Risk management rules for successful global sourcing in large capital projects

Abstract

Global sourcing has become strategically important for all large capital projects in today’s world. This study identified that 11% to over 51% of the budget spent on large capital projects is absorbed by global sourcing. The complexity of global sourcing requires that a multifaceted due diligence scan of the market dynamics and stakeholder interfaces be conducted to ensure that key strategic elements of projects are well understood. There is evidence that when global sourcing risks and challenges are dealt with through a structured and integrated risk management plan, project cost, time and the right level of project quality can be successfully delivered. Furthermore, experience shows that project decisions that are made purely based on capital cost whilst failing to consider the life cycle cost of equipment in terms of capital expenditure to operational expenditure ratio for the life of the project, may prove counterproductive in the long run. This research study set out to investigate the integrated risk management framework necessary to ensure success in global sourcing for large capital projects. It looked at the impact of global sourcing for large capital projects and how pre-emptive risk management practices help to improve project performance. Global experiences and cumulative knowledge was captured from technical experts and project management teams who have handled large projects in various sectors. As a core focus, the research interrogated the most important criteria necessary to measure and ascertain the impact of non-risk adjusted global sourcing on large capital projects in terms of project time, cost and quality. A quantitative study design was adopted to identify the risk management rules for successful global sourcing and measure their impact. Data was collated from large capital projects in 40 countries, six continents through 89 respondents via an online survey tool authenticating the global perspective of this study. A resulting risk management model derived from the consolidated input seeks to introduce a new dimension to the body of project management knowledge related to the executing of large capital projects.