early stage can help identify where budget issues may arise in the future and, again, action can be taken to minimise the risk or to seek additional funds to cover the increased costs
The supplies/services are not delivered on time
Supplies/services not being delivered on time can happen for several reasons:
They were not ordered on time
The institution did not state a delivery time and had assumed that the supplies or services would arrive when needed
The supplier does not deliver the supplies/services on time
Actions to reduce risk of late delivery include:
When obtaining competitive bids make sure that you ask for a delivery period such as. ‘x’ number of weeks from when the supplier receives the formal purchase order
If the delivery date is critical, check with the supplier before awarding the contract or placing an order - if necessary. You may decide to deal with a slightly more expensive supplier which can guarantee delivery within the required time scales
If the delivery date is critical, consider using a liquidated damages clause in the contract's terms and conditions. This may not help in terms of the required work being delayed however it will entitle the institution to compensation
The supplies/services selected do not meet the users' expectations
Sometimes the supplies/services received will fail to meet the users' expectations. This type of occurrence should be investigated to find out why. For example:
Was the wrong product specified?
Does it simply not work or is it not suitable?
Were the user's needs underestimated?
Were the needs of, for example, disabled users not considered or included in the specification?
If the wrong product was specified, review the decision processes followed at the start of the exercise to find out where the mistake was made in specifying what was required. If mistakes are identified, review them and see how they could have been avoided, then share the lessons learnt to minimise the chances of this happening again. It may be that the correct products were specified at the time, however other factors affected the use to which the product was put after it was received.
For example, a major shift in research direction/methodology could render a piece of scientific equipment less useful than what would have been specified had the users known his/her requirements were going to change.
If the products do not work, it will be necessary to determine what is causing the problem, for example: it may be that the product is faulty and that a replacement is required. It may be that the product is not 'fit for purpose' i.e. it cannot fulfil the purpose for which it was purchased. In this case, there may be an opportunity to seek some remedy from the supplier, in either the provision of an alternative product or financial compensation. It will be important to refer back to what was asked for in the quotation/tender specification and stated on the purchase order to ensure that the institution's requirements were specified appropriately. Check if the supplier provided what was asked for i.e. was the initial specification wrong?
There is a technology shift between the procurement selection and delivery
Technology changes very quickly in some areas, especially in computing. This can cause problems when there is a relatively long period between drafting an initial outline specification to seek funding to when funds are available and the institution is ready to order the supplies. It may be possible to forward guess where the technology changes will take the specification of the desired equipment.
In respect of computing, of course, there is a possibility that you will be able to obtain higher specification equipment at a lower unit cost. This situation may result in a slightly lower budget figure allocated to an exercise based on the expectation of a lower cost for the required or slightly higher product specification. After the procurement exercise has been completed, there may be surplus funds that either must be returned to the funding source or, if approved by the funding source, used to purchase additional supplies or services.
Funding applications
In funding applications, there can be quite a delay from the application stage to grant award. In computing terms, this could mean that the application was for a ’model C’ that has been superseded by ‘models D’ and ‘E’ by the time the award is made. Indeed, if a reasonably long delivery time is expected, it could be that the desire of the institution is to obtain ‘Model G’ which is expected to be available by the anticipated delivery date. This as you can see can cause problems for both the buying institution when preparing the original grant application (having to forward guess the industry) and for the grant award body (deciding whether to make an award for the product requested or one that takes account of the technology shift).
Technology shifts
The risk of technology change can also arise where, for example, a cutting-edge department is being set up. This can take several years from initial concept to having the physical location, staff and equipment in place. During this time, technology shift could make the facility out of date or even obsolete. Dealing with technology shift will not be easy, however it is important that the issue is considered when planning procurement involving equipment with a high technological design element.
There is a change in the strategic direction of the institution/department
This area of risk should be considered where the institution is considering moving into a new area of activity, for example a new course offering.
Consideration should be given to the costs of setting up the infrastructure to support the new course. These costs could include a physical location, such as the need for new buildings or the refurbishment of existing space. In the latter case consider if the current residents of the space need to be re-located and the costs associated with this. There may also be staffing issues (although this will fall under the responsibility of the Human Resources Department, it should be considered).
Strategic risk can arise in the period needed to plan, prepare and set up a new facility. There may be a possibility in the chosen area of curriculum, of either the emphasis or demand for work in the planned area changing or another institution getting into the field before your institution is ready.
A change in strategic direction can also come about on a departmental level when, for example there are staff changes at a senior level. There will be instances when a Director of Estates or Finance moves to another institution and they may bring different solutions such as bringing a service in-house or outsourcing a service.
Strategic risk is probably one of the most difficult areas of risk to determine and to assess the potential impact of issues arising. However, especially in higher value ventures it should be considered and possible solutions outlined.
School / MAT members - the information on this page aligns with the following ISBL Professional Standards: 3.33, 3.34, 3.35, 3.36