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(Solution) CIPS PDC Royal Commission for Alula Managing Risk of Increased Costs
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Solution
2.3 Risk of Increased Costs
As evidenced in Heravi and Mohammadian (2021) the cost overruns risk is as a consequence of prevalent of badly written conditions of contracts. Nevertheless, there are broadly prevalent circumstances which are integrated for prioritising on aspects which impact or potentially impacting a specific contract. In terms of costs, RCU terms and conditions note that;
Further, for RCU, they integrate Key Performance Indicators (KPIs) which are meant for ensuring that a clearly agreed pricing is used for the contracts. Often, this has contributed to challenges with the PS&M since they have remained hellbent on when these contracts could be altered. This inform the need for harnessing the awareness level of the contracts and how different occurrences could inform on the contract changes on costs. As evidence in Alebrahim vs BM Design London Ltd [2020] EWHC 3393 (TCC) case which involved a contract for refurbishment of a residential property, the contractor had increased the estimated costs initially (Creedy et al., 2010). The court of law noted that the employer can only pay for the trade price items and not any price which is not agreed upon. Further, in this case, the RCU terms and conditions note that,
Hence, there is no instances where the buyer/RCU can incur any further costs which were not initially stipulated in their contract….
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An organisation's Supply and Procurement Management (PS&M) department has a formal negotiation plan that was created for this integrated module assignment.
The organization that will be discussed is Royal Commission of AlUla (RCU), which is a front-runner in Saudi Arabia when it comes to commissioning of infrastructure and visitors facilities which underpin AlUla future success while at the same time protecting natural beauty and historic sites.
Within this study, the category of procurement for IT Systems has been recognized. Relevant insights into the negotiation strategy have been offered via reflection on information from the following areas: managing expenditures, negotiating in procurement and supply, sourcing necessities, developing contracts, and driving value through purchasing and supply.
Various tools such as STEEPLE, SWOT analysis, Porter's 5 Forces, and the Mendelow Matrix are utilized. When formulating the strategy for the negotiations, stakeholders were considered. Since RCU is a procurement organization, the rationale for this is that they aim to improve tourism and archaeological sector services provided to government institutions while also achieving cost savings.
Government funding in tourism has been decreased due to the worldwide economic downturn that followed the COVID-19 pandemic. Consequently, RCU has few options when it comes to available resources. Therefore, it is critical that they negotiate value for money with their stakeholders.
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In summary, this report has provided a comprehensive analysis of ADNOC’s procurement strategies and risk management frameworks underscores the critical importance of proactive and strategic approaches in the energy sector. The key findings indicate that through embracing advanced technologies such as AI-driven analytics and supply chain management software, ADNOC can effectively anticipate market trends, mitigate operational risks, and enhance decision-making capabilities. Moreover, the development of agile compliance and sustainability programs enables ADNOC to adapt swiftly to regulatory changes while bolstering its reputation as a responsible corporate entity.
Another key finding is that supplier diversification emerges as a pivotal strategy to safeguard against supply chain disruptions, offering ADNOC flexibility and resilience in volatile market conditions. This is with the findings evidencing that strategic partnerships with suppliers not only mitigate risks associated with single-source dependency but also foster innovation and quality improvements. The emphasis on continuous performance improvement and the proactive management of contract lifecycles further contribute to ADNOC’s operational efficiency and cost-effectiveness.
By using different models and techniques analysis, ADNOC’s commitment to integrating these strategic recommendations into its procurement practices positions the organization to achieve sustainable growth, operational excellence, and competitive advantage in the global energy market. By aligning procurement strategies with broader organisational goals and leveraging cutting-edge technologies, ADNOC can navigate complexities, drive innovation, and ensure long-term success in a rapidly evolving industry landscape.
Recommendations
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- Fully deploy advanced supply chain management software by Q2 2025, partnering with a leading provider and training teams to reduce disruptions by 20%, thus increasing overall supply chain efficiency by 5%. This effort involves collaboration between supply chain management, IT, and vendor management teams, despite initial disruptions and high upfront costs.
- Establish a cross-functional compliance team by Q3 2024 to develop three new policies annually, ensuring 100% compliance with regulations and enhancing reputation metrics by 15%. Led by legal, compliance, and HR departments, this initiative aims to overcome resistance to policy changes and resource-intensive monitoring efforts.
- Implement three financial instruments (futures, options, currency swaps) by Q3 2024, collaborating with financial experts to reduce financial risks by 20% and achieve a 10% increase in financial stability. This effort, led by finance, risk management, and external advisors, addresses potential challenges in market volatility and regulatory constraints.
- Engage multiple suppliers and form five strategic partnerships by Q4 2024, increasing supplier diversity by 30% and improving supply chain reliability metrics by 10%. Led by procurement, vendor management, and supply chain analysts, this initiative aims to mitigate dependency risks and manage supplier relationships effectively. Potential challenges include maintaining consistency in product/service quality across diverse suppliers and increased administrative burden in managing multiple partnerships.
- Conduct market and competitor analyses twice a year starting Q3 2024, aiming to increase procurement cost savings by 15% through better negotiation strategies and timely market insights. This effort, involving procurement, and strategy departments, addresses challenges in data availability and competitive analysis capabilities. Potential challenges include delays in obtaining and analysing market data and difficulty in predicting competitive moves accurately.