BSS054-6 Risk and Procurement Management Assignment Sample
Introduction
The process of risk management can be defined as the process of identification, assessment, and control of the threats towards the earning and capital of an organization. The risks to an organization that can arise can multiple sources including legal liabilities, issues of technology, uncertainties in finance, errors in strategic management, multiple natural disasters, or any accident. The risk management plan will help to analyze the risks that are involved in the T5 agreement by BAA and also the recommendations that can be made to mitigate the risks.
Risk Management Plan
The risk management plan can be defined as the document that is being prepared by the project manager to identify the risks of the project, estimate the impacts of the risks and devise the proper response for the risk. The BAA has used the Terminal 5 Project with the aim of the project being to provide motivation to the workers and promote them for the success of the organization. The risk management plan can be provided as follows:
- Identifying the Risks: The risks that were identified for the use of the T5 agreement by BAA were that
- Firstly, BAA wanted transparency within the relationship between the organization and with their suppliers through an agreement. But, some of the suppliers didn’t want to agree to the agreement presented by BAA and wanted BAA to interfere in the whole process (Epstein and Harding, 2020).
- Secondly, BAA’s inability in gaining the trust of the workforce to make them understand the formation of the relationship of BAA with their contractors is a major risk.
- Thirdly, the inability of BAA in conducting a proper analysis of their worker’s performance to analyze the overall performance of the organization was another risk that needs to be solved.
- Risk Analysis: The risk analysis provides an idea of the consequences of the identified risk and they are as follows:
- The first identified risk arose the doubt whether enough suppliers would agree with the agreement and hence there was a doubt regarding if there will be enough suppliers for BAA.
- The second identified risk arose the problem that BAA might not be able to achieve their project without having enough workers who trust in the building relationship between BAA and the contractors.
- The third risk arose the problem of the inability of BAA to identify the various issues that lie within the organization without the ability of BAA to analyze their overall performance.
- Risk Prioritization: This step involves the process of prioritizing the risk based on the magnitude of the problem these risks cause to the organization. On identifying and analyzing the risks. It can be said that the third risk of improper analysis of performance needs to be prioritized least, as that can cause the least risk to BAA. The other two problems can be categorized in the medium risk criteria and they need to be given medium priority.
- Risk Treatment: The strategy that can be developed for the mitigation of the risk are as follows:
- For the first risk, BAA should not interfere in the privacy of their suppliers. This will help them keep the suppliers by their side.
- For the second risk, BAA should provide the necessary proof that is required to make the workers trust the contract that has been developed between BAA and the contractors (Victoria, 2021).
- For the third risk, BAA can incorporate multiple strategies for analyzing the overall organization’s performance to get a proper report of the issues faced in the organization.
- Risk Monitoring: BAA should set put a team to review the risks that arise in the plan periodically. The team should keep a periodic check on the plan, to remain up-to-date and solve the risks accordingly.
Key Performance Indicators: The key performance indicators help in indicating the success of the devised plan.
| Key Performance Indicators | Attributes |
| Customer Satisfaction | Show the customers are satisfied with the performance of the new plan |
| Quality of Internal Process | Show the quality has enhanced with the implementation of the plan |
| Satisfaction of Employees | Show the internal environment has improved after the implementation of the plan |
| Financial Performance Index | Shows the improvement in economic condition with the implementation of the plan |
Risk Identification:
Risk identification is the process of identifying the risks that are involved in the process (Parmenter, 2015).
The risks that can be identified from the case study are:
- The agreement of T5 requires an increase in the transparency level between the relationship of the suppliers and BAA. The problem can be justified as according to the agreement of BAA, they should be able to inspect the supplier’s organization anytime and provide that much transparency won’t be possible for most of the suppliers (MacKay, 2020).
- The second identified issue is the lack of trust of the employees towards the relationship between BAA and the contractors. The risk can be justified as BAA did not provide any substantial proof regarding the relationship between BAA and the contractors.
- The third problem is the lack of performance analysis by the organization. The risk can be justified as the inability to analyze the performance will not allow the organization to identify the underlying issues of the organization.
Risk Criteria: The risk criteria are used to determine the magnitude of the risk. The risk criteria help in analyzing if a risk is non-acceptable or acceptable depending upon its magnitude. After analyzing the level of risk, a strategy needs to be devised to overcome that risk. The risk criteria can be analyzed and portrayed by using a risk register.
Probability Impact Model
The probability impact model will provide the analysis of the probability of the occurrence of a risk and the magnitude of the impact of the risk when it occurs.
| Risk | Probability | Impact | Rate | ||
| 1 | Risk of transparency | 1 | 5 | 6 | Moderate |
| 2 | Lack of trust | 2 | 5 | 6 | Moderate |
| 3 | Lack of performance analysis | 1 | 3 | 3 | Low |
Risk Register
The risk register provides the record of all the risk that has been identified in the organization, and the magnitude of the occurrence of the risk (Gubinelli et al., 2004). The register also provides the strategies that need to be followed for the mitigation of the risk.
| Risk | Very Low | Low | Medium | High | Very High | Mitigation |
| Disagreement regarding transparency with the sellers | The reduction in the transparency level in the agreement | |||||
| Lack of trust of workers | Providing the workers with evidence to win their trust | |||||
| Inability to analyze the performance of workers | Use of multiple strategies that could help in analyzing the performance of the organization. |
Monte Carlo Simulation
The model of Monte Carlo Simulation is used for predicting the difference in the possible probability outcomes. Exact values can’t be predicted because of the presence of random variables but these variables can be used to provide all the possible outcomes. The model can be used for the analysis of upcoming uncertainties and risks that the organization might face in the future. The Monte Carlo Simulation model can be used in the analysis of the case study as the model will easily analyze the risks that are possibly involved in the agreement of the use of T5 by BAA for their organization (Kenton et al., 2019). The randomness of the variables that are involved in the case study makes the use Monte Carlo Simulation model better for the analysis of the T5 agreement. The Monte Carlo Model also can enhance the T5 agreement’s output quality.
Monte Carlo Simulation for Fixed Price Contracts: The Monte Carlo Simulation helps in the decision-making process. In a contract of a fixed price, both the parties agree to the contract where one of them declares the amount that needs to be paid while the other party pays the amount for the establishment of the project. The party paying the money won’t be responsible for the risks or losses that are faced by the constructor. The Monte Carlo model can be used here for deciding on the model will analyze to provide the results to the payer, this will allow the payer to demand the exact results for paying the fixed amount (Willigers, 2010).
Monte Carlo Simulation for Cost Plus Contract: In a cost-plus contract the person paying will hold the responsibility of the total cost undertaken by the contractor for the entire construction process. Multiple random results can be developed because of the presence of random variables. The decision-making in such a case can be made easier with the Monte Carlo model, as it can provide all the possible outcomes by analyzing the random, variables. Hence, the Monte Carlo Simulation model will help in the process of decision making.
Conclusion
A risk management plan was developed for the use of the T5 agreement by BAA. The risk management plan addressed the different risks involved in the process. It can be concluded that the T5 agreement faced three risks that were related to transparency with the suppliers, trust issues with their workers, and lack of methods for performance analysis. The recommendations to mitigate the risks were also made depending upon the magnitude of the risks. The Monte Carlo model was also used to analyze the variables present in the T5 agreement by BAA which provided the assessment of the risks involved.
References:
Epstein, A.L. and Harding, G.H. (2020). Risk management. Clinical Engineering Handbook, [online] 5(2), pp.335–348. Available at: https://doi.org/10.1016/B978-0-12-813467-2.00052-3 [Accessed 9 Dec. 2021].
GUBINELLI, G., ZANELLI, S. and COZZANI, V. (2004). A simplified model for the assessment of the impact probability of fragments. Journal of Hazardous Materials, [online] 116(3), pp.175–187. Available at: https://doi.org/10.1016/j.jhazmat.2004.09.002 [Accessed 9 Dec. 2021].
Kenton, W., James, M. and Kvilhog, S. (2019). Monte Carlo Simulation. [online] Investopedia. Available at: https://www.investopedia.com/terms/m/montecarlosimulation.asp [Accessed 9 Dec. 2021].
MacKay, J. (2020). 7 Steps to Write a Risk Management Plan For Your Next Project (With Free Temp… [online] Planio. Available at: https://plan.io/blog/risk-management/ [Accessed 9 Dec. 2021].
Parmenter, D. (2015). Key Performance Indicators: Developing, Implementing, and Using Winning KPIs. 7th ed. [online] Google Books, John Wiley & Sons, pp.55–101. Available at: https://books.google.co.in/books?hl=en&lr=&id=bKkxBwAAQBAJ&oi=fnd&pg=PA101&dq=key+performance+indicators&ots=cZW4e1k_gt&sig=qmY7hAYEL8_EiZVABaSPELnDBBs#v=onepage&q=key%20performance%20indicators&f=false [Accessed 9 Dec. 2021].
Victoria, B. (2021). Prepare a risk management plan. [online] Business Victoria. Available at: https://business.vic.gov.au/business-information/protect-your-business/risk-management/prepare-a-risk-management-plan [Accessed 9 Dec. 2021].
Willigers, B.J., Begg, S.H. and Bratvold, R.B. (2010). Valuation of Swing Contracts by Least-Squares Monte Carlo Simulation. All Days, [online] 13(5), pp.4–14. Available at: https://www.researchgate.net/publication/269195384_Valuation_of_Swing_Contracts_by_Least-Squares_Monte_Carlo_Simulation [Accessed 9 Dec. 2021].
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