Module 5 Assignment

Project Procurement and Risk
Sidney Phiri
Module 5 Assignment
MAF6211 / Project Risk and Quality Management
Prof Maja Zelihic
25 October 2020
In the last two decades, there have been significant changes in the technical and economic
conditions prevailing in the construction industry. To overcome the shortcomings of the
traditional procurement methods, the construction industry has developed a large number of
different procurement systems. A systematic approach for selection of the most appropriate
system is now needed. This paper summarizes and provides a general overview of the elements
of project procurement. Also, includes a review of how risk and level of control influence the
procurement process.
Project Procurement Process and Elements
This includes the processes required to acquire goods and services from outside the
performing organization to fulfill project scope requirements, the procurement management
processes are:
Plan Procurements: Identifies which project needs can be best met by acquiring products and
services from outside the project organization, against those that can be accomplished by the
project team. It involves consideration of whether to procure, how to procure, what to procure,
how much to procure, and when to procure
Conduct Procurements: The phase comes after the procurement manager answers the above
question is now ready to conduct the actual acquisition of products and services by way of
preparing necessary documents and communicating with sellers and collecting and reviewing
responses from the sellers that allows the procurement manager to select a buyer
Administer procurements: This entails ensuring that all contractual obligation between the buyer
and the seller are clear and adhered to. The success of this element largely depends on the type of
contacts entered into i.e.

Types of contracts include: a) Cost-plus percentage fee b) Cost-plus fixed fee b) Cost-plus
guaranteed maximum c) Cost-plus guaranteed maximum and shared savings d) Cost-plus
incentive (award fee) e) Cost and cost sharing f) Fixed price or lump sum g) Fixed price with
redetermination h) Fixed price incentive fee i) Fixed price with economic price adjustment j)
Fixed price incentive with successive targets k) Fixed price for services, material, and labor at
cost (purchase orders, blanket agreements) l) Time and material/labor hours only m) Bonus-
penalty n) Combinations o)Joint venture
Close Procurements: Verifies that all work and deliverables from the contract are acceptable.
Early termination of the contract is a special case of procurement closure. Tools and Techniques
used are: a) Procurement audits b) Negotiated settlements c) Records management system
Outputs are: a) Closed procurements c) Organizational process assets updates. (PMI, 2008)
Type of Procurement Management and Risks
Risk management plays an essential role in good purchasing and supply practice. It is
essential to address the ‘right’ risks and devise the ‘right’ strategies. Thus, organizations should
recognize the sources and drivers of risk before devising risk mitigation strategies which may
require adding capacity, increasing inventories, having redundant suppliers, increasing
responsiveness, increasing flexibility, aggregating or pooling demand, increasing capability, or
having more customer accounts Moreover, supply risk management activities can involve
process improvement, buffer strategies, forming strategic alliances and developing suppliers
(Lloyd & Walker 2015).

Below figure summarizes risks involved in the procurement system as explained by Project
Management institute (PMI, 2008)
Conclusion
Procurement has gone global and it is not new by any means. Historically, references to
procurement were limited to automotive spare parts, oil, gas and construction. Government
regulations were either restrictive or interpreted differently. Lately, it is a different story. With
the advent of information technology and knowledge awareness, regulations have either been
revised or interpreted accordingly. With procurement going global, outsourcing and off shoring
are getting to be very familiar terms in the market

Reference
Project Management Institute, (2008). A Guide to the Project Management Body of Knowledge,
(PMBOK® Guide) – Fourth Edition, Project Management Institute, Inc., (pages 313-344)
Lloyd-Walker, B., & Walker, D. (2015, April). Collaborative project procurement arrangements.
Project Management Institute.

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Project Procurement and Risk

MAF6211 / Project Risk and Quality Management

Prof Maja Zelihic

conditions prevailing in the construction industry. To overcome the shortcomings of the

Project Procurement Process and Elements

performing organization to fulfill project scope requirements, the procurement management

how much to procure, and when to procure

contacts entered into i.e.

guaranteed maximum c) Cost-plus guaranteed maximum and shared savings d) Cost-plus

penalty n) Combinations o)Joint venture

used are: a) Procurement audits b) Negotiated settlements c) Records management system

Type of Procurement Management and Risks

require adding capacity, increasing inventories, having redundant suppliers, increasing

responsiveness, increasing flexibility, aggregating or pooling demand, increasing capability, or

(Lloyd & Walker 2015).

Management institute (PMI, 2008)

are getting to be very familiar terms in the market

Project Management Institute.

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