Project Risk Management: Essential Methods for Project Teams and Decision Makers

CHAPTER TEN

Addressing Uncertainties through Procurement

Questions Addressed in Chapter 10

• How can we distinguish the contracts we should not touch from the ones we must win?
• Where do the uncertainties of procurement come from?
• What are three major groups of work-package risks?
• By what process do we manage risks in procurement?
• Why is risk-based selection of procurement options better than risk management of a given procurement option?
• How might a standard risk management methodology make procurement people’s lives easier?

THIS CHAPTER IS DEVOTED to an overview of the applications of risk management in procurement. In some situations, a project or contract looks so attractive that a company jumps on it without diligent consideration. Then, its execution opens up a can of worms leading to huge impacts on the company’s objectives.

For the most part, no one is interested in a contract that looks terribly risky. However, a company might be able to identify the key contract uncertainties and come up with smart and effective means of addressing them and this project or contract could become the most profitable one the company ever had.

Major steps of the procurement process are described in this chapter as related to risk management. There is a similarity in the risk methods used for selection of engineering design options1 and selection of bidders. Their applications to procurement ...