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Procurement and contract management

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Importance of planning risks

Planning risks is mandatory in an organization because it ensures that all known risks are identified rigorously and that they are listed in a comprehensible order. Impact and probability are established and ratifications done.

Risk Anticipation

The business organization is only able to flourish when its project managers foresee risks and identify them. Presence of new products in the market bringing competition can be a risk, which, if not realized early enough, might derail the organization’s processes, and therefore create losses.

Saves Time

Once the risks are identified in the management plan, the project managers are able to sort them out or have a back up plan to cushion any type of disaster in the future. This allows the organization to meet its deadlines and reduces time consumption therefore producing quality and precise output.

Mitigation Strategies are established

The organization might have a threat of future setbacks and developing methods that will be best to reduce or eradicate them enables the organization to be at a better position of accomplishing its goals.

Mobility of Business Strategies

Planning risks enables the project managers to asses the organizations approaches. If the approaches happen to be futile, they have time to shift gears and develop other recommendable approaches. This maintains the quality of its products.

Getting Hold of Business Opportunities

The organization acquires competitive advantage because in planning risks, there is also an opening for opportunities. These opportunities enable the organization to expand its ventures and improve its production by maximizing profit potential.

The Advantage of ESI International’s Risk Management Process in Managing Risks

ESI international is a grand organization, training individuals and corporate companies how to manage projects by assessing risks and acquire good business sills. In the real world, businesses are able to examine and retort to risks when outsourcing, apply the methods they have learnt in the training to their established companies during procurement and sourcing and create a common structure between purchaser and supplier to deal with the risks. As a result, organizations reap maximum profits while dealing with risks in sourcing labor, technical and cost-saving solutions. It is responsible for most successful corporate companies.

References

ESI International, Inc. (2008). ESI International project management series. Boca Raton, Fla. [u.a.]: Auerbach Publ.

Culp, C. L. (2001). The risk management process: Business strategy and tactics. New York: J. Wiley.

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Procurement and Contract Management

Name:

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


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Course:

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Date:

Procurement and Contract Management

A cost overrun is the amount incurred when the actual cost surpasses the budgeted cost. It is also referred to as budget overrun. The cost growth is the difference between the original budget for a project and the final cost of that project. If extra work is added to the project, there will be an escalation in the total budget and the total cost. If the total budget for the extra work were sufficient, there would be no cost overrun but cost growth. Cost overrun and cost growth is mostly experienced in the construction industry.

Cost overrun occurs when the work has not changed but its cost becomes more than anticipated. A number of factors can cause this including, the size of the project, level of competition, type of construction needed in the project, mismanagement of the project, flawed estimations and poor planning. On the other hand, cost growth occurs when the work is changed because of the buyer’s intentions or marketable technology. This in turn adds to the cost of the project.

Cost overrun is most times caused by the buyer. After the work has commenced and the buyer comes in with ridiculous demands on the specifications of what he wants, the seller has to incur the extra costs. If the demands are not too big, then the seller will not see the difficulty in trying to meet them. However, when they exceed what was in the contract, then a good seller will have to stop the buyer from breaching the terms and conditions of their contract or else the project will not go on as planned. Still, in cases where the buyer has given specifications and they have not been met, then the buyer realizes the risks involved in the project. He or she will know that the quality of the project will not be up to standard. There are sellers who do not like competition from their rivals and so they will do whatever it takes to stay ahead.

Reference

Garrett, G. A., & Commerce Clearing House. (2008). Cost estimating and contract pricing: Tools, techniques and best practices. Riverwoods, Ill: CCH.

Langford, D. A., Retik, A., & CIB W-65. (1996). International symposium for the organization and management of construction: Shaping theory and practice. London: E & FN Spon.

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