The risk management of a project at the top level is complex enough, but when the infeed from outside companies has to be considered as well, it becomes even more so.

Starting with the receipt of an invitation to tender from a potential customer, the steps to be taken to manage the risk associated with selecting suppliers are as follows.

The project technical lead must review all the technical documentation received from the customer. Following the project team's decision that certain items need to be sub-contracted, the technical lead will write, or have a representative write, a technical requirements specification for each item to be sub-contracted, which will form part of the sub-contractor invitation to tender.

In addition, all other members of the project team will review the areas of their own particular discipline (quality assurance, configuration management, etc.) and write their own specifications for flowing down to the sub-contractor invitation to tender.

For each item to be sub-contracted, a procurement package will be compiled. This will contain whatever documents are deemed necessary depending on the complexity of the item in question, but as a minimum the aforementioned technical specification.

To start the risk management process, all documents to be included in the procurement package will be peer reviewed. This involves at least one person of the same discipline comparing the customer requirements with those included in the sub-contractor specification to ensure that nothing has been omitted.

A list of potential suppliers for each item of supply is then drawn up. Ideally, in terms of risk mitigation, there will be a minimum of three companies thought to be capable of fulfilling the technical requirement for each item, preferably more in the first instance. This list is then reduced to a manageable number (the ideal three) by reviewing the possible sub-contractors in terms of the following.

Companies who have supplied goods in the past:

- Quality and reliability of items supplied
- Timeliness of delivery
- Adequacy of documentation
- Attitude, flexibility and co-operation of personnel
- Ease of contract negotiation
- Pricing policy
- After sales service, including warranty

Companies who have not supplied goods in the past

- Reputation in the market place
- Quality assurance certification
- Financial stability

This list is not exhaustive but contains the most important areas to be considered. The most objective way of reviewing the above, is to weight each one in order of importance, devise a scoring mechanism, create a grid to be completed by each member of the review team and calculate the numbers. This method isn't foolproof but is as close as it possibly can be.

At this stage, the project risk has already been reduced because the best few of the potential sub-contractors have been chosen to compete for the sub-contract.

Alternatively, the selection process has shown that there is only one supplier capable of fulfilling the requirements. This requires quite different handling and will be the subject of a future article.


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Michael Russell
Your Independent guide to Risk Management
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