Procurement Performance Management and Data Analysis Quiz

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Questions and Answers

What is the purpose of using a 1 to 5 range for performance scores?

To make performance scores more distinct (correct)

To highlight the importance of clear guidance for each level's meaning

To resolve issues with boundaries between scores

To create a midpoint for easier interpretation

What does the existence of a midpoint (3) in a 1 to 5 range highlight?

The interpretive nature of qualitative data

The importance of clear guidance for each level's meaning (correct)

The subjectivity of qualitative research

The need for distinct performance scores

What distinguishes qualitative research from quantitative data?

Subjectivity and interpretive nature (correct)

Use of surveys for data collection

Factual and objective nature

Inclusion of financial ledgers and databases

Who should data for performance management be gathered from?

Suppliers, procurement teams, end-users, and market analysis Signup and view all the answers

What is involved in defining data collection parameters?

Determining what to measure, data access, required format, frequency, and ease of access Signup and view all the answers

Where is quantitative data often found?

In financial ledgers or databases Signup and view all the answers

What are examples of qualitative data collection methods?

Face-to-face surveys and electronic surveys Signup and view all the answers

Why is data cleansing crucial in data analysis?

To ensure accurate results by checking for errors, duplicates, and omissions Signup and view all the answers

What does data analysis involve?

Manipulating data for averages and trends Signup and view all the answers

When might more sophisticated tools such as regression analysis be required?

When the objectives are complex Signup and view all the answers

What should the complexity of data analysis align with?

The objectives and the purpose of data collection and analysis Signup and view all the answers

What should procurement professionals and contract managers be mindful of when seeking feedback through surveys?

Ensuring surveys are tightly focused and simple to attract higher response rates Signup and view all the answers

What are the two most important aspects of contract management?

Performance management and risk management Signup and view all the answers

When should disciplines of performance and risk management be embedded in the procurement process?

From the very beginning Signup and view all the answers

What is the primary focus of performance and risk management in contract management?

Preventing problems from arising Signup and view all the answers

Why is it emphasized that prevention is better than cure in contract management?

To underscore the importance of proactive management Signup and view all the answers

What is the difference between data and information?

Data is raw facts or figures without context, while information is data that has been analyzed and interpreted. Signup and view all the answers

What is the main purpose of performance monitoring?

To be aware of current developments and show changes over time. Signup and view all the answers

How should qualitative data be handled for performance management?

It is important to reduce qualitative data to numbers in some way for performance management. Signup and view all the answers

Why is it important to specify data requirements during the tender/negotiation stage?

To enable the supplier to consider any additional issues or costs attached to providing the information in the required format. Signup and view all the answers

What is the significance of categorizing data as quantitative or qualitative?

It helps in understanding whether the data measures things in numbers or subjective things. Signup and view all the answers

What is the primary difference between monitoring and management?

Monitoring involves tracking data and/or information, while management combines knowledge with other tools to achieve the desired outcome. Signup and view all the answers

What should be done to avoid problems with performance management tools and measures?

All performance management tools and measures should be built into the overall contract design from the beginning. Signup and view all the answers

What is the importance of being as objective as possible when using data for performance management?

To ensure accurate and reliable analysis of the data. Signup and view all the answers

Why is it important to reduce qualitative data to numbers for performance management?

To make the data more objective and measurable. Signup and view all the answers

What is the purpose of setting out data requirements at the tender/negotiation stage?

To enable the supplier to consider any additional issues or costs attached to providing the information in the required format. Signup and view all the answers

What should be considered when deciding the level of data analysis in performance management?

The contract's value and risks Signup and view all the answers

What is the purpose of regular and quick data analysis in performance management?

To inform ongoing conversations between the supplier and purchaser Signup and view all the answers

What factors determine the actions to address underperformance in contracts?

Category, nature, degree, impact, and possible causes Signup and view all the answers

What is the first step in addressing underperformance in contracts?

Consider the issues and options Signup and view all the answers

What is the purpose of a deficiency notice in addressing underperformance?

Formally records underperformance, prompting the supplier into action within a fixed period of time Signup and view all the answers

What is the purpose of an improvement notice in addressing underperformance?

Sets out objectives to bring performance back within required levels without specifying how, requiring the supplier to submit an action plan for approval Signup and view all the answers

What is the purpose of a remedial action notice in addressing underperformance?

Sets out exactly what action must be taken to remedy underperformance Signup and view all the answers

What determines the decision to use an improvement notice or a remedial action notice?

The nature of the solution required Signup and view all the answers

Under what circumstances should the contract permit the purchaser to use alternative suppliers?

If the contracted supplier fails to perform Signup and view all the answers

When should penalty clauses, service credit regime, and liquidated damages clauses in the contract be used?

According to the process requirements Signup and view all the answers

What potential outcome may result from making deductions for poor performance?

They can potentially be released later if the matter is subject to commercial negotiation Signup and view all the answers

What may be the final sanction for poor performance in a contract?

Termination of the contract Signup and view all the answers

What is the last-resort option when dealing with underperformance?

Utilising a break clause Signup and view all the answers

What is the role of an independent third party in alternative dispute resolution (ADR)?

Encourage and facilitate discussion between the parties Signup and view all the answers

What is the purpose of arbitration or adjudication in dispute resolution?

Review the facts and pronounce their own judgement Signup and view all the answers

What is the likely outcome if a plan for improvement is not implemented?

Depends on the contract terms Signup and view all the answers

What is the potential consequence of issuing a repeated improvement notice?

Shortening, reducing scope, or terminating the contract Signup and view all the answers

What is the first step in remedying underperformance according to the text?

Discussion Signup and view all the answers

What level of authorization is required for terminating a contract?

Similar to entering into the contract Signup and view all the answers

What is the purpose of an escalation process within the parties' own organizations?

Raising the discussion to higher levels of authority Signup and view all the answers

What is the likely outcome if a remedial action notice is not complied with?

Depends on the contract terms Signup and view all the answers

What is the potential consequence of a disputed action plan?

Rejection of the plan and expiration of the deadline Signup and view all the answers

What is the role of penalty clauses and similar terms and conditions in contracts?

To enforce compliance and deter underperformance Signup and view all the answers

What is the primary purpose of provisions for the future in addressing underperformance?

Incorporate plans for improvement and potential consequences Signup and view all the answers

When should termination for fault be considered?

As a last resort Signup and view all the answers

Who should make decisions to terminate a contract?

Director, executive team, or board Signup and view all the answers

What may contract termination lead to?

Formal dispute Signup and view all the answers

What is emphasized as the first step in remedying underperformance?

Discussion Signup and view all the answers

What is the importance of closely following the procedures laid down in the contract when deploying contractual approaches?

To ensure compliance and fairness Signup and view all the answers

What may be included in dispute resolution provisions in the contract?

Escalation processes, alternative dispute resolution methods, and full legal proceedings Signup and view all the answers

What does Table 4.2 outline?

Specific actions to address underperformance Signup and view all the answers

What should be considered as a potential outcome if improvement plans are not implemented or successful?

Provisions for the future Signup and view all the answers

What is mentioned regarding penalty clauses and similar terms and conditions in contracts?

Their relevance in managing underperformance Signup and view all the answers

What does the text illustrate about improvement notices?

Misuse leading to prolonged underperformance Signup and view all the answers

What should be considered when addressing issues not specifically addressed in the contract terms?

Legal and negotiation aspects Signup and view all the answers

What should be considered before utilizing contractual approaches to remedy underperformance?

Severity of the actions in Table 4.2 Signup and view all the answers

What are the two most important aspects of contract management?

Performance management and risk management Signup and view all the answers

When should both performance and risk management be embedded in the procurement process?

From the very beginning Signup and view all the answers

What is emphasized as better than cure in the context of contract management?

Prevention Signup and view all the answers

What is the consequence of starting to consider managing contract problems when they become obvious?

It is too late Signup and view all the answers

What should the level of data analysis be proportionate to in performance management?

The contract's value and risks Signup and view all the answers

What is the purpose of regular and quick data analysis in performance management?

To inform ongoing conversations between the supplier and purchaser Signup and view all the answers

What factors does the action to address underperformance depend on?

Category, nature, degree, impact, and possible causes and mitigating factors Signup and view all the answers

What is the first step in addressing underperformance?

Consider the issues and options, including talking to the supplier, issuing deficiency notices, and exploring root causes Signup and view all the answers

What is the purpose of a deficiency notice?

Formally records underperformance, prompting the supplier into action within a fixed period of time Signup and view all the answers

What does an improvement notice require the supplier to do?

Submit an action plan for approval Signup and view all the answers

What is the purpose of a remedial action notice?

Sets out exactly what action must be taken to remedy underperformance Signup and view all the answers

What determines the decision to use an improvement notice or a remedial action notice?

The nature of the solution required Signup and view all the answers

Under what circumstances should the contract permit the purchaser to use alternative suppliers?

If the contracted supplier fails to perform, with clearly defined circumstances and consequences Signup and view all the answers

When should penalty clauses, service credit regime, and liquidated damages clauses in the contract be used?

According to the process requirements Signup and view all the answers

What can potentially happen to any deductions made for poor performance?

They can potentially be released later if the matter is subject to commercial negotiation Signup and view all the answers

What may be the final sanction for poor performance?

Termination of the contract, depending on the nature of the performance Signup and view all the answers

What is the primary difference between a service credit regime and liquidated damages in a contract?

Service credits are based on overall performance, while liquidated damages are based on specific failings. Signup and view all the answers

What is the advantage of a service credit regime over liquidated damages in terms of cost impact calculation?

The cost impact of service credits can be calculated in advance, similar to liquidated damages. Signup and view all the answers

In what way does a service credit regime differ from penalty clauses and damages in a contract?

Service credits are based on overall performance, while penalty clauses and damages are based on specific failings. Signup and view all the answers

What is a key requirement for invoking a penalty clause, damages, or service credit clause in a contract?

A formal notice to the supplier indicating breach of performance standards and intention to invoke the clause. Signup and view all the answers

What is the primary focus of cost management in business?

Minimizing waste and resource-efficient approaches Signup and view all the answers

What is the main objective of budgeting in cost management?

Covering estimated costs and managing cash flow Signup and view all the answers

What is the potential consequence of staying within budget by reducing output?

Increased cost-per-unit Signup and view all the answers

What are budgets based on, which can lead to the need for business decisions like increasing budget or reducing quality?

Estimates Signup and view all the answers

What is an example of a key performance indicator (KPI) in cost management?

Transactional cost in contract Signup and view all the answers

What does improving the resource input emphasize in cost management?

Enhancing delivery output Signup and view all the answers

What is the criticism of public-sector procurement in terms of cost control?

Being budget-controlled rather than cost-controlled Signup and view all the answers

What should key performance indicators (KPIs) contribute to in cost management?

The feedback loop and overall cost performance Signup and view all the answers

In what way can reducing output to stay within budget impact cost-per-unit?

Increase cost-per-unit Signup and view all the answers

What is the role of cost management in businesses' production processes?

Optimizing resource allocation and maximizing efficiency Signup and view all the answers

What is the purpose of cost control in business?

Managing expenditure without compromising quality Signup and view all the answers

What is the main objective of estimating in cost management?

Predicting project or production costs in financial terms Signup and view all the answers

What is the best use of Key Performance Indicator (KPI) information?

Identifying the root cause of underperformance and cooperating to address it Signup and view all the answers

What is the primary focus of the 'five whys' approach?

To address the problem within the capabilities of those involved in solving it Signup and view all the answers

What is the goal of the 'five whys' approach?

To address the problem within the scope of those trying to solve it Signup and view all the answers

What is the most important component of performance management?

Root-cause analysis Signup and view all the answers

What does the 'five whys' approach involve?

Asking 'why' multiple times to get to the root cause of a problem Signup and view all the answers

What is the relationship between purchaser and supplier in addressing underperformance through KPIs?

Can impact the effectiveness of addressing underperformance Signup and view all the answers

What is the potential consequence of increasing resource input to address delivery problems?

Improved delivery output and potential negative effects on delivery quality Signup and view all the answers

What is the emphasis regarding throwing money at a problem?

It can only be a solution if directed at the right part of the problem Signup and view all the answers

What is the purpose of the 'five whys' approach?

To uncover the root cause of a problem Signup and view all the answers

What is the focus of the 'five whys' approach?

To address the problem within the capabilities of those involved in solving it Signup and view all the answers

What is the primary purpose of Key Performance Indicators (KPIs)?

Measures and indicators of performance that help identify the root cause of underperformance Signup and view all the answers

Which of the following is NOT a Product/service quality KPI?

Consignment stock availability Signup and view all the answers

What does the delivery compliance KPI measure?

Both quantity supplied matching the quantity ordered and the time of delivery Signup and view all the answers

What is the primary focus of cost management?

Cost control Signup and view all the answers

What does resource planning involve?

Both estimating the required physical inputs for a project and breaking down the physical processes into workflows Signup and view all the answers

What do health and safety KPIs measure?

Reports in relation to the product/service endangering the health and safety of staff, visitors, users, or the general public Signup and view all the answers

What are the administration KPIs used to measure?

All of the above Signup and view all the answers

What is the purpose of lead time as a KPI?

To measure the average time taken for a supplier to deliver goods after receiving an order Signup and view all the answers

What is the purpose of cost control in cost management?

To monitor and manage project costs Signup and view all the answers

What is the primary focus of resource planning in cost management?

Estimating the required resources for project delivery Signup and view all the answers

What do product/service quality KPIs measure?

Reliability/durability, usability/user satisfaction, and technical support Signup and view all the answers

What are the KPIs used to measure delivery performance?

All of the above Signup and view all the answers

What is the purpose of the delivery compliance KPI?

All of the above Signup and view all the answers

Which of the following is NOT a Product/service quality KPI?

Consignment stock availability Signup and view all the answers

What does the delivery compliance KPI measure?

Both quantity supplied matching the quantity ordered and the time of delivery Signup and view all the answers

What is the primary focus of cost management?

Cost control Signup and view all the answers

What does resource planning involve?

Both estimating the required physical inputs for a project and breaking down the physical processes into workflows Signup and view all the answers

What do health and safety KPIs measure?

Reports in relation to the product/service endangering the health and safety of staff, visitors, users, or the general public Signup and view all the answers

What are the administration KPIs used to measure?

All of the above Signup and view all the answers

What is the purpose of lead time as a KPI?

To measure the average time taken for a supplier to deliver goods after receiving an order Signup and view all the answers

What is the purpose of cost control in cost management?

To monitor and manage project costs Signup and view all the answers

What is the primary focus of resource planning in cost management?

Estimating the required resources for project delivery Signup and view all the answers

What do product/service quality KPIs measure?

Reliability/durability, usability/user satisfaction, and technical support Signup and view all the answers

What are the KPIs used to measure delivery performance?

All of the above Signup and view all the answers

What is the purpose of the delivery compliance KPI?

All of the above Signup and view all the answers

What do penalty clauses in contracts typically require the invoice to state?

The reason for not making full payment Signup and view all the answers

What is the tax implication of penalty clauses in contracts?

The penalty is imposed against the supplier, not the government Signup and view all the answers

What is a concern related to incentive or bonus payment structures in contracts?

They may lead to unrealistic performance expectations Signup and view all the answers

What is a potential drawback of bonus systems in contracts?

They may reward the supplier at the expense of the purchaser Signup and view all the answers

What do advocates of incentive schemes often overlook?

The supplier's efficiency gains Signup and view all the answers

What do gain share provisions offer in contracts?

A way to share added value of improved performance Signup and view all the answers

What is essential for measuring supplier performance in contracts?

Quality performance KPIs Signup and view all the answers

What do quality performance KPIs cover?

Delivery times and conformance to specification Signup and view all the answers

What is important for KPIs to be as a measure?

SMART (Specific, Measurable, Achievable, Relevant, Time-bound) Signup and view all the answers

What should be considered when using KPIs as a measure in contracts?

The realism of measurement and data availability Signup and view all the answers

What is emphasized regarding the number of KPIs to use on a contract?

It would not be sensible to use all 25 on any one contract Signup and view all the answers

What do KPIs need to be in order to be effective measures of performance?

SMART and realistic Signup and view all the answers

What is the primary purpose of aligning KPIs to targets in performance management?

To provide a variable standard with consequences for penalties and/or bonus payments Signup and view all the answers

What is the significance of the wording of contract clauses in relation to KPIs and targets?

It determines whether the KPI is a target measure or a specification compliance description Signup and view all the answers

Why must the contract be clear about whether a KPI is a target measure or a specification compliance description?

To clarify whether the KPI is tied to an absolute 'not acceptable' level for compliance Signup and view all the answers

What is the primary objective of the performance management framework as a contract document?

To align KPIs to targets for driving supplier performance Signup and view all the answers

Which attribute is considered much more useful than 'realistic' in the SMART model?

Relevance Signup and view all the answers

What should negotiators be informed by when setting targets?

Current service levels, desired improvements, cost impact, and potential benefits to the business Signup and view all the answers

What should be considered when setting achievable targets?

Driving performance and striking a balance between being too easy or too difficult to achieve Signup and view all the answers

What should specific targets be characterized by?

Clearly defined objectives, such as a specific number of missed delivery dates or a percentage of on-time deliveries Signup and view all the answers

What must time-bound targets have?

A specified time period within which the relevant level must be achieved Signup and view all the answers

What should measurable targets be capable of?

Being measured, even if it involves measuring user perception Signup and view all the answers

What should relevant targets relate to?

Something that matters and has an impact on overall performance Signup and view all the answers

What is the purpose of setting targets in performance management?

Driving performance improvement and achieving specific objectives Signup and view all the answers

What is the role of negotiation in setting targets?

Balancing the interests of buying-side and supply-side stakeholders Signup and view all the answers

What should negotiators consider when setting targets?

The impact of achieving improvements, including reputational enhancement, projected sales increase, or cost savings Signup and view all the answers

How should achievable targets be balanced?

Between being too easy or too difficult to achieve Signup and view all the answers

What should specific targets be aligned with?

Clearly defined objectives, such as a specific number of missed delivery dates or a percentage of on-time deliveries Signup and view all the answers

What does tolerating a risk mean in risk management?

Accepting it and developing an event-response plan Signup and view all the answers

What is the primary purpose of designing early warning indicators (EWIs) in risk management?

To suggest potential issues and require associated actions Signup and view all the answers

What is the focus of designing trigger events in risk management?

Monitoring potential issues Signup and view all the answers

What is the purpose of compiling and agreeing on the risk register in risk management?

To involve procurement professionals, stakeholders, and suppliers Signup and view all the answers

When should risk monitoring and response activities be included in contract review meetings?

As a standing agenda item Signup and view all the answers

What should the risk register be open to based on internal and external events in the purchasing and supply market?

Regular reviews Signup and view all the answers

What does transferring a risk involve in risk management?

Taking out insurance cover to shift the risk to an external party Signup and view all the answers

What is the implementation of initial risk management response based on in risk management?

Identifying risks, their scale, and owners Signup and view all the answers

What is the primary purpose of the risk register in risk management?

A living document that evolves during the contract's life Signup and view all the answers

What is the significance of monitoring the risk environment and responding to EWIs and triggers in risk management?

Require ongoing contract management Signup and view all the answers

What should risk monitoring and response activities be open to in risk management?

Regular review Signup and view all the answers

What is the requirement for the risk register in risk management?

To be open to changes based on internal and external events Signup and view all the answers

Which team may need to be involved in managing data management risks?

ICT team Signup and view all the answers

What does the provision of personal data in the EU include?

Anything that identifies a living person Signup and view all the answers

Who is familiar with legal judgements impacting the likely impact of scenarios?

Legal teams or external legal advisors Signup and view all the answers

What does the evaluation map in risk management map?

Likelihood and impact Signup and view all the answers

What do INCOTERMS establish rules for?

Transfer of shipping risks Signup and view all the answers

What are the responses for dealing with risk in risk management?

Treat, Transfer, Tolerate, or Terminate Signup and view all the answers

What may the ability to manage risk vary between in contractual risks?

Between the supplier and the purchaser Signup and view all the answers

What does the initial risk management response involve?

Treating, transferring, tolerating, or terminating the risk Signup and view all the answers

What is important to consider regarding preferred risk ownership options?

The reasons and influences affecting them Signup and view all the answers

What does the 2 * 2 grid in risk evaluation map?

Risk likelihood and impact Signup and view all the answers

What do INCOTERMS establish rules for?

Transfer of shipping risks Signup and view all the answers

What is involved in identifying risks in risk management?

Considering processes, people, money, markets, machinery, inputs and outputs, and STEEPLE D categories Signup and view all the answers

What are the three key components of risk management?

Identification, Evaluation, Response Signup and view all the answers

What is the purpose of a 'contract risk register'?

To identify, evaluate, and log risks associated with the contract Signup and view all the answers

Who should be involved in risk mapping and risk management?

Both internal and external stakeholders Signup and view all the answers

What is the primary focus of the 'five whys' approach?

Identifying the root cause of a problem Signup and view all the answers

What is the purpose of holding more stock to guard against delivery delays?

To mitigate the risk of delivery delays Signup and view all the answers

What is the purpose of spreading the supply requirement among several suppliers?

To offset the impact of one underperforming supplier Signup and view all the answers

What is the potential drawback of incentive schemes in contracts?

Overlooking long-term performance Signup and view all the answers

What does risk management comprise?

Identification, Evaluation, Response Signup and view all the answers

What is the purpose of risk registers?

To identify, evaluate, and log risks Signup and view all the answers

What is the primary focus of risk mapping and risk management?

Involvement of both internal and external stakeholders Signup and view all the answers

What is the potential drawback of bonus systems in contracts?

Overlooking long-term performance Signup and view all the answers

What is the purpose of holding more stock to guard against delivery delays?

To mitigate the risk of delivery delays Signup and view all the answers

What does risk mapping involve?

Identifying risks, evaluating likelihood and impact, and identifying risk owners Signup and view all the answers

What is the primary focus of risk management?

Identification, evaluation, and response to risks Signup and view all the answers

Why is it crucial to involve both internal and external stakeholders in risk mapping and risk management?

To capture different viewpoints and identify different risks Signup and view all the answers

What is the potential consequence of carrying out risk management in isolation by the procurement team?

Overlooking important risks and viewpoints Signup and view all the answers

What is the primary purpose of setting achievable targets in contract management?

To ensure contract success Signup and view all the answers

Why should targets be reviewed annually and revised if necessary?

To adapt to changing circumstances and priorities Signup and view all the answers

What may be needed to revise targets in contract management?

Negotiation with suppliers Signup and view all the answers

What can be done to address underperformance in contracts?

Various actions, including termination of the contract Signup and view all the answers

What do mitigating actions to protect against underperformance come with?

Costs Signup and view all the answers

What is the primary focus of risk management in relation to contractual risk?

Identification, evaluation, and response Signup and view all the answers

What is the purpose of risk management in relation to contractual risk?

To protect against risks to the contract and risks arising from the contract's operation Signup and view all the answers

What does risk management involve in terms of regular activities?

Regular monitoring and responding to early warning indicators Signup and view all the answers

Which category of risk includes risks related to events beyond the control of the parties involved in the contract?

Force majeure Signup and view all the answers

In what way does the categorization of risks help risk evaluators?

By analyzing the wider business impact of the risk Signup and view all the answers

What is the purpose of categorizing risks based on the impact category?

To understand the wider business impact of the risk Signup and view all the answers

Why might a given risk easily fit into more than one source category?

Because of the interconnected nature of risks Signup and view all the answers

What is the purpose of risk evaluation in contract management?

To map the likelihood of something going wrong against its impact Signup and view all the answers

What do INCOTERMS establish rules for in contract management?

Transfer of shipping risks Signup and view all the answers

What are the responses for dealing with risks in contract management?

Treat, Transfer, Tolerate, or Terminate Signup and view all the answers

What does the initial risk management response involve in contract management?

Treating, transferring, tolerating, or terminating the risk Signup and view all the answers

What determines risk levels in contract management?

Likelihood and impact estimation Signup and view all the answers

What do INCOTERMS establish rules for in contract management?

Transfer of shipping risks Signup and view all the answers

What is important to consider when dealing with risk ownership options in contract management?

Reasons and influences affecting preferred risk ownership options Signup and view all the answers

What is the purpose of identifying risks in contract management?

To involve considering processes, people, money, markets, machinery, inputs and outputs Signup and view all the answers

Who are familiar with legal judgements impacting the likely impact of scenarios in contract management?

Legal teams or external legal advisors Signup and view all the answers

What is involved in managing contractual risks in contract management?

Impacts both the supplier and the purchaser, and the ability to manage risk varies between them Signup and view all the answers

What is the primary purpose of stakeholder involvement in risk management in contract management?

To understand and advise on potential impacts and risk management approaches Signup and view all the answers

What are the management options for external market risks?

Mitigate, transfer Signup and view all the answers

What should KPIs be according to the text?

Specific, measurable, achievable, relevant, time-bound Signup and view all the answers

When are penalty clauses acceptable in contracts?

If not out of proportion Signup and view all the answers

What does cost management include?

Resource planning, estimating, budgeting, and cost control Signup and view all the answers

What are the responses for dealing with risk in risk management?

Design out, reduce, mitigate, share, transfer, tolerate Signup and view all the answers

What does data used in procurement contracts measure?

Trends and set targets Signup and view all the answers

What are the types of risks in procurement contracts?

Financial, legal, reputational Signup and view all the answers

What do KPIs in procurement contracts need to be?

Specific, measurable, achievable, relevant, time-bound Signup and view all the answers

What is the focus of risk management in procurement contracts?

Assessing likelihood and impact, and responses include design out, reduce, mitigate, share, transfer, and tolerate Signup and view all the answers

What are the six ways to deal with underperformance in procurement contracts?

Discussion, notices, penalty clauses, alternative suppliers, termination Signup and view all the answers

What should be done with force majeure risks in procurement contracts?

Insured against or mitigated through business continuity planning Signup and view all the answers

What is involved in managing financial risks in procurement contracts?

Design out, manage financial systems controls Signup and view all the answers

What can lead to reputational damage in procurement?

Maverick spend Signup and view all the answers

What can result in financial, legal, and operational implications in procurement?

Responsiveness of suppliers deteriorating due to 'valued customer' status being undermined Signup and view all the answers

What can reduce the risk of financial loss due to fraud in procurement?

Allowing flexibility in contract terms to share the pain of input shocks Signup and view all the answers

What can cause erosion of customer base or withdrawal of investment in procurement?

Reputational damage from association with unethical practices Signup and view all the answers

What can result in financial and operational impacts on procurement?

Supplier collapse Signup and view all the answers

What can lead to financial and operational challenges in procurement?

Failure to complete procurement programs on schedule Signup and view all the answers

What can undermine legitimate contracts and result in higher costs in procurement?

Maverick spend Signup and view all the answers

What can result in financial, legal, and reputational consequences in procurement?

Fines from data regulators and claims for damages due to data loss Signup and view all the answers

What can have financial loss due to fraud in procurement?

Maverick spend Signup and view all the answers

What can have financial and operational implications due to ceasing to be profitable for the supplier in procurement?

Responsiveness of suppliers deteriorating due to 'valued customer' status being undermined Signup and view all the answers

What can result in legal, financial, and operational implications in procurement?

Legal action by suppliers for breach of contract Signup and view all the answers

What can result in financial loss due to fraud in procurement?

Maverick spend Signup and view all the answers

What is the primary focus of risk categorization in construction risk management?

Considering sources and impacts of risks Signup and view all the answers

What are specific risks to consider in construction risk management?

Contract terms issues and supplier issues Signup and view all the answers

What are management options for contract terms issues in construction risk management?

Design out, reduce, mitigate, and transfer strategies Signup and view all the answers

How can the risk of late delivery of goods or services be managed in construction risk management?

By reducing, mitigating, and transferring the risk Signup and view all the answers

What strategies can be employed to manage the risk of supplier collapse in construction risk management?

Spreading the load, introducing insolvency insurance, and parent-company guarantees Signup and view all the answers

How can the risk of inferior quality/non-compliance with specifications be mitigated in construction risk management?

By implementing warranties, fit-for-purpose clauses, and service credits Signup and view all the answers

What is the purpose of spreading the load in managing the risk of supplier collapse in construction risk management?

To reduce the impact of a single supplier's failure Signup and view all the answers

How can the risk of late delivery be managed in construction risk management?

By managing contracts from the outset and introducing damages or penalty clauses Signup and view all the answers

What is the primary focus of risk management in construction?

Considering sources and impacts of risks Signup and view all the answers

What is the primary purpose of credit checks in managing the risk of supplier collapse in construction risk management?

To assess the financial stability of potential suppliers Signup and view all the answers

What is the significance of introducing insolvency insurance in managing the risk of supplier collapse in construction risk management?

To provide financial protection in case of supplier insolvency Signup and view all the answers

What is the purpose of the 'five whys' questioning approach in construction risk management?

To prompt a systematic approach to problem-solving Signup and view all the answers

What is the tax implication of penalty clauses in contracts?

The penalty is imposed against the supplier, not the government, so any tax due on the invoice still needs to be paid Signup and view all the answers

What is the purpose of gain share provisions in contracts?

To protect the purchaser from making bonus payments that do not benefit them Signup and view all the answers

What is the primary focus of quality performance KPIs in contracts?

Delivery times and conformance to specification Signup and view all the answers

What is the recommended characteristic of KPIs according to the text?

SMART (Specific, Measurable, Achievable, Relevant, Time-bound) Signup and view all the answers

What is the importance of considering the realism of measuring KPIs?

It determines how the KPIs will be used as a measure Signup and view all the answers

What is the potential consequence of using a long list of 25 separate KPIs on any one contract?

It would not be sensible to use all of them on any one contract Signup and view all the answers

What is the potential drawback of incentive or bonus payment structures in contracts?

They may lead to unrealistic performance expectations and budget implications for the purchaser Signup and view all the answers

What do advocates of incentive schemes often overlook?

The supplier's efficiency gains Signup and view all the answers

What is the potential consequence of bonus systems in contracts?

They may reward the supplier at the expense of the purchaser Signup and view all the answers

What is the purpose of using Key Performance Indicators (KPIs) in contracts?

To measure supplier performance Signup and view all the answers

What is the potential impact of incentive clauses in contracts?

They result in mixed views on their value Signup and view all the answers

What is the potential drawback of bonus systems in contracts?

They may reward the supplier at the expense of the purchaser Signup and view all the answers

Study Notes

Performance Management and Addressing Underperformance in Contracts

Data collection and analysis have an opportunity cost, and the level of analysis should be proportionate to the contract's value and risks.
In performance management, data analysis should be done regularly and quickly to inform ongoing conversations between the supplier and purchaser.
Actions to address underperformance depend on the category, nature, degree, impact, and possible causes and mitigating factors of the underperformance.
The first step in addressing underperformance is to consider the issues and options, including talking to the supplier, issuing deficiency notices, and exploring root causes.
A deficiency notice formally records underperformance, prompting the supplier into action within a fixed period of time.
An improvement notice sets out objectives to bring performance back within required levels without specifying how, requiring the supplier to submit an action plan for approval.
A remedial action notice sets out exactly what action must be taken to remedy underperformance.
The decision to use an improvement notice or a remedial action notice depends on the nature of the solution required.
The contract should permit the purchaser to use alternative suppliers if the contracted supplier fails to perform, with clearly defined circumstances and consequences.
Penalty clauses, service credit regime, and liquidated damages clauses in the contract should be used according to the process requirements.
Any deductions made for poor performance can potentially be released later if the matter is subject to commercial negotiation.
The final sanction for poor performance may be termination of the contract, depending on the nature of the performance.

Improving Delivery Output and the Role of KPIs

Addressing delivery problems by increasing resource input is a strategy to improve delivery output.
Possible outcomes of increasing resource input include improved delivery output, but there are also potential negative effects on delivery quality.
The best use of Key Performance Indicator (KPI) information involves cooperation between purchaser and supplier to determine the root cause of underperformance and how to fix it.
The relationship between purchaser and supplier can impact the effectiveness of addressing underperformance through KPIs.
Root-cause analysis is the most important component of performance management and seeks to understand the reasons for a situation's existence.
The "five whys" approach, created by Japanese industrial engineer Taiichi Ono, involves asking "why" multiple times to get to the root cause of a problem.
The "five whys" approach may require more or fewer than five levels of questioning to uncover the root cause.
The goal of the "five whys" approach is to address the problem within the scope of those trying to solve it.
The "five whys" approach was originally illustrated with an example involving a robot's circuit overload and the lack of a pump filter.
The focus of the "five whys" approach is to address the problem within the capabilities of those involved in solving it.
The text emphasizes that throwing money at a problem can only be a solution if it is directed at the right part of the problem.
KPIs are measures and indicators of performance, and the best use of KPI information involves identifying the root cause of underperformance and cooperating to address it.

Understanding Performance Clauses and Key Performance Indicators (KPIs) in Contracts

Penalty clauses may require the invoice to state that full payment will not be made and explain why, when a deduction is to be made
Tax implications of penalty clauses: the penalty is imposed against the supplier, not the government, so any tax due on the invoice still needs to be paid
Incentive clauses offer bonuses for exceeding agreed Key Performance Indicators (KPIs), but views on their value are mixed
Incentive or bonus payment structures in contracts may lead to unrealistic performance expectations and budget implications for the purchaser
Bonus systems may reward the supplier at the expense of the purchaser, unless carefully set to ensure the purchaser gains more from improved delivery
Advocates of incentive schemes often overlook that the supplier already gains by performing more efficiently, releasing resources for other projects
Gain share provisions offer a way to share added value of improved performance, protecting the purchaser from making bonus payments that do not benefit them
The use of Key Performance Indicators (KPIs) in contracts is essential for measuring supplier performance
Quality performance KPIs cover delivery times, conformance to specification, compliance with legislation, and risk management
KPIs should be SMART (Specific, Measurable, Achievable, Relevant, Time-bound) and realistic to use as a measure
It is important to consider how realistic it is to measure KPIs and whether the data is readily available or needs to be created for this purpose
A long list of 25 separate KPIs is provided as examples, but it would not be sensible to use all of them on any one contract

Setting SMART Targets in Performance Management

SMART is an acronym used to describe targets in various contexts, including purchasing and supply, personnel management, personal development, and sports.
SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound.
Specific targets must be clearly defined, such as a specific number of missed delivery dates or a percentage of on-time deliveries.
Measurable targets should be capable of being measured, even if it involves measuring user perception.
Achievable targets should drive performance and strike a balance between being too easy or too difficult to achieve.
Relevant targets must relate to something that matters and have an impact on overall performance.
Time-bound targets have a specified time period within which the relevant level must be achieved.
Some SMART models suggest that 'R' stands for realistic, but 'Relevance' is considered a much more useful attribute.
Setting targets involves negotiation, with buying-side stakeholders having an interest in setting targets as high as possible and supply-side stakeholders aiming for lower targets.
Negotiation should be informed by information such as current service levels, desired improvements, cost impact, and potential benefits to the business.
It is important to consider the impact of achieving improvements, including reputational enhancement, projected sales increase, or cost savings.
Knowledge of current service levels, desired improvements, and potential cost impact can inform the negotiation approach.

Risk Management in Contracting

Terminating a risk involves removing it by changing processes, contractual relationships, or stopping the activity causing the risk.
Three ways to treat risks: reducing likelihood of occurrence, mitigating impact, or sharing the risk with all parties involved.
Transferring a risk involves taking out insurance cover to shift the risk to an external party.
Tolerating a risk means accepting it, but may still require an event-response plan if the risk materializes.
Implementation of initial risk management response is done after identifying risks, their scale, and owners.
Designing early warning indicators (EWIs) involves creating events or data that suggest potential issues and require associated actions.
Designing trigger events is focused on what needs to be monitored and what actions are needed in response to the triggers.
Compiling and agreeing on the risk register involves activities with procurement professionals, stakeholders, and suppliers.
The risk register, designed by the procurement professional, becomes a living document that evolves during the contract's life.
Monitoring the risk environment and responding to EWIs and triggers are closely interlinked and require ongoing contract management.
Risk monitoring and response activities should be a standing agenda item at contract review meetings and open to ad hoc review.
The risk register must be reviewed regularly and be open to changes based on internal and external events in the purchasing and supply market.

Contractual Risk Management and Mitigation Strategies

Setting achievable targets is crucial for contract success
Targets should be reviewed annually and revised if necessary
Negotiation with suppliers may be needed to revise targets
Underperformance can be addressed through various actions, including termination of the contract
Mitigating actions can be taken to protect against underperformance, but they come with costs
Contractual risk involves risks to the contract and risks arising from the contract's operation
Risk management includes identification, evaluation, and response
Risk mapping involves identifying risks, evaluating likelihood and impact, and identifying risk owners
Risk management involves regular monitoring and responding to early warning indicators
Involvement of both internal and external stakeholders is crucial in risk mapping and risk management
Different stakeholders may have different viewpoints and may identify different risks
Risk management should not be carried out in isolation by the procurement team, but should include various stakeholders

Risk Management Approaches in Construction

Risk management involves identifying areas in need of review and potential weaknesses within an organization.
A construction site fire led to the partial collapse of a new housing development, caused by inadequate post-incident health and safety checks.
Risk categorization involves considering sources (performance, organizational, market) and impacts (physical, reputational, legal, financial) of risks.
Risk categorization prompts an Ishikawa fishbone approach and a five-why questioning approach.
Specific risks to consider in construction include contract terms issues and supplier issues.
Contract terms issues include formalizing contracts, accidents in contract delivery, and enforceability of contract remedies.
Management options for contract terms issues include design out, reduce, mitigate, and transfer strategies.
Supplier issues involve supplier collapse, late delivery of goods or services, and inferior quality/non-compliance with specifications.
Management options for supplier issues include reduce, mitigate, and transfer strategies.
Strategies for supplier collapse include credit checks, spreading the load, introducing insolvency insurance, and parent-company guarantees.
Late delivery risk can be managed through managing contracts from the outset and introducing damages or penalty clauses.
Inferior quality/non-compliance risk can be mitigated by implementing warranties, fit-for-purpose clauses, service credits, and internal quality control.

Understanding Performance Clauses and Key Performance Indicators (KPIs) in Contracts

Penalty clauses may require the invoice to state that full payment will not be made and explain why, when a deduction is to be made
Tax implications of penalty clauses: the penalty is imposed against the supplier, not the government, so any tax due on the invoice still needs to be paid
Incentive clauses offer bonuses for exceeding agreed Key Performance Indicators (KPIs), but views on their value are mixed
Incentive or bonus payment structures in contracts may lead to unrealistic performance expectations and budget implications for the purchaser
Bonus systems may reward the supplier at the expense of the purchaser, unless carefully set to ensure the purchaser gains more from improved delivery
Advocates of incentive schemes often overlook that the supplier already gains by performing more efficiently, releasing resources for other projects
Gain share provisions offer a way to share added value of improved performance, protecting the purchaser from making bonus payments that do not benefit them
The use of Key Performance Indicators (KPIs) in contracts is essential for measuring supplier performance
Quality performance KPIs cover delivery times, conformance to specification, compliance with legislation, and risk management
KPIs should be SMART (Specific, Measurable, Achievable, Relevant, Time-bound) and realistic to use as a measure
It is important to consider how realistic it is to measure KPIs and whether the data is readily available or needs to be created for this purpose
A long list of 25 separate KPIs is provided as examples, but it would not be sensible to use all of them on any one contract

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Test your knowledge of performance management and data analysis in procurement with this quiz. Explore topics such as data collection methods, quantitative and qualitative data analysis, addressing underperformance in contracts, and the use of penalty clauses and termination options.