Risk in purchasing

Risk management, a subject on which CIPS has developed a separate practice document, are techniques that can be applied separately or together to ensure that contracts are successful. CIPS encourages all purchasing and supply management professionals to constantly exercise a ‘what-if’ in relation to the procurement of goods, services or works. The ‘what-if’ mind-set will enable purchasing and supply management professionals to determine the potential outcome of risk management by testing assumptions, propositions and approaches under consideration.

For undertake risk management, the purchasing and supply management professional should have:

• Knowledge of the risk management techniques available

• An analytical mind-set

• Objectivity

• Confidence to ask the right questions

• Knowledge of their employer's business and market.

Like many skills, effective risk management improves with experience and so, with practice, knowing how far to analyses and assess risks will become easier, if not intuitive.

 Organizations are increasingly aware of the importance of managing risk and high profile reports such as that by Turnbull, September 1999 (Internal Controls: Guidance for Directors on the Combined Code) have contributed to the interest. CIPS believes that purchasing and supply management professionals can add value to any risk management process within an organization, whether or not it is directly related to purchasing and supply management.

This practice document has stated that risk management is another invaluable technique; CIPS believes that an awareness of risk should be regarded as a positive trait in the successful buyer - it needs to be seen not as an expectation that things will go wrong but rather as alertness to the fact that they might do so, coupled with an readiness to take positive steps to prevent undesirable outcomes.

CIPS recognizes that not all buyers are equal. Significantly, the skills and competencies identified in this policy a being necessary for the management of risk are generally viewed as being of pivotal importance in other areas of purchasing and supply management.

Risk from the Viewpoint of the Supplier

If the supplier perceives risk to be high he will naturally build in extra safety and extra margin. An effective buyer will try and identify and ameliorate areas of concern. Often this can be done in discussion with the supplier and involves little if any cost or compromise on behalf of the buyer.