John Donne famously wrote, “No man is an island.” He could have been talking about a project, too, because projects are not done in isolation. Most require obtaining other resources to get them done, be that through purchase or contract. Hence procurement management becomes crucial for project success. Proper planning, execution, monitoring & control of procurement helps in completing project within constraints of budget, cost, quality.
Most project management discussions focus on the process and knowledge groups, which are important but insinuate the idea that a project manager and their team can do it all. That’s just not true. It’s crucial to know when you need help and then get help.
That might sound like the start of a self-help book and it’s not emotional but rather practical advice. Project procurement management is when you have both a process to fill the holes in your resources, and a way to manage that process with proper techniques and project management tools.
Procurement, in terms of project management, is when you need to purchase, rent or contract with some external resource to meet your project goal. These relationships, like any process in the project, need management.
Managing these relationships means getting the best quality from the outside vendors employed by the company to assist in its doing business. There are constraints in a relationship with vendors that revolve around cost and time. Procurement management is a way to more efficiently and productively handle the process of sourcing, requisitioning, ordering, expediting, inspecting and reconciliation of procurement.
However, before making partnerships or purchases, the question of whether the goods and services are required from outside vendors must be answered. Therefore, weigh the pros and cons of producing the goods or services in-house and contracting the work out. Is the relationship with outsider companies necessary and cost-effective in the long term? Once an informed decision has been made, only then can you move forward with confidence that the steps you’re taking are financially sound and fit within your timeframe.
Once you’re ready to procure goods from a vendor, project procurement management is broken down into four processes.
Planning procurement
Conducting procurement
Controlling procurement
Closing procurement
1. Plan Procurement
Procurements are first identified during the planning phase of the project. For every external contractor, there needs to be a statement of work (SOW) to serve as a document outlining the work being contracted.
Prior to the contract, however, is a request for proposal in which multiple contractors get to bid on the job, and the project manager can determine from their bids who will get the contract.
These requests are well thought out as they work as guiding documents throughout the project. The more specific they are, the better. This avoids confusion later and helps develop more accurate plans.
This process is collected in the procurement management plan, which includes requirement documents, risk register, activity resource requirements, project schedule, activity cost estimates and more.
To guide these decisions there are tools and techniques, such as make-or-buy analysis, which helps to determine if the activity needs an external supplier or can be done in-house. Seeking help from experts, doing market research and meeting with stakeholders also helps guide this decision.
The following image clarifies the source of input to the process, tools & techniques, output of the plan procurement management process.
Picture courtesy: Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide)
2. Conduct Procurements
After finishing the paperwork of the first phase, the conduct procurement phase is when you study the bids that come back and determine which one to accept. Before deciding, however, there should be a criterion in place to decide which bid is best for the project and fits your logistics management. The agreements are then signed, and the project management plan is updated.
Decide the winner by conferencing with the bidders, having techniques for evaluating the proposals and having independent estimates to make sure the bids are within the range of normal. It doesn’t hurt to seek the advice of experts in the areas you are contracting to get their perspective.
There are also analytical techniques you can apply. Advertising is a good way to make sure you’re casting the widest net possible, so you can decide based on all potential bidders. Then there are procurement negotiations that will be needed to tweak the final contracts to meet your needs and the contractors.
The following image clarifies the source of input to the process, tools & techniques, output of the Conduct procurement management process.
Picture courtesy: Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide)
3. Control Procurements
Once the contracts are signed, the management of those contractors must be folded into the overall management responsibilities. Contractors can have a negative impact on budgets and schedules, which can lead to a project going off-track or worse.
Therefore, regular status updates are necessary to review contractor agreements, get progress updates and review work performance to make sure that the contractors are meeting the requirements outlined in their contracts. Though you hire contractors because they’re experts in what they do, you still need to monitor and track their work to make sure it’s proceeding as planned.
It’s best to contract a change control system and have regular procurement performance reviews, including inspections and audits to make sure the work is going right. Performance reporting helps keep managers informed, too. A payment system needs to be in place as well as a claims administration and a records management system.
The following image clarifies the source of input to the process, tools & techniques, output of the Control procurement management process.
Picture courtesy: Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide)
4. Close Procurements
Just as there is a process to start the procurement, there needs one in place to finalize it. What constitutes completed work should be detailed in the initial agreement with the contractor, so there is no confusion on either’s part as to when the work is done.
Insurance and bonding also will usually require a formal release of liability. This makes sure that there are no outstanding changes related to the value and completion date of the contract.
Procurement audits help with this process, as well as having structured procurement negotiations. A records management system will also be needed to manage all the paperwork that will be involved with this stage of the procurement process.
The following image clarifies the source of input to the process, tools & techniques, output of the Close procurement management process.
Picture courtesy: Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide)
Comments