Blog Project Management Procurement Management – Part 1

Procurement Management – Part 1

Project Procurement Management

Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. The organization can be either the buyer or seller of the products, services, or results of a project.

Project Procurement Management includes the contract management and change control processes required to develop and administer contracts or purchase orders issued by authorized project team members.The Project Procurement Management processes involve contracts that are legal documents between a buyer and a seller.

A contract represents a mutually binding agreement that obligates the seller to providethe specified products, services, or results, and obligates the buyer to provide monetary or other valuable consideration.The various activities involved in the Project Procurement Management processes form the life cycle of a contract.

A complex project can involve managing multiple contracts or subcontracts simultaneously or in sequence. In such cases, each contract life cycle can end during any phase of the project life cycle.Depending on the application area, the seller can be called a contractor, subcontractor, vendor, service provider, or supplier.Depending on the application area, the seller can be called a contractor, subcontractor, vendor, service provider, or supplier.

Knowledge

Area

Process Group

Initiating

Planning

Executing

Monitoring & Controlling

Closing

Project Procurement Management

Plan procurement Management

Conduct Procurements

Control Procurements

Close Procurements

Plan Procurement Management

Plan Procurements is the process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers.This process involves determining whether to acquire outside support and, if so what to acquire, how to acquire it, how much is needed, and when to acquire it.

The Plan Procurements process also includes consideration of potential sellers, particularly if the buyer wishes to exercise some degree of influence or control over acquisition decisions. Consideration should also be given to who is responsible for obtaining or holding any relevant permits and professional licenses that may be required by legislation, regulation, or organizational policy in executing the project.

The Plan Procurements process includes consideration of the risks involved with each make-or-buy decision. It also includes reviewing the type of contract planned to be used with respect to mitigating risks, sometimes transferring risks to the seller.

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Inputs

Tools & Techniques

Outputs

  • Project Management Plan
  • Requirements Documentation
  • Risk Register
  • Activity resource requirement
  • Project Schedule
  • Activity Cost estimates
  • Stakeholder register
  • Enterprise environmental factors
  • Organizational Process Assets
  • Make or Buy Analysis
  • Expert Judgment
  • Market Research
  • Meetings
  • Procurement Management Plan
  • Procurement Statement of Work
  • Procurement Documents
  • Source Selection criteria
  • Make-or-buy Decision
  • Change request
  • Project document updates

Inputs

Project Management Plan

The Project management plan describes the need, justification, requirements and current boundaries for the project. It includes:

Project Scope Statement: It contains product scope description, service description and result description, the list of deliverables, and acceptance criteria, as well as important information regarding technical issues or concerns that could impact cost estimating, identified constraints may include required delivery dates, available skilled resources and organizational policies.

WBS: Components of work that may be resources internally.

WBS dictionary: The WBS dictionary and related detailed statement of work provide identification of the deliverables and a description of the work in each WBS component required to produce each deliverables.

Requirements Documentation

Requirements documentation may include:

  • Important information about project requirements that is considered during planning for procurements.
  • Requirements with contractual and legal implications that may include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, and permits—all of which are considered when planning for procurements.

Risk Register

The risk register includes risk-related information such as the identified risks, risk owners, and risk responses.

Activity resource requirement

Activity resource requirements contain information on specific needs such as people, equipment, or location.

Project Schedule

Project schedule contains information on required timelines or mandated deliverable dates.

Activity Cost estimates

Cost estimates developed by the procuring activity are used to evaluate the reasonableness of the bids or proposals received from potential sellers.

Stakeholder register

Stakeholder register provides details of the project participants and their interest in the project. The stakeholder register should be consulted and updated as stakeholder may change – or new ones identified – throughout the lifecycle of the project.

Enterprise environmental factors

The enterprise environmental factors that can influence the Plan Procurements process include, but are not limited to:

  • Marketplace conditions;
  • Products, services, and results that are available in the marketplace;
  • Suppliers, including past performance or reputation;
  • Typical terms and conditions for products, services, and results or for the specific industry; and
  • Unique local requirements.

Organizational Process Assets

Various types of contractual agreements used by the organization also influence decision for plan procurement management process. Organizational process assets include:

  • Formal procurement policies
  • Procedures and guidelines
  • Management system that are considered in developing the procurement management plan and selecting the contractual relationship to be used.
  • An established multi-tier supplier system of prequalified sellers based on prior experience.

Tools & Techniques

Make or Buy Analysis

A make-or-buy analysis is a general management technique used to determine whether particular work can best be accomplished by the project team or must be purchased from outside sources. Sometimes a capability may exist within the project organization, but may be committed to working on other projects, in which case the project may need to source such effort from outside the organization in order to meet its schedule commitments.

Expert Judgment

Expert technical judgment will often be used to assess the inputs to and outputs from this process. Expert purchasing judgment can also be used to develop or modify the criteria that will be used to evaluate seller proposals.

Market Research

Market research includes examination of industry and specific vendor capabilities. Procurement teams may leverage information gained at conferences, online reviews and variety of sources to identify market capabilities.

Meetings

By collaborating with potential bidders, the organization purchasing the material or service may benefit while the supplier can influence a mutually beneficial approach or product.

Outputs

Procurement Management Plan

The procurement management plan describes how the procurement processes will be managed from developing procurement documents through contract closure.

Procurement Statement of Work

The statement of work (SOW) for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract. The procurement SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results.

Procurement Documents

Procurement documents are used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision will be based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations, such as technical capability or technical approach are paramount. Common terms are in use for different types of procurement documents and may include request for information (RFI), invitation for bid (IFB), request for proposal (RFP), request for quotation (RFQ), tender notice, invitation for negotiation, and invitation for seller’s initial response. Specific procurement terminology used may vary by industry and location of the procurement.

Source Selection criteria

Selection criteria are often included as a part of the procurement documents. Such criteria are developed and used to rate or score seller proposals, and can be objective or subjective. Selection criteria can be limited to purchase price if the procurement item is readily available from a number of acceptable sellers. Purchase price in this context includes both the cost of the item and all ancillary expenses such as delivery.

Make-or-buy Decision

Make-or-buy decisions document the conclusions reached regarding what project products, services, or results will be acquired from outside the project organization, or will be performed internally by the project team. This may also include decisions to require insurance policies or performance bond contracts to address some of the identified risks. The make-or-buy decisions document can be as simple as a listing that includes a short justification for the decisions.

Change request

Change requests to the project management plan, its subsidiary plans and other components may result from the Plan Procurements process. Change requests are processed for review and disposition through the Perform Integrated Change Control process.

Project document updates

Following project document may updates includes:

  • Requirements documentation
  • Requirements traceability matrix
  • Risk Register

Conduct Procurement

Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract. In this process, the team will receive bids or proposals and will apply previously defined selection criteria to select one or more sellers who are qualified to perform the work and acceptable as a seller.

Inputs

Tools & Techniques

Outputs

  • Procurement management plan
  • Procurement documents
  • Source selection criteria
  • Seller proposals
  • Project documents
  • Make-or-buy decisions
  • Procurement statement of work
  • Organization process assets
  • Bidder conference
  • Proposal evaluation techniques
  • Independent estimates
  • Expert Judgment
  • Advertising
  • Analytical Techniques
  • Procurement Negotiation
  • Selected Sellers
  • Agreements
  • Resource Calendars
  • Change Requests
  • Project management plan updates
  • Project documents Updates

Inputs

Procurement management plan

The procurement management plan, part of the project management plan, is an input to Conduct Procurements and describes how the procurement processes will be managed from developing procurement documentation through contract closure.

Procurement documents

Procurement documents are used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision will be based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations, such as technical capability or technical approach are paramount. Common terms are in use for different types of procurement documents and may include request for information (RFI), invitation for bid (IFB), request for proposal (RFP), request for quotation (RFQ), tender notice, invitation for negotiation, and invitation for seller’s initial response. Specific procurement terminology used may vary by industry and location of the procurement.

Source selection criteria

Source selection criteria can include information on the supplier’s required capabilities, capacity, delivery dates, product cost, life-cycle cost, technical expertise, and the approach to the contract.

Seller proposals

Seller proposals prepared in response to a procurement document package form the basic set of information that will be used by an evaluation body to select one or more successful bidders (sellers).

Project documents

Project documents that are often considered include:

  • Risk register, and
  • Risk-related contract decisions.

Make-or-buy decisions

Make-or-buy decisions document the conclusions reached regarding what project products, services, or results will be acquired from outside the project organization, or will be performed internally by the project team. This may also include decisions to require insurance policies or performance bond contracts to address some of the identified risks. The make-or-buy decisions document can be as simple as a listing that includes a short justification for the decisions.

Procurement statement of work

The statement of work (SOW) for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract. The procurement SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results.

Organization process assets

Various types of contractual agreements used by the organization also influence decision for plan procurement management process. Organizational process assets include:

  • Formal procurement policies
  • Procedures and guidelines
  • Management system that are considered in developing the procurement management plan and selecting the contractual relationship to be used.
  • An established multi-tier supplier system of prequalified sellers based on prior experience.

Tools & Techniques

Bidder conference

Bidder conferences (sometimes called contractor conferences, vendor conferences, and pre-bid conferences) are meetings between the buyer and all prospective sellers prior to submittal of a bid or proposal. They are used to ensure that all prospective sellers have a clear and common understanding of the procurement (both technical and contractual requirements), and that no bidders receive preferential treatment.

Proposal evaluation techniques

On complex procurements, where source selection will be made based on seller responses to previously defined weighted criteria, a formal evaluation review process will be defined by the buyer’s procurement policies.

Independent estimates

For many procurement items, the procuring organization may elect to either prepare its own independent estimate, or have an estimate of costs prepared by an outside professional estimator, to serve as a benchmark on proposed responses.

Expert Judgment

Expert judgment may be used in evaluating seller proposals. The evaluation of proposals may be accomplished by a multi-discipline review team with expertise in each of the areas covered by the procurement documents and proposed contract.

Advertising

Existing lists of potential sellers can often be expanded by placing advertisements in general circulation publications such as selected newspapers or in specialty trade publications. Some government jurisdictions require public advertising of certain types of procurement items, and most government jurisdictions require public advertising of pending government contracts.

Analytical Techniques

Procurement involves defining a need in such a way that vendors can bring value through their offerings. To ensure that the need can be and is met, analytical technique can help organizations identify the readiness of a vendor to provide the desired end state, determine the cost expected to support budgeting, and avoid cost overruns due to changes. By examining past performance information, teams may identify areas that may have more risk and that need to be monitored closely to ensure success of the project.

Procurement Negotiation

Negotiations clarify the structure, requirements and other terms of the purchases so that mutual agreement can be reached prior to signing the contract. Final contract language reflects all agreements reached. Subjects covered should include responsibilities, authority to make changes, applicable terms and governing law, technical and business management approaches, proprietary rights, contract financing, technical solutions, overall schedule, payments, and price. Negotiations conclude with a contract document that can be executed by both buyer and seller.

Outputs

Selected Sellers

The sellers selected are those sellers who have been judged to be in a competitive range based upon the outcome of the proposal or bid evaluation, and who have negotiated a draft contract that will become the actual contract when an award is made. Final approval of all complex, high-value, high risk procurements will generally require organizational senior management approval prior to award

Agreements

A document that includes terms and condition and other items that buyer specifies regarding what seller is to perform or provide. Agreements may include following items.

  • Statement of work or deliverables
  • Schedule baseline
  • Performance reporting
  • Period of performance
  • Roles and responsibilities
  • Sellers place of performance
  • Pricing and Payment terms
  • Place of delivery
  • Inspection and acceptance criteria
  • Warranty and product support.
  • Limitation of liability
  • Fees and retainer
  • Penalties and incentives
  • Insurance and performance bonds
  • Subordinate and subcontractor approvals
  • Change request handling
  • Termination clause and alternative dispute resolution mechanism.

Resource Calendars

The quantity and availability of contracted resources and those dates on which each specific resource can be active or idle are documented.

Change Requests

Change requests to the project management plan, its subsidiary plans, and other components are processed for review and disposition through the Perform Integrated Change Control process.

Project management plan updates

Elements of the Project Management Plan that may be updated include, but are not limited to:

  • Cost baseline,
  • Scope baseline,
  • Schedule baseline
  • Communication Management plan
  • Procurement management plan.

Project documents Updates

Project documents that may be updated include, but are not limited to:

  • Requirements documentation,
  • Requirements traceability documentation
  • Stakeholder register
  • Risk register.

Next Article “Project Procurement Management – 2” will include following processControl Procurement and Close procurement along with Question and Answers.

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About Mark Oswald

Mark is an experienced software engineer and technology blogger. He has over five years of experience in writing in different technological domains. Writing is his passion and he contributes regularly to the Whizlabs blog to share his knowledge.
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