Planning Management Of Project Procurements

Plan procurements imagePlan Procurements process is about looking at ALL of the work involved in your project, and deciding which ones are to be given out to vendors. Once these are identified, next three processes of Project Procurement knowledge area are going to be performed for each of these contracts.

For example, Kathy from Landscaping project may have one contract for laying of jogging tracks, one for supplying exotic plants and one for getting manual labor with a contractor.

Just like a project can produce Product, Service or Result, contracting or purchasing decision could be for a Product, Service or Result!

We need a ton of things for planning

There are quite a lot of them. But they are very logical, and you can remember them easily.

Project management plan, of course. This has scope baseline which in turn contains project scope statement, WBS and WBS dictionary to understand about ALL of the work expected to be done in the project.

Similarly, requirements documentation too has the reference about what customer wants. Project management team will need to look at these inputs and determine whether performing organization has the skills available internally to execute the work. Any gap here will indicate possibility of contract work.

Risk register – when you contract any work out to a vendor, some of your risks may be transferred to the vendor (however from overall project perspective you will still have them). Procurements may also bring in some additional risks because someone else is doing the work now, and these should be added to the risk register, their responses have to be planned.

Activity resource requirements, project schedule, activity cost estimates – all these documents are studied from procurement perspective. These documents have data for coming up with request for proposals (RFP) and for preparing contracts.

Stakeholder register contains interests and influence levels of stakeholders in the project, and it should be studied while contracting out any work.

Contract types

There are three contract types – Fixed Price, Cost Plus and Time and Material, that you can consider. Each of these have a different approach to how risk is shared between seller and buyer. Lot rides on the type of contract you choose, so talking to an expert on this one will help immensely.

It is possible to abuse the buyer-seller relationship by selecting a wrong contract type. Hence, one thing to keep in mind is to choose a contract type that is fair to both buyer and seller, the one that creates win-win scenario for both.

  • Fixed Price contract is the one where cost of product, service or result is fixed up front. Any additional expenses incurred in producing the deliverables are assumed by the seller.
  • Cost Plus contract is also called Cost Reimbursable. This means that buyer pays seller all the cost incurred in building the product, service or result, and some incentive for having done the work.
  • Time and Material (T&M) is a hybrid type of contract where buyer assumes all the cost of materials used, and pays a rate for the time taken to carry out the work.

Click here for detailed post on various contract types.

Hows it done, again?

Make-or-Buy analysis is about figuring out whether you want to buy a service/product or create/build it yourself. If the required skills are not available internally, or they are available but being used by some other project, you may decide to contract the work to vendor.

If it is heavy machinery or even expensive software, you may decide whether to buy it or lease it. Sometimes budgeting constraints or company policies about procurement may also influence make-or-buy decision.

Considering our example of Landscaping project that Kathy is managing, she decides to get excavator machinery on lease, and contract out the work of fixing the jogging track. She also decides to buy the required exotic plants (she arrived at this decision using Decision tree in Perform Qualitative Risk Analysis process) rather than growing on her own.

Expert Judgment is about getting knowledgeable people – people who have done similar procurement planning work in other projects, to come and help you make decisions. They can give inputs on technical aspects, or legalities of contract or help in setting up vendor evaluation criteria. If you are doing it for the first time, it is better to get as many experts to help you as possible.

Market research is about finding who in the industry has the capabilities of doing the work you want to contract out. It is possible that the team working on procurement decisions may want to fine-tune the procurement objectives to take advantages of technological advances.

For instance, Kathy may learn about an advanced earth digging equipment that does her work in half the time as compared to conventional method but at additional cost. She may change procurement objective to allow for additional procurement budget.

Meetings with potential bidder of procurement items or service might turn out to be mutually beneficial.

What’s in a procurement management plan?

Seller, Vendor, Customer – all mean the same thing.

Procurement management plan describes how whole procurement processes will be carried out – from sending out request for proposal (RFP) to making payments to closing the contract.

It contains the following information –

  • Contract types used for each of the work you want to contract out
  • What are the additional risks and how are they managed
  • What is the criteria to evaluate seller responses
  • What is the criteria to measure deliverables of each contracted work, and the metrics to be used to evaluate performance
  • References to organization’s standard policy, guidelines, processes, templates to be used
  • How does estimate activity resources and develop schedule processes are impacted due to make-or-buy decisions
  • What are the project management, performance related and deliverable related documentation to be provided by the seller for each of the contract
  • List of any pre-qualified vendors to be considered during procurement processes
  • Procurement metrics to evaluate sellers
  • Any assumptions or constraints that may affect procurement process
  • Any standard procurement documents available in organizational process assets
  • Approach to deal with multiple suppliers if the project ends up requiring multiple suppliers

Procurement statements of work – Just as you get project statement of work as the very first document to start the project, you would create one for the seller’s team.

Where do you get the inputs for preparing procurement statement of work (SOW)?

From the Scope Baseline.

You would consider the part of baseline that deals with the work to be contracted out. There will be other tools like bidder conferences to answer questions from potential vendors, however the initial SOW should be complete and concise. Each individual procurement needs a separate SOW. SOW can be refined or detailed until it turns into a contract.

Procurement documents are used to ask prospective vendors to send their proposals for the work. These are called as request for proposal (RFP), request for bid (RFB), invitation for bid (IFB), request for information (RFI), request for quotation (RFQ), or tender notice – based on the industry.

The words bid, tender, or quotation are used when selection criteria is based on price. Rest of the words are used when selection criteria include other considerations like technical expertise, domain expertise, or previous experiences of doing similar work.

Apart from this, these are sent to potential vendors: statement of work, format of response expected, and timeline by which response is expected.

Source selection criteria lets you decide which vendor to award the contract.

Typically this is included as part of procurement documents. For certain items such as software or physical goods, price alone could be selection criteria. But for others there could be many, such as the following capacity of the vendor or seller –

  • Technical capability
  • Financial capacity to produce deliverables
  • Project management capability
  • Previous experience with similar projects
  • How much risk can the vendor assume?
  • References about potential vendors that his earlier customers can provide
  • Ability to protect your intellectual property
  • Warranty period of the product

Make-or-buy decisions – this is the decision you took after using make-or-buy analysis technique. You would document the decisions about buying the product, service or result from outside project organization. Along with this you would document the reasoning for those decisions.

Change requests may be raised when you study so many input documents. Change requests may be raised for any of the subsidiary plans studied, risk register, schedule or cost baselines, or in lesser probability even for requirements documents. Such change requests will be taken through change control board (CCB) using Perform Integrated Change Control process.

Project documents updates – documents such as risk register and requirements documentation may be updated.

Click here for a detailed post on different types of contracts.

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