Procurement and Financial Risks

This article discusses the procurement and financial risks in contract management and provides insights on how to mitigate them. It explores the types of risks and their impact on organizations.

Running head: PROCUREMENT AND FINANCIAL RISKS 1
NAME
INSTITUTION
PROFESSOR

Procurement and financial risks 2
Introduction
One of the most critical parts of the procurement cycle is contract management. The
management plan of a contract aids the contract and project managers in managing the contracts
by focusing on transition management, monitoring performance as well as ensuring that all the
involved groups or parties achieve their contractual as well as commercial obligations. Contract
management entails the administration of contracts involving a given company and vendors
(Edquist, 2014). The contract management process follows a laid down criteria that ensure the
success of the entire process. Some of the steps involved include creation, negotiation,
adherence, the service level agreements, documentation as well as analysis of the advantages that
may arise from a given contract. Contract management takes into account all the management
activities that ensure that the relationships between a vendor and the company are profitable and
efficient.
Procurement risks
Procurement risk refers to the potential for the possible occurrence of failures associated
with a procurement process which is aimed at purchasing resources or products as well as
services the notable types of procurement risks include, cost, fraud as well as quality and
delivery risks (Johnson, 2011). The process of procurement planning helps in reducing risks,
high quality of service delivery and better value for money. The new Royal Adelaide hospital
faced various risks related to the procurement and project management during the life of the
project. One of the key risk that faced the project is the constant change in scope owing to the
lack of clearly defined goals. The risk caused by changing scope leads to delays in project
completion. Another critical risk that faced the hospital is lack of full participation by
stakeholders leading to the indifference that threatened the completion of the project. The setting

Procurement and financial risks 3
up of unrealistic expectations acts as a risk in project completion which can be orchestrated by
lack of enough resources or the failure to meet deadlines and this, as a risk, faced the New Royal
Adelaide hospital.
Financial risks
Financial risks refer to the possibility of stakeholders and shareholders losing money
through investing in a company or organization that has debts. Such companies or organizations
usually have inadequate funds to meet its financial obligations. The new Royal Adelaide hospital
faced some specific financial risks during the project life. The financial risks faced by the
organization include the risks that occur as a result of financial transactions, risks associated with
the capital structure of the company, the loans of the company as well as great exposure to risks
caused by loan defaulters (Khan, 2012). Other specific financial risks that face the new Royal
Adelaide hospital include credit risk, liquidity risk, asset-backed risk, equity risk as well as
currency risk.
Mitigation of procurement and financial risks
Procurement and financial risks are detrimental to an organization and therefore needs to
be mitigated. There are various methods of mitigating financial risks, for instance, shortening the
repayment term for the customers so as to prevent cases of default on loans (Nicoletti, 2018).
The company or organization can also reduce financial risks by requesting longer payment terms
from the suppliers. A company or organization can also mitigate financial risks by issuing stock.
One of the strategies that can be employed in mitigating procurement risk is through creating
stronger relationships with suppliers (Kouvelis, 2012). There should also be a concerted effort to
increase the level of transparency and accountability in the supply chain management so as to be
able to detect potential risks. Compliance with the government as well as industry regulations

Procurement and financial risks 4
plays a critical role in mitigating financial risks. The prevailing global situation, as well as
market interconnections, ensure the existence of many procurement risks which can lead to
negative implications as far as the performance and the operational effectiveness of an
organization is concerned (Johnson, 2011).
Conclusion
The process of procurement and contract management is very vital for the success of any
organization or company. The identification of procurement as well as financial risks that may
hamper the process is also very crucial since the early mitigation of the risks helps the
organization or company to avoid problems caused by those kinds of risks.

Procurement and financial risks 5
References
Nicoletti, B. (2018). Procurement finance: the digital revolution in commercial banking. Cham,
Switzerland: Palgrave Macmillan.
Edquist, C., Vonortas, N., Iturriagagoitia, J. & Edler, J. (2014). Public procurement for
innovation. Cheltenham: Edward Elgar.
Kouvelis, P. (2012). The handbook of integrated risk management in global supply chains.
Hoboken, N.J: Wiley.
Johnson, P., Leenders, M. & Flynn, A. (2011). Purchasing and supply management. New York:
McGraw-Hill/Irwin.
Khan, O. & Zsidisin, G. (2012). Handbook for supply chain risk management: case studies,
effective practices, and emerging trends. Ft. Lauderdale, Fla: J. Ross Pub