Procurement Risk Definition
Risk is defined as the probability of an event and its consequences. In procurement, risk is the chance that something will go wrong with a purchase or contract. It can also refer to the likelihood that a supplier will not be able to meet their obligations, or that a project will not be completed on time or within budget.
There are four main types of risks in procurement: financial, contractual, operational, and reputational. Financial risks include the chance that a company will not be able to make a profit on a project or that it will lose money due to unforeseen circumstances. Contractual risks include the possibility that a contract will be breached or that there will be legal disputes. Operational risks include the chance that equipment will malfunction or that there will be delays in manufacturing. Reputational risks include the chance that a company’s reputation will be damaged due to its involvement in a scandal or due to poor customer service.
There are several ways to manage risk in procurement. One is to choose suppliers carefully and thoroughly vet them before entering into contracts. Another is to negotiate contracts that protect both parties and include clauses for dispute resolution. Finally, companies can purchase insurance to cover themselves against financial losses due to risk.
