Risk Management in the Procurement Process

1. Risk Management in the Procurement Process Jeff Mandel Chief Procurement Officer DGS, Bureau of Procurement

2. Agenda • Introduction • Public Sector Procurement • Risk Management Framework • Risk Management Process • Identifying the Risks • Managing Risk • Process of Managing Risk • Phases of Risk • Summary

3. Public Sector Procurement Procurement in the public sector demands the highest integrity. The slightest error or inconsistency in conducting procurement processes or activities can lead to accusations that, even if ultimately proved to be without merit, can cause significant and lasting damage to the reputation of an individual and/or a procurement agency.

4. Risk Management Framework • Procurement Strategy • Integrate risk management into their category • strategies • Develop innovative ways to monitor risk • Implement practices and tools to mitigate risk • Sourcing & Category Management • Include supplier market analysis, current • supplier portfolio analyses, supplier audits, • supplier scorecards, supplier process failure • mode & effects analysis (FMEA) historic & • forecast pricing analysis, and logistical & • transportation risk analysis High Performance In Procurement • Supplier Relationship Management • Collaborate with suppliers to rapidly detect • risk (e.g., through early warning systems) • Neutralize risk-related issues before those • issues become incidents • Use negotiations and index bases contracts • forging and maintaining supplier relationships • Requisition to Pay • Two or three may match validation • Invoice tolerances • P-Card usage and thresholds • Allowances/provisions for change orders Process & Technology Workforce & Organization

5. Risk Management Framework % Companies using tools to anticipate supplier quality issues.

6. Risk Management Process Communication and Consultation throughout the process: Ensuring appropriate communication/ consultation is undertaken with internal and external stakeholders (including end-users and suppliers) throughout the risk management process promotes a common understanding of interests, risks identified and process for managing them. A cooperative approach with stakeholders will bring together different areas of expertise in the risk management process. Establish the Procurement Context: It is important to understand the environment in which the procurement is being undertaken relating to the organization, stakeholders, strategy and timeframe, and determine what key elements are relevant to procurement. Stating the objective and benefits of procurement within a clearly designed context provided a strong focus for identification of risks. Identify Risks: Procurement agents should identify potential risks, impacts, events, causes and potential consequences associated with procurement. Generate a comprehensive list of issues which could impact the procurement/ business objective.

7. Identifying the Risks

8. Identifying the Risks

9. Managing Risk • One proactive measure a procurement agency can take is to perform a risk assessment within its organization and its processes to identify areas of concern, weakness or high risk in procurement. • Conducting a risk analysis enables action to be taken to correct deficiencies and to avoid greater problems in the future. • One way to analyze risk is to develop and use a checklistto measure how well a procurement agency is in compliance with law and ethical standards. Checklists can be valuable to prevent and detect corruption and fraud by guiding procurement staff throughout the process in a more transparent and effective manner while helping to detect and report irregularities. • ID possible irregularities, suspicious cases or difficulties in the procurement process. Developing such a checklist should take into account the specific agency's procurement rules and regulations. Checklists are generally developed around the major phases of the procurement cycle and cover the various risks associated with each phase.

10. Process of Managing Risk Phase 1 The Procurement Function Phase 2 Preparation of the Procurement Procurement Process Phase 3 Procedure Chosen to Procure Phase 4 Publicizing the Procurement Phase 5 The Award Phase 6 Post-Award Events

11. Phases of Managing Risk The first step involved in risk assessment is to map the various risks associated with various stages of the procurement cycle and to identify indicators ("red flags") for the detection of suspected irregularities Steps

12. Phases of Managing Risk

13. Phases of Managing Risk

14. Phases of Managing Risk

15. Summary Resources: Procurement Leaders-The Executive Network http://www.procurementleaders.com/learninggroups/risk-management/ Managing Risk in the Procurement Process, Gov Pro Magazine, August 1, 2010 http://govpro.com/resource_center/procurement_prof/procurement-risk-management-201008-09/# High Performance in Procurement Risk Management – Accenture http://www.accenture.com/Global/Consulting/Supply_Chain_Mgmt/R_and_I/High-Risk-Management.htm Risk Management Guideline, State Procurement Board of South Australia www.spb.sa.gov.au/public/download.aspx?id=451