RTConfidence, Inc.

Why Supplier Management is so important to project risk management.

Project scope performed by suppliers can very likely be the riskiest activity on the project.  There is a good chance that if your organization conducts very complex, risky development projects which require a multitude of technical subject matter expertise, some key aspect of the projects’ scope will need to be out-sourced.  There is a tendency for teams (at least those which I have been associated with) to focus on the internal activity and assume that the key out-sourced activity will be fine, and the team does not necessarily have to monitor or intervene much.  Performance by a key supplier can be incentivized through contractual terms and conditions, but in many cases there is usually enough contractual latitude (or loop-holes) to prevent suppliers from being penalized much.  Nonetheless, since suppliers typically have their own set of internal priorities, when conflicts arise in their organizations your project objectives could to be intentionally (and without notification) superseded.  Unless you implement fairly tight controls, the path and effectiveness of timely escalation and prevention could be compromised.  Thus, supplier management is key to pro-active project risk management, and vice versa.  One key action that I advocate in my book, “Project Risk Management: A Practical Implementation Approach” is to at least put some schedule buffer into critical out-source activity plans to accommodate for internal schedule delays which might impact supplier contractual commitments.  In many cases, “doing more with less” can be effectively accomplished through outsourcing, so good supply chain management practices should be established and followed to facilitate that goal.