What is project procurement management
Project procurement management involves procurement and contracting processes for products and services that are not available on the project team. This includes contract management, purchase orders and internal and external memoranda of understanding. These processes can be executed by project team members or can involve staff from the organization’s procurement department.
The importance of procurement management
One of the main issues to deal with regards purchasing or doing. In other words, deciding what the team will do and what will be contracted externally. Tasks that will require contracting or acquiring products or services can be identified during project planning. This can happen because goods are not available or because the project team does not have the expertise needed. It is also possible that commercial or time conditions demand an procurements. The motives, restrictions and advantages in terms of contracting a good or service should be specified in one way or another.
PMBOK, a guide published by the Project Management Institute (PMI), suggests adopting three steps to correctly manage project procurements.
Steps in procurement management
1 – Plan procurement management
This consists of documenting project procurement decisions, specifying what will be acquired and listing possible suppliers. How and when the procurements will occur should also be noted. Keep in mind that goods and services can be acquired from different parts of the same organization as well.
One very useful tool used to analyze planned procurements is the 5W2H method:
What? What is being acquired?
Why? Why is it being acquired and not done?
When? When will the procurement be needed or when will the contract start and end?
Where? Where will it be used?
Who? Who is responsible?
How? How will the procurement be made (type of contract, conditions of purchase)?
How much? Estimated cost of the procurement.
Types of procurement
Procurements are based on agreements that set guidelines for the relationship between buyer and seller. These agreements vary in type, with the most usual being those involving labor contracts, with a definite amount of hours and fees. Yet contracts can be highly complex, involving provision and execution of international services, with local standards and laws that need to be met. In one way or another, the negotiation as well as the contract itself should be suited to the degree of complexity and duration of the relationship.
A project manager does not need to be an expert in laws and standards, but they do need to be familiar with the procurement process in order to handle contractual and even legal issues. This will lead to better decisions, minimizing risks and maximizing the project’s factors for success.
Criteria for selecting suppliers
It is recommended that criteria be established to classify proposals from suppliers. They can consider aspects of the company such as location and size, as well as supply capabilities. One example is the company’s availability of certified or licensed professionals, when necessary. Data on how previous projects have performed can also be requested.
2 – Conduct procurements
This regards the process of sending requests for proposal to suppliers, receiving responses and formalizing the agreement or contract. The type of request must be suited to the nature of what is being requested.
RFQ (Request for quotation)
If the product or service to be acquired is not very complex and there are not many variables or configurations, an RFQ can be used. This normally concerns products or services where there isn’t much differentiation and the points for negotiation are concentrated on prices, deadlines or service times.
RFP (Request for proposal)
Here, the item or service to be provided is complex and can be supplied in different ways by each supplier. The request should be sufficiently detailed so that suppliers are able to propose a solution that suits the needs presented.
When receiving RFQs or RFPs, use the selection criteria defined in the planning stage to classify suppliers and decide on the best option. Next comes formalization of the agreement through a contract and its signature.
3 – Control procurements
For this step, the focus is on controlling procurements and monitoring contract performance, updating them when necessary and executing their termination. This process is aimed at ensuring that the parties involved comply with the terms stipulated in the contract, that deliveries take place as specified and that obligations are being met.
Inspections and audits may be necessary to verify deliveries, with certifications to guarantee that any work in progress is happening according to the contract. The use of indicators and visible management with dashboards are extremely valuable in executing this step.
Now that you are more familiar with procurement management, I invite you to learn about SoftExpert PPM, a complete solution for managing projects and their procurements.