How to Manage Risks and Quality for Project Procurements

Howto Manage Risks and Quality for Project Procurements

How to Manage Risks andQuality for Project Procurements

TermPaper

PURPOSEOF THE TERM PAPER

Theterm paper is an opportunity to apply the knowledge and comprehensionof the PMBOK ® Guide, Fifth edition to the management of a specificproject.

SCOPEOF THE TERM PAPER

Thispaper focuses specifically on developing a practical strategy andsupporting tactics that will enable the effective and efficientmanagement of the risks and quality associated with procuringproject-related products and/or services. The specific managedproject is concerned with providing meeting facilities andpresentation equipment plus food and beverage services to a meetingthat will be held offsite at a local hotel.

INTRODUCTION

Quality policiesdevelopment for any project and the coordination of relatedactivities to be in compliance with the organization and any otherregulatory standards is the sole accountability of the projectmanagers. The role of the managers and the description of the lawagencies, policy, tools and technique that are used to ensure projectexcellence, cost reduction, removal of unnecessary corrections orchanges and mitigation of risks are documented in a risk and qualitymanagement plan document.

Theabove is illustrated below in this study.

  • Describe the risk planning efforts of the project team and explain how risks will be monitored and controlled during the project’s natural lifecycle.

RISKIDENTIFICATION

Riskevaluation and an alleviation strategy for the mentioned risksencompass Risk Management on projects is a procedure. Risk evaluationcontains both classification of imminent risk and the appraisal ofprobable risk effect. Risk alleviation plan is deliberate toeradicate or reduce the negative risk effects of project’s event.Risk identification is also a creative and an ordered course ofaction. Creativity involves innovation periods, and the designatedteam is requested to make a new list of future irregularities(Spring, 2008).

Theproject team came up with a check list of conceivable risks andevaluation that those proceedings may cause to the project. Since theproject team has had firsthand experience based on recent year’sactivities, they classified the risks into various categories:-

1)Environment

2)Cost

3)Political

4)Contractual

5)Weather

6)Financial

7)Schedule

8)Technical

9)People

10)Customer

Inthis instant there were no political risks since the meeting wasbeing held several months after the electioneering period in thecountry.

Theweather and environmental category would not be an issue since themeeting would be held indoors and it will be during summer. Howeverthey may cause risks that are beyond the team’s ability. Therefore,the attendees are expected to be warm enough. The schedule categoryseemed to be quite risky since the same venue that we will be usingis booked for another event, two hours after our completion time.Therefore lateness shouldn’t be tolerated otherwise this wouldresult to a fine of $500 every extra hour we spend beyond ourscheduled time. The category that involves people may be segmentedinto those risks that are related to people such as the risk of notbeing able to find the skills required to pursue a project or theabsence of stakeholders of the development. The client category canbring about risks when the client starts making new demands at thelast minute or when the client does not trust the procurer to deliverthe products or services in time.

Thecost and financial section risks basically depends on the types ofcontracts that were chosen therefore a look into the type ofcontracts will bring about a broader view of the risks involved, butin a nut shell, the financial risks involved is when the clientwithholds payment or defaults on the payment agreed upon. Cost riskis involved when costs exceed what was scheduled for the meeting.

RISKEVALUATION

Thenext stage after the identification of probable risks, is for thestakeholders to examine the risk founded on the likelihood that therisk event might occur and the possible damage connected to theevent. The degree of the risk events and the costs involved varygreatly since some of the events have high chances of occurrencesthan others. This therefore makes all risks unequal. The next step inthe risk management process for the project team is risk evaluationfor the likelihood of occurrence and the sternness or the probableblow to the project. If the project team has a way of determining theimpact of certain risk into either high or low will assist in themitigation of various risks. Therefore the team might thenmicromanage the risks that have the biggest negative impact on theproject life cycle and deal with them sufficiently (David, 2003).

RISKSAND IMPACT

Apositive relationship exists between project risk and projectcomplexity as the project team realized. When the number of risksgoes up so does the complexity. However since this is not a projectwith new and emerging technology, there was no need to assign fundsto the technology managers to guarantee the achievement of objectivesof the project. However the project team will supply the variousmanagers who will present at the meeting with tutorial classes on howto use the technology that will be in place during the meeting(Spring, 2008).

RISK ANALYSIS OFEQUIPMENT DELIVERY

Sincewe are providing meeting facilities and presentation equipment plusfood and beverage services to a meeting, the project team scrutinizedthe risk of the vital inputs arriving late in the project process.

Theproject team recognized two inputs of tools important to the projectand that might meaningfully add to the project’s cost if theyexperienced lateness in coming in. A vendor was chosen to transportvital equipment pieces, and he had a record of project lateness. Thevendor was a professional but took work that would overwhelm him andtherefore he was late on delivery. However. It could not deter thepanel from selecting the so said vendor because the vendor wasselected on the basis of his commitment and based on the pricequotations available the vendor was affordable. This risky event (therecognized equipment arriving late-the public address system andprojector) was rated as having high occurrence and coupled to highimpact. The extra piece of kit-writing materials and stationary wasimminent on posing a greater influence on the project but contained alow chance of occurring.

Additionally,since the meeting will be happening in a rented out facility andequipment from a hotel in New York City, the probability of the spaceand equipment being late or not enough has a low probability ofoccurring. However, the hotel in notorious for having their eventsbooked with minimal time difference between separate events. Due tothis, a smooth transition where the attendees find the room in orderwill be quiet difficult. Despite this being an all-day event, thehotel operates in a 24 hour economy and therefore the room will behaving another event soon before and after our time commences andelapses respectively. Therefore, the risk event is higher and has achance of happening.

Someproject managers fail to perform the necessary risk assessmentprocedures of the project at hand. A risk management program haschallenges when the formal management resources are absent. Everymanager is tasked with the preparation of risk management protocols.Thus, sober-minded project managers will ensure that their projectshave the better risk evaluation plan. Every manager is different whenit comes to running a project some managers are optimistic and thusignore risks while other managers have a very sharp eye to detail andthus will not overlook any chances of risk or failure occurrences(David &ampAlison, 2004).

Thisproject has a reduced complexity level and thus the concerned teammay ignore and employ informal methods of diagnosing risk items. Insophisticated projects, the team players will create strategies thattrack down the risky items and this is quite important in theproject review stages. So. This is considered a more formal order ofapproach. Project meetings are very necessary in all stages so thatalmost all involved risks may be examined. Additionally, if the scopeof the project is highly sophisticated, an extra party with wideexpertise is called upon to assess all the intricacies of theproject.

Sophisticatedprojects might require the use of statisticalmodels that are runto evaluate the possible risks. Nevertheless, it is not that easybecause there a lot of risks involved such that their predicationsbecomes an obstacle. However, there are simulations such as the MonteCarlo simulation that will give a possible range of outcomes byrunning varied risks levels. Typically, the result will give a 10%probability that a few inputs may be late or the weather may alsocause interferences.

RISK ANALYSIS OF FOODDELIVERY

Toavoid double disappointments from the same equipment vendor, the teamdecided to outsource a different vendor to provide food and beverageservices in the meeting, the project team approached the vendor andasked the vendor to make food for two breaks and lunch for a maximumof 210 guests. The project team identified areas of concern with thefood vendor that would greatly lead to increase in costs. Forinstance, the vendor was the cheapest they could hire given thecontrolled food budget of $80 per person for the food. The vendor’scost was $105 per plate if they used their own incidents but if theteam provided them with their own ingredients then the cost would beslashed to $85 per head.

Inorder for the $80 budget not to be exceeded, it was decided that oneof the breaks scheduled would luck snacks to be taken together witheither tea or coffee. Therefore the overall budge per head would beas follows: 1stbreak $10, 2ndbreak would cost $7, beverages would cost $5 and the lunch meal wouldcost $58 for all the attendee.

Anothercritical issue that would be a challenge for the food vendor would bethe prompt transportation of the meals due to the heavy traffic thatNew York normally experiences. This risk event was categorized ashighly likely with high impact because it is hard for people toconcentrate and even participate during meeting when they are hungry.

Anotherissue of concern was the state of food due to the recent outbreak offood poisoning and typhoid in the region around where the hotel wassituated. This risk event would have a certain result in theproject. Despite that, it will show a negligible probability ofhappening due to the vendor’s recent certification of grade B infood quality.

Anotherexisting risk is low or high attendance from the members’ side morethan what was expected. When this happens, the expenditure used forthe meeting will go to waste or will not be enough to cater foreveryone due to under budgeting (David, 2003).

RISKMITIGATION

Followingthe above mentioned risks, the team developed a risk mitigation planthat reduces the effect of unanticipated risk events. The mitigationof risk is as shown below:-

  1. Risk reduction

  2. Risk sharing

  3. Risk avoidance

  4. Risk transfer

Therisk alleviation plan attracts the risk mitigation advancement forevery recognized risk event, and the measures the managementstakeholders may take to decrease or do away with the risk involved.

Theproject management team in a bid to reduce or eliminate the abovementioned risk employed various ways to counteract the riskavailable. For instance, to avoid the risk of equipment-writingequipment and stationary- the project management team requested theattendees to carry their own writing material and stationary. Thiswas to avoid the attendees lacking writing materials in case thevendor allocated the task never showed up. The management used anexisting technique even though a new technique such as the teambuying the materials themselves would be more promising in results.Therefore, avoiding risk should commonly encompass the creation ofadvanced strategies that have greater chances of accomplishments butusually accompanied by an increased cost of successfully completing aproject task. In this case, the extra cost was shifted to theattendees.

Asearlier mentioned, the team identified a piece of equipment that wasof great importance to the meeting and without it then the meetingwould be greatly interrupted. The piece of equipment-the publicaddress system and projectors- should not lack from the meeting andto mitigate the risk, the project management team would hire those ofthe hotel in a bid to reduce the risk. However, the venture would bean expensive on.

Theproject management team would also transfer the risk to the New Yorkhotel management if the risk of them starting late is due to the roomnot being arranged and handed over to then in due time as per theiragreement. This technique is referred to as Risk transfer and it is arisk lessening technique that moves the risk from the originalproject to another second or third party. Change in weather duringthe day of the meeting would also impact the project beyond thecontrol of the team and therefore the risk is shifted to anotherparty.

Whenit comes to mitigation of the risks involved in food delivery, therisk of rood not being delivered in time would be solemnly shifted tothe food vendor. The food vendor should assess the traffic situationin the locale and prep him/herself well to deliver the goods in timeon all three occurrences. The risk of food poisoning and typhoidwould be shifted to the food vendor as well since the vendor will bein direct contact with the food preparations and delivery, thereforethe risk of food safety will be the vendor’s responsibility.

Tomitigate the risk of either low or high attendance, the projectmanagement team would send reminders to the expected attendees wherethey would be asked to confirm their attendance. This would be anextra cost to the team but at least they would have risk involved andin the long run they would have saved costs either directly orindirectly.

CONTINGENCYPLAN

Contingencyplans are those plans that the project team frequently comes up witha substitute mechanism for achieving a project aim even after a riskevent has been recognized. The project risk plan balances theinvestment of the mitigation against the gain for the project.

Onthe other hand contingency funds are those finances reserved by thestakeholders to cater for unpredicted events that bring a hike in theproject’s cost. Complex projects require massive contingency budgetplans (Sam, 2002).

Othermanagers tend to assign the contingency budget towards items in thebudget that are more risky instead of developing one line item intheir contingencies’ financial plan. Tracking of the use ofcontingency against the risk plan by the project team is possibleusing this approach. In our case, such an example of a high riskendeavor is the procurement of the public address system andprojector of which a contingency fund is put aside to hire the localhotels system in case the vendor doesn’t deliver at a much highercost though. Rather than finding alternative and less costlysolutions the availability of the contingency fund increases theusage of the fund to solve problems (David, 2003).

QUALITYPOLICY

  • Describe the quality policy that will be used to manage the project.

Thequality management plan policy will involve the efficiency of theproject planning to the project completion. The policy plan guidesthe criteria, authorities and their designations in the projects. Theplan is usually designed at the entry phase of the project. Theresponsible stakeholders are the project managers, senior sponsors,the project team and other significant assistors (SR EN ISO 9001).

Planning

Inthe planning stage, the project management team appraises the currentlevel of the project the current level of quality, and where thatlevel needs to be and then develops an efficient and workable planwith specific objectives for improving quality (Sam, 2002).

Theproject team established the need for the restructuring meeting thatis to be held and planned for the meeting. The project team visitedvarious locations looking for an affordable venue that would hostaround 250 people for a whole day meeting.

Duringthe planning stage the team discussed

1)How procurement process will be managed.

2)Roles and responsibilities.

3)The type of contract to be used.

Theprocurement process would be managed with the project managementteam. The procurement course is to ensure that there existsequilibrium between the requirements and equipment- resourcesavailable for the company to run professionally (Deac, 2013). Theteam will be responsible with everything that pertains to the vendorsthat would be contacted to provide supplies and/or services towardsthe meeting. The team will be in charge of the following

  1. They should define the purpose of the meeting so that vendors could appropriately determine their costs

  2. Allow proper time for product definition, design and documentation if needed.

  3. Determine and without a doubt the time, cost and quality standards to be achieved.

  4. Select the procurement strategy that best suits their needs.

  5. Recognize that the impact of amendment on the project is less expensive and more efficient before the meeting day.

  6. Adequately research their needs, services they require and business needs.

Describethe quality policy that will be used to manage the project.

Duringthe planning process, the following steps are to be followed to avoidunfavorable variations:

  1. Call for a project management team comprehensive planning and work sitting: – This is held as soon as the project team is established. Here,

  1. The meeting attendees are established and in our case they are the project team members, about 200 members and the senior managers to the organization.

  2. The Agenda is decided upon which restructuring of the company’s strategies. The agenda is created 234 hours before the actual meeting day.

  3. The convenient location is decided upon which in our case a local New York City hotel is.

  4. Equipment and props are to be delivered to the location by an outsourced vendor at a fee. The equipment include writing materials, projectors and public address systems.

  5. The company secretary is chosen to write down the meeting minutes.

  1. A well detailed Work Breakdown Structure(WBS) is developed whereby it is expected to have the detailed cost and budgets for each structure, a clear framework is displayed separately from the company’s, funding sources and accounting system, the responsibility of each task is identified, it aids detailed planning by dividing the project capacity into smaller controllable work efforts. This is conducted by the project management team.

  2. A responsibility matrix is the developed with the following responsibility

  1. Owner who isn’t expected to do any work but they can create their own responsibility matrix for the project.

  2. Reviewer who is in charge for temporary review of deliveries in progress and also regulates the time that the deliverable is mature enough to continue with the approval process.

  3. Approval whereby the project sponsor has the ability to approve the final deliverable.

  4. Last word rarely happens and this “veto” power can act on the project regardless of approval levels.

Thepurpose of the matrix is to enable the project team to understand theresponsibility structure of each member and as a result creatingaccountability and ownership of the deliverables assigned.

However,the team could evaluate the vendors’ performance from theirprevious tasks. The evaluation can either be quantitative orqualitative. Quantifiable indicators are the most frequent used forinstance performance can be measured through the following objectiveswhich are compulsively linked to indicators (Canonne &amp Petit,2013) as follows:-

  1. Quality

Indicators

Quantitative

Qualitative

-non quality costs

-rate of refusal

-number of different products distributed

-number of certified providers

-satisfaction of internal customers

-quality of service provided

  1. Cost

Indicators

Quantitative

Qualitative

-target prices

-budget deviation

-productivity

-price positioning in retrospect to the market price

-sufficiency of the -price-performance relationship

  1. Meeting deadlines

Indicators

Quantitative

Qualitative

-promptness of deliveries

-rate of satisfying an order

-development time by the provider

-level of service offered or meeting demanded

-flexibility

-adaptability

-reactivity

  1. Innovation

Indicators

Quantitative

Qualitative

-research and development progress

-recommendation for improvement

-creativity for recommendations and suggestions

  1. Management.

Indicators

Quantitative

Qualitative

-observance to the company’s procurement policy

-financial position

-climate and quality of the made associations

-ability to comprehend and decipher company’s shortcomings

  • Describe how the project team will apply quality control principles to verify that the delivered goods and services acquired through the procurement process (supplied by vendors for use at or during the meeting) will be accepted by the affected stakeholders.

The project management teamwill apply quality control checks principles through regularscheduled statues meetings which will notify the project manager ofthe statues, developing issues and updating items.

During the statues meeting thefollowing will be discussed at length

  1. Purpose: here the team’s members and the vendors are expected to give full reviews of their responsibilities, address any new issues that arise, and give feedback.

  2. Attendees: the people that would attend the meetings are the senior managers, the project management members and the various vendors that will have been selected.

  3. Agenda: the first agenda will be to present their accomplishment such as getting the best vendors and negotiating payments, attainment of the venue among others. They will also get statues and progress reports from the vendors, each team member. The meeting will be ended once there is a similar understanding among all team members.

  4. Location: A conference room is selected that could hold the 210 expected guests without straining the facility. Enough seats and tables should also be provided.

  5. Limit: This is the time duration for the meeting which is scheduled for a whole business day. Therefore, if the invited protocol sticks to the agendas to be discussed upon then the stipulated time ought to be more than enough.

  6. Meeting minutes: the secretary assigned for the meeting will take down notes however, the position may change. The minutes should be available to the meeting members at least 48 hours before the meeting commences.

Apartfrom the regular meeting that the team attends where they assess theprogress of the report, the project management team could also fostera relationship with such vendors. Recent criteria of qualitymanagement have encountered an increase in customer-supplieraffiliations as the company and its associates engage in a mutualbeneficial platform that helps to create value (ISO 9004: 2009). Therelationship requires a change in behavior and attitude of bothparties. However, a prerequisite condition is needed for the newrelationship to build up and that is for both associates toaccomplish a general look at their collaboration. The relationshipmay be oriented towards the following direction:-

-Supporting the suppliers’development programs

-sharing risk or profitsthough profits doesn’t account in this case

-cooperation in designing newproducts and technologies.

-information switch related toproducts, processes and strategic issues.

However,currently a lot of time and resources is wasted when buyerscontinually bargain with suppliers on price (Kotler, 2008). Aftervendor diagnosis, the recommendations permits the vendors to advanceand the client to select varying offers. The evaluation of thevendors represents a diagnosis followed by (Oprean et al., 2012).

  • Explain why the specific contract types were selected for use in purchasing the required goods and services from external vendors.

Thereare two categories of contracts that the team could choose from,a) fixed pricecontracts and b)cost reimbursementcontracts.

Theproject management team used the fixed price contracts for theprocurement of materials needed during this meeting.

Thereason for them selecting this method is so as to have a controlledbudget. It has the following advantages-

  1. The price stated is not subject to any adjustments such as the $80 per head for meals during the meeting.

  2. This type of contract places maximum risk and full liability for all costs and resulting profits to the project managers.

  3. It presents maximum motivation for the project management team to manage costs and perform efficiently and avoid unnecessary expenditures as they try to save on costs.

  4. Fixed price pacts are the most used for acquiring provisions and services and/or for profitable items.

Definitequantity contracts are also used-in the case of food procurement-since they provide the distribution of an unambiguous amount of achosen equipment and service for a limited period in this case, foodfor one business day. Deliveries are then made to a scheduledlocation-New York Hotel- upon order. A definite quantity contract isused to determine beforehand a certain measure of supplies that willbe needed in the contract period-one business day- and if theprovisions are regularly available or available after a short leadtime.

  • Describe some specific clauses that should be included in the contracts that are established with each vendor. For each clause, indicate its expected influence on the organization’s exposure to risk given the types of procurements that will be made for this project.

Forthe contract with the food vendor certain clauses should be includedin the contract or agreement. For instance, written instruments ofunderstanding with the following clauses are submitted

  1. The method of pricing, issuing and delivery of the product: – this will have an influence on the organization’s exposure to risk by clearly stating the price budget that the organization is willing to spend on food and beverages in our case.

  2. A description, as specific as possible of supplies or services provided:- this makes it easier for the organization to have a variety of supplies delivered by the same vendor thus saving costs and maybe discount may be offered when large bulks of supplies is bought.

  3. In case of any health hazard who will be responsible for the medical charges incurred-the vendor

  4. What’s the expected waiting time for the product or service and what offer to expect

Forthe contract with the equipment vendors, the following clauses shouldbe involved

  1. Submission of accurate and fair progress claims in case of damages to the equipments. This minimizes the risk of having to spend more in irrelevant claims.

  2. Respond punctually to reasonable requests for counsel and information to avoid extra costs that occur when the product is tampered with due to user error.

  3. Execution of the agreement in a suitable method in accord with the stipulated timeframe. This helps in the avoidance of penalties due to a violation of the timelines plus it prevents one party from inconveniencing the other.

  4. Accountability and transparency from both parties. The contracts should be open, clear and defensible and no party should engage in collusion and hidden commissions.

  5. Rule of law where parties will comply with all legal obligations as per the constitution and the contract.

CONCLUSION

Atleast every organization should involve a way of procurement andproject supervision for the betterment of the project completion. Byways of controlling, planning, and determining appropriate methodsfor observing, measurement and scrutiny, the process of acquirementand management of material resources will have a positive input toimprove the efficiency and success of the company even after itsrestructuring period (David &amp Alison, 2004).

References

Chandler,A. “ProjectManagement Methodology Guidelines”

Canonne, S., Petit, Ph.(2013). La Boite a outils de l’acheteur. Dunod, Paris.

David, H. (2003). “Using aRisk Breakdown Structure in Project Management,” Journal ofFacilities Management 2, no. 1, 85–97.

David, P. and Alison, M.(2004). “Action Research to Explore Perceptions of Risk in ProjectManagement,” International Journal of Productivity and PerformanceManagement 53, no. 1: 18–32.

Deac, V. (2013). Management,ASE Publishing House, Bucharest

IMC Proceedings (2014). NewManagement for the New Economy. 7-8 November. Bucharest, Romania.

Kotler, PH., Keller, K.(2008). Marketing Management, Teora Publishing House, Bucharest

Oprean, C., Kifor,C. V.,Suciu, O., Alexe, C. (2012). Quality Intergrated Management, RomaniaAcademy Publishing House, Bucharest.

Sam, L. (2002). “Principlesof Project Management” Washington, D.C chapter of PMI.

SR EN ISO 9004 Managing forthe Sustained Success of an Organisation. A quality managementapproach.

Spring (2008). ProjectManagement Glossary of Terms.

SR EN ISO 9001 QualityManagement Systems. Requirements.