Project Procurement Management - Plan Procurement Management

This process documents project procurement decisions, specifying the approach, and identifying potential sellers. It determine whether to acquire outside support, and if so what to acquire, how to acquire it, how much is needed, and when to acquire it.

·        It identifies those project needs that can best be met or should be met by acquiring products, services, or results outside of the project organization, versus those project needs which can be accomplished by the project team.

·        It evaluates potential sellers

·        Project schedule can impact the Plan Procurement Management process

·        Evaluates risks involved with make-or-buy analysis

Let's take a look at the Inputs, Tools and Techniques and Outputs of this process.

1)     Project Management Plan

·        Scope baseline contents may include:

·  Project scope statement

·  Work breakdown structure (WBS)

·  WBS Dictionary

2)     Requirements Documentation

·        May include:

·  Important information about project requirements

·  Requirements with contractual and legal implications

3)     Risk Register

·        List of risks, along with the results of risk analysis and risk response planning

4)     Activity Resource Requirements

·        Information on specific needs such as people, equipment, or location

5)     Project Schedule

·        Information on required timelines or mandated deliverable dates

6)     Activity Cost Estimates

·        Estimates developed by the procuring activity and used to evaluate the reasonableness of the bids or proposals received from potential sellers.

7)     Stakeholder Register

·        Details on the project participants and their interests in the project

8)     Enterprise Environmental Factors

·        May include:

·  Marketplace conditions

·  Products, services, and results that are available in the marketplace

·  Suppliers

·  Typical terms and conditions

·  Unique local requirements

9)     Organizational Process Assets

·        May include:

·  Formal procurement policies, procedures, and guidelines

·  Management systems

·  An established multi-tier supplier system of prequalified sellers based on prior experience

·        Legal contractual relationships are fixed price or cost reimbursable and a hybrid called the time and materials contract.

·        Fixed-price contracts – setting a fixed total price for a defined product, service, or result to be provided. They have financial incentives for achieving or exceeding select project objectives (schedule delivery dates, cost and technical performance)

·  Firm Fixed Price Contracts (FFP) – price of goods is set at the outset and not subject to change unless the scope of work changes.

·  Fixed Price Incentive Fee Contracts (FPIF) – gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed upon metrics. A price ceiling is set and all costs above the price ceiling are responsibility of the seller, who is obligated to complete the work.

·  Fixed Price with Economic Price Adjustment Contracts (FP-EPA) – used when the sellers performance period spans a considerable period of years, as it desired with many long-term relationships. It is fixed price but allows adjustments due to inflation changes, cost increases etc.

·        Cost-reimbursable contracts – involves payments to the seller for the legitimate actual costs incurred for completed work, plus a fee representing seller profit. They may include financial incentive clauses when the seller exceeds or falls below the defined costs, schedule or performance targets.

·  Cost Plus Fixed Fee Contracts (CPFF) – seller is reimbursed for all allowable costs for performing the contract work, and receives a fixed-fee payment calculated as a percentage of the initial estimated project costs. Fee is paid when work is completed.

·  Cost Plus Incentive Fee Contracts (CPIF) – seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based upon achieving certain performance objectives set forth in the contract.

·  Cost Plus Award Fee Contracts (CPAF) – seller is reimbursed for all legitimate costs, but the majority of the fee is earned only based on the satisfaction of certain broad subjective performance criteria defined and incorporated into the contract.

·        Time and Material Contracts (T&M) – hybrid type of contractual arrangement that contain aspects of both cost-reimbursable and fixed-price contracts.

·  Use for staff augmentation, acquisition of experts, and any outside support when a precise statement of work can’t be provided.

·  They resemble cost-reimbursement and can be left open ended

·  They can increase in contract value as if they were cost-reimbursable contracts

·  Organizations require not-to-exceed values and time limits placed on these types of contracts

·  They can resemble fixed unit price arrangements like specific resource categories like senior engineers at specified rates per hour

10) Make-or-buy Analysis

·        A general management technique used to determine whether particular work can be bet accomplished by the project team or should be purchased from outside sources.

·        Budget constraints may affect this analysis

·        Available contract types are also considered

11) Expert Judgment

·        Use to assess the inputs and outputs

·        Use to develop and modify the criteria that will be used to evaluate seller proposals.

12) Market Research

·        Examination of industry and specific vendor capabilities (conferences, online reviews)

13) Meetings

·        Research and discussions with the right people will help formulate procurement strategy

14) Procurement Management Plan

·        Describes how a project team will acquire goods and services from outside the performing organization and may include:

·  Types of contracts to be used

·  Risk management issues

·  Whether independent estimates will be used

·  Unilateral actions – prescribed procurement, contracting, purchasing department

·  Standardized procurement documents

·  Managing multiple suppliers

·  Coordinating procurement with other project aspects (scheduling and performance reports)

·  Constraints and assumptions

·  Handling long term lead times

·  Handling make-or-buy decisions

·  Setting the scheduled dates in each contract

·  Identifying requirements for performance bonds or insurance contracts

·  Establish direction to be provided to the sellers for WBS

·  Establish form and format for procurement/contract statement of work

·  Identify prequalified sellers

·  Procurement metrics to be used

15) Procurement Statement of Work (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. It can be revised many times until it is a signed agreement.

16) Procurement Documents

·        Used to solicit proposals from prospective sellers.

·        Decision made on price – bid, tender, or quotation

·        Proposal – used when considering technical capability

·        Terms used

·  Request for information (RFI)

·  Invitation for big (IFB)

·  Request for proposal (RFP)

·  Request for quotation (RFQ)

·  Tender notice

·  Invitation for negotiation

·  Initiation for sellers response

17) Source Selection Criteria

·        Used to rate or score seller proposals and can be objective or subjective

·        Selection criteria includes:

·  Purchase price

·  Item is readily available

·  Understanding of need – how well does the seller’s proposal address the SOW

·  Overall or life cycle cost – lowest total cost of ownership

·  Technical capability

·  Risk

·  Management approach – can they develop and manage properly

·  Technical approach

·  Warranty

·  Financial capacity

·  Production capacity and interest

·  Business size and type

·  Past performance of sellers

·  References

·  Intellectual property rights

·  Proprietary rights

18) Make-or-Buy Decisions

·        Result in a decision of whether particular work can be best accomplished by the project team or needs to be purchased from outside sources.

19) Change Requests

·        Any changes that involves procuring goods, services or resources go through the Perform Integrated Change Control process

20) Project Document Updates

·        May include:

·  Requirements documentation

·  Requirements traceability matrix

·  Risk Register

Source: PMBOK 5^th ed.