PLANNING STAGE (PROCUREMENT) : PLAN PROCUREMENT MANAGEMENT

Plan Procurement Management is the process of documenting project procurement decisions, specifying approach and identifying potential stakeholders. It identifies the needs that can better be met by purchasing the products, services or results from outside than being performed by the project team.

The following are the inputs of this process:

• Scope baseline which has Project Scope statement with the project descriptions, product, service or result descriptions, the list of deliverables and works that need to be outsourced.
• Activity resource requirements that contain the needs of people, equipment, materials etc
• Activity cost estimates that help to find reasonable bids or proposals received for the project activities from the bidders (sellers) etc.
• Stakeholder register that lists all the people or organizations who are interested in the project including the suppliers (sellers)
• Project Schedule that gives the mandated deliverable dates for the project.
• Requirements documentations that provide what to consider when planning for procurement such as healthy, safety, intellectual rights, security, environment, performance, licenses, permits etc.
• Enterprise Environmental Factors that explain the products, services and results available in the marketplace, supplies, and other terms and conditions.
• Organizational Process Assets that explain the procurement policies, guidelines and procedures to be applied by the project team if there is no procurement expert in the organization, the contractual relationship selected by the management and metrics to be used for measuring the sellers’ performance. There are three types of contractual relationships:

1. Fixed Price Contracts whereby the seller provides the contract with a fixed price of producing the product, service or result to the buyer. And therefore the buyer has to specify precisely the product, service or result to be procured otherwise, if there is any change in the specification, there will be an increase in the contract price. Viceversa, if there is any cost increase due to unexpected performance, then the seller is responsible to cover that. Sometimes due to economic price condition, the fixed price contract can be adjusted to protect the interests of both the buyer and seller if there is a long term relationship. This is very commonly used by many organizations.
2. Cost Reimbursable Contracts whereby the cost is refunded to the seller for all legitimate costs incurred for complete work, plus a fee representing the seller profit. The fee can be:

• Fixed (calculated as a percentage of initial estimated cost regardless of the seller’s performance), or
• Incentive (prenegotiated and shared by both the buyer and seller based on seller’s performance), or
• Award (satisfaction of the buyer based on seller’s performance and it can not be appealed)

3. Time and Material Contracts whereby both cost reimbursable and fixed price contracts are combined. The contracts are used for acquisition of experts, staff augumentation and any other outside support when the precise statement of work has not been clearly and quickly prescribed. They are called cost reimbursable if they increase in contract value and fixed price if the paramenters are specified in the contracts.

The process can be done by:

• Make or Buy Analysis: The technique used to determine whether a certain project activity can be accomplished by the project team or should be outsourced. It happens when some of the project team are committed in other projects and therefore the project may need to have the same effort from outside in order to meet schedule commitments. If that is the case then the only decision to be made is to either purchase or lease.
• Using Experts: whereby through their judgements, the procurement issues, terms and conditions will be assisted and the criterias developed will be used for evaluating the sellers’ proposals.
• Market Research: whereby sellers (vendors) are examined their capabilities through online reviews, conferences and other sources.
• Having a meeting with potential sellers (bidders) if the market research has not given enough information. It is also an advantage because of having mutual benefits between sellers and buyer. The sellers understand what exactly is needed through interchanging conversation with the buyer and the buyer gets what is wanted for the project.

The outputs are:

Procurement Management Plan which gives a guideline of how to acquire the products and services from outside the organization, as well as to manage the procurement documents from developing them towards contract closure. The plan can include:

• Type of contract relationship to be used
• Preparing Procurement Documents
• Evaluation criteria
• Awarding and signing contracts
• Managing multiple suppliers
• Coordinating procurement with performance and scheduling
• Handling make or buy analysis
• Handling long lead times to purchase products and services from the sellers and coordinating the extra time needed to procure them
• Setting scheduled dates in each contract for deliverables
• Procurement metrics
• Risk management issues
• Any constraints and assumptions that could affect the planned procurement
• Managing contract changes
• Closing contracts etc

Procurement Statement of Work as a part of scope statement which explains in detailed, clearly, concisely and completely about the needs of the buyer to allow the sellers to determine their capabilities of providing the products, services and results. The procurement statement of work includes specifications, quantity wanted, quality level, performance data, period of performance, work location and other requirements.

Procurement Documents that are used to request the sellers’ terms such as bids, tenders, quotations (when selection of the seller is decided based on the price) and proposals (when selection of the seller is decided based on technical capabilities). The documents are namely as Request for Information, Request for Proposal, Request for Quotation, Invitation for Bid, Invitation for Negotiation, Tender Notice and Invitation for seller’s initial response. The documents are required to be flexible, sufficient and consistent to allow considerations of any suggestions made by sellers for better satisfaction of the same requirements. When you want to issue any procurement request to sellers for them to submit their proposals or bids, make sure it is done according to policy of the buyer’s organization.

Source Selection Criteria are also procurement documents developed to use for rating or scoring the seller’s proposals. The source selection criteria of the sellers can be

• Understanding procurement statement of work
• Purchasing price
• Operating cost
• Technical capability (skills and knowledge)
• Technical approach to meet procurement requirements
• Warranty
• Financial capacity
• Production capacity and interest to meet future requirements
• Business size and type of the enterprise
• Past performance
• References from prior customers
• Intellectual property and proprietary rights in the work done or products produced by the seller

Make or Buy Decision will be made from Make or Buy analysis technique. That is if the decision is about Making, then you create a procurement plan and agreements will be created for internal organization and if the decision is Buying, then the procurement plan and agreements will be created for the suppliers or sellers.

Change Requests will be occurred when there are any changes to the plans made that may impact the project activities. The change can also happen in the procurement plan and therefore change requests will be needed for review from Integral Change Control Board in order to avoid misunderstanding and have a go-ahead authority from them. It is better to make the Board aware of what is requested to be changed before its implementation. Otherwise, it will create a dishonor for a project manager who coordinates the project team and everything.

References:

PMI (2013). A Guide to the Project Management Book of Knowledge (PMBOK Guide 5^th Ed.) USA, Project Management Institute

https://opentextbc.ca/projectmanagement/chapter/chapter-13-procurement-management-project-management/

https://rajviraujlapmp.weebly.com/procurement-management.html

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