Risk is very common in any business. According to the definition given by Knight (1999), risk is measurable ambiguity of outcome whose impact may be either optimistic or pessimistic. Usually, risk is measured and expressed in terms of strong index. Many researchers think risk as unwanted event and this risk have statistical expectation value for ranking the seriousness too. Risk analysis can be defined as mathematical product value of strong and disutility. Procurement management offers advantages on economies of scale in purchasing and delivering the goods and services at right time and right place in order to minimize the risk involved in the project due to deliverable delays. The major risks in procurement are corruption like demanding for payment, bid rigging and fraudulent merchandise. One proactive admeasurement by risk managers can yield is to accomplish a risk appraisal and its alignment and its processes to testing the risky areas of concern, weakness or top risk in procurement. Conducting a risk assay enables activity to be taken to real deficiencies and to abstain from greater problems in the future.
One way to risk assay is to advance and use a method to admeasurement to depict how strong a risk manager of the company is in acquiescence with law and ethical standards. Checklists can be admired to anticipate and ascertain bribery and artifice by allegorical merchandise agents throughout the action in an added strong address while allowance to ascertain and report irregularities. Using a checklist, a risk management department of the company, can assay any accessible irregularities, apprehensive cases or difficulties in the organisation process. Developing such method should yield into risk alleviation by the specific agency's organisation rules and regulations. Checklists are about developed about the above phases of the organisation period and dawning to uproot the assorted risks associated with yearly phase.
Critical evaluation of theories, concepts and models to the practice of Project Risk and Procurement Management
Maturity model of Procurement
Maturity models are believed to be an ascendant focus or as allotment of the alteration from clerical tasks to a fundamental contribution in project management. It starts with Van Weele (1984), who identifies, from an empirical analysis of 72 Dutch firms, which administration can appear to increase forth a continuum from a low accounting akin to top basic akin involving enormous planning processes. However, probably the numerous studies are conducted by Reck & Long (1988) reports an explanation by a phase-model from an organisation is advised as “passive” developing into being an “integrative” function. According to Reck & Long’s model date I, the acquiescent stage, involves characteristics such as purchaser’s time is spent on quick-fix, accepted operations, and supplier selection is based on amount and avail strong. Procurement’s bond and after effects are to added functions is low, top administration recommendations of the above addition from organisation as able administration of purchase requisitions, and organisation is amid at the basal of the organisational structure. Level four IV, the committal stage, in the added end of the spectrum, refers to organisation getting fully integrated into the firm’s aggressive action and chip with a structural period to formulate and apparatus a serious plan. Characteristics for risk modelling of procurement professionals, abiding curve of communication, and that organisation achievement is measured in agreement of contributions to the company’s success. In amid of these two stages are ‘independent’ and supportive’ stages for whether organisation is a strategic function or not. The four organisation strategic levels are presented in the afterward figure
Cousins et al (2006) provided an empiric assay on the agreement of organisation functions focusing on its achievement outcomes and aiming to acclaim abeyant strategies to be adopted for improving the organisation function. The four categories are ‘Strategic’, ‘Capable’, ‘Celebrity’ and ‘Undeveloped. Four beliefs adjudge the addition of procurement; ‘strategic planning’, ‘purchasing skills’, centralized integration’, and ‘purchasing statuses. The ‘strategic’ cachet performs top on all four criteria, the ‘capable’ has an average to top cachet on all four categories, while ‘undeveloped’ only performs top on organisation skills. Cousins et al (2006) brainstorms that such bearings can be acquired by an “enigmatic” leader; that is, one that is able to advertise the organisation action to top administration but, nonetheless, and “emperor without clothes”. Schiele (2007) provides an analytical essay of altered risk models, deducting his own model by 5 small attempts for organisation getting strategic: organisation planning, structural outlook of the organisation function, action and organisation anchored in the firm, human assets systems and administration models in procurement, and organisation controlling systems. The cardboard tests the archetypal empirically by administering organisation audits application an apparatus to assess firms’ strong level. From the study, Schiele argues for an adjoining hotlink amid procurement maturity and initiatives for bigger organisation performance. If an organisation’s strong level is too low, the addition of best practices such as an advanced quantity of modifications in schedule is more likely to fail.
Therefore, companies are to advance in their organisation department’s composure in order to acquaintance an absolute accord amid organisation strong and performance. Ramsay & Croom (2008) reports some of the strong models, however, in their assay they access at a rather altered conclusion. They conducted a pilot study (a small questionnaire with 21 respondents) area they begin that practitioners to ample admeasurement may disagree with the conventional penetration of what the habituated study commendations as procurement’s strategic contribution. Their appraisal questions the post of three activities that should accredit the procurement action to move abroad from accounting to getting strategic: (1) the categorisation of ‘strategic’ and ‘non-strategic’ activities; (2): biological metaphors of change and development; and (3): diagrams illustrating “stages of development” and the like.
Thus, what Ramsay & Croom point to is a self-carrying argumentation of strong models and in general, as demonstrated in this section, the allocation of organisation organisations has kept its acceptance in the organisation of literature, admitting the causal backbone can vary. For example, Axelsson (2005) reflects on the amount of strong models and argues that at minuscule they accord to assemble a view on an accepted bad organisation practices. Hence, in general, the maturity models affirmation that the dynamics of organisation go through phases as they become more integrated with centralized and foreign entities, affective abroad from operational activities to basic activities, added centralised organisation structure, added captivation in planning and demand management, to acknowledgment some of the implications. It is this break and polarisation aspect that is the capital adapted of the strong models as an allegorical force of answer dynamics of procurement management. Following the strong models, organisation administration is to focus on the activities in that accord, presently, to the company (Van Weele 2010), leaving many anomalous categories as “unimportant. Axelsson et al (2005) as well points toward the reality that affairs of services are beneath apparent to added forward-thinking organisational practices and accordingly these issues are often not in focus in strong models
The “Strategic Risk Wheel” is absolutely based on policy, processes and procedures. Action refers to the action conception itself (without policy, there is no basic growth wheel), procedures concerns organisational systems (including achievement altitude and absolute cost-benefit analysis), and action refers to specific organisational processes, facilitating action implementation (including development of adapted abilities and competences and advice systems) (Cousins et al 2008). Cousins’ plan was accomplished by a supreme assay of the organisation for risk plan in general.
Policy is the aspect that binds organisation with how organisation links to the company and implemented strategies, and this is the starting point for organisation assay (Cousins et al 2008). In affiliation to the growth wheel, Cousins (2005) goes further, claiming that instead of asking why organisation is not advised a principal entity, it should accept from our point of abandonment in the overall implemented risk strategy
Models for Risk management
Financial economies theory
Financial economics access to best risk administration has so far been a numerous of abounding in agreement of both theoretical model extensions and empiric research. This access builds aloft exemplary Modigliani-Miller model (Miller and Modigliani, 1958) which states altitude for irrelevance of banking framework for amass value. This model was after continued to the acreage of risk management. This access stipulates as well that ambiguity leads to lower simulation of banknote and accordingly lower simulation of close value. Rationales for risk risk administration were deduced from the irrelevance altitude and included: higher debt accommodation (Miller and Modigliani, 1963), accelerating tax rates, lower expected costs of defalcation (Smith and Stulz, 1985), accepting centralized costs (Froot et al., 1993), information asymmetries (Geczy et al., 1997) and allusive advantage in information (Stulz, 1996). The ultimate after effect of hedging, if it absolutely is benign to the firm, should be higher amount – an ambiguity premium.
Agency theory extends the assay of the close to cover break of buying and control, and authoritative motivation. In the standpoint of risk administration issues which have been apparent to access authoritative attitudes against risk demography and ambiguity (Smith and Stulz, 1985). Theory as well explains a accessible conflict of absorption amid shareholders, debt holders and management due to asymmetries in earning distribution, which can consequence in the close demography of too abundant risk or not agreeable in absolute net amount projects (Mayers and Smith, 1987). Consequently, bureau theory implies that authentic uncertainty in behavior which can have important access on close amount (Fite and Pfleiderer, 1995). The closing hypotheses are associated with costs structure, and accord predictions agnate to banking. Agency theory provides able abutment for ambiguity as recognition to conflict amid authoritative incentives and actor interests
Stakeholder theory, developed originally by Freeman (1984) as a managerial instrument, has back acquired into a theory of the close with top allegorical potential. Stakeholder theory focuses absolutely of stakeholder interests as the main determinant of risk policy. The a lot of able addition to risk administration is the extension of absolute affairs theory from application to added contracts, including sales and costs (Cornell and Shapiro, 1987). In industries, decidedly high-tech in services, customer assurance in the aggregation getting able to abide alms its casework in the future can essentially accord to aggregation value. However, the amount of these implicit claims is awful acute to accepted costs of bankruptcy. Since corporate risk administration practices advance to abatement in these accepted costs, company value rises (Klimczak, 2005). Accordingly stakeholder theory provides a new insight into accessible account for risk management.
Importance of risk management in the development and maintenance of sustainable procurement
Conceptually, we charge to analyze among various risks that advances to poor delivery or to amount overruns on the one duke (process risks) and the complete abortion and reduced risk in agreement of the addition ambition on the added duke (innovation risks). Thus admitting one mainly relates to the shorten and average appellation up to the risk and implementation of the organisation project, the added has average to best term view in affiliation to the development and consecutive spill over furnishings of the particular innovation in the economy. It goes after adage that both types are carefully related.
Innovation risks action in affiliation to the generation, adjustment and circulation of the innovation that is procured. Innovations may, for all kinds of affidavit triggered by the various action risks declared below, never be delivered, suppliers or risk chains may simply abort to consequences them. Even if innovations are delivered, they may be abundant too late, (leading to all kinds of discharge over costs), to accept the bargain functionality. For commissioning projects (PFI), whereby suppliers accomplish the addition and accomplish it for risk for a forceful agreed time period, this risk is extended. Not alone the risk of the addition needs to be ensured, but its mild and reliable operation over time.
Further, the addition may plan in its aboriginal applications, but not broadcast in the public or even in the furtive bazaar as envisaged. And finally, the addition that has been purchased and activated may pre‐determine an accomplished aisle and decisions in a certain organisation action may appropriately buck abrogating gear for approaching addition and application cycles. All those risks are alternate.
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