Writing down a procurement management plan is one thing – creating an effective one is quite another. Handling procurement processes of a company or a project requires time and efficiency. If procurement is effective enough, an organization can save a lot of time and money. To ensure that you manage project procurement efficiently and effectively, you need to have a solid procurement management plan.
The procurement management plan deals with all the items you require for a project and lists all the steps to help you get to the final contract. The key to a great procurement management plan is to make a flexible plan to make changes as the needs alter. A good procurement management plan addresses all the essential things regarding a project such as procurement items, contracts approval process, decision criteria, risk management, and cost estimation, to name a few.
It is the responsibility of a project manager to define and manage the project. He needs to make sure that all the team members are on the same page. Procurement is an important aspect in every project, and to keep team and project streamlined, the purchasing department needs to be catered through teamwork and proper planning. Here’s a step-by-step guide for writing an effective project procurement management plan to help you do so:
1. Identify Procurement Items and Details
The very first thing you need to do is figure out the items that you need to procure. However, listing down items is alone not enough. You need to mention all the essential details against each item. Some important details to include are the number of items, size of the item, and duration that you require an item for.
Also, you must include what service a certain item will offer to the project. Specify the period of use for each item i.e., starting and ending date. Finally, decide which team member is authorized to procure the item. Otherwise, every team member can go for asking an item separately. It ends you up with a bulk of unneeded resources and disturbs the cost of the project.
2. Decide the Type of Agreement
Next comes the agreement.
An agreement or contract is established between the company and the vendor. The contract mentions the approval terms, procurement details, and cost handling process. There are different types of contracts to choose between. The two broad types of contracts include fixed-price contracts and cost-reimbursement contracts. There are certain sub-types of these contracts.
One needs to be very careful when selecting the type of contract. Make sure to consider your requirements and the flexibility of the contract. Also, it is best to identify the contract management details at this point. This usually includes pre and post signature requirements and processes.
3. Determine the Risks
There are risks associated with every kind of project that could threaten the progress and completion of the project. It is the responsibility of the project manager to identify and determine all such risks before starting the project so the constraints can be limited as much as possible.
When it comes to potential risks, the following things can be bad for project procurement processes:
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- Conflicts with vendors
- Idealistic and inflexible schedules
- Non-realistic costs
- Delays in the shipping of items
- Inability to meet deadlines
- Inability to perform as per the standards and requirements
4. Mitigate the Risks
Identification of the risks largely helps, but unless you plan how to mitigate the risks, they pose huge threats. The procurement management plan should include a section that specifically deals with risk mitigation. For instance, if a specialized vendor fails to deliver the shipment on time, an alternative vendor should be chosen beforehand to call and place the order.
This section should also identify who is in charge of the issue resolution so that if any unidentified risk comes up, risk mitigation does not take a lot of time. The process is handled smoothly and efficiently.
Without a risk mitigation process in place, no procurement plan succeeds.
5. Determine the Costs
This step is important to highlight how the associated costs will be estimated and determined. Usually, a request for proposal (RFP) works for most of the kinds of projects. RFP is the most suitable way as it outlines the needs and asks vendors to offer bids.
In response, the vendors outline products and services they will provide, their work methodology, their past experiences in dealing with similar products and goods, work schedules, and detailed mention of the costs against each product or service.
Make sure that the initial RFP is clear regarding procurement requirements, especially the project schedule and costs.
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6. Choose Forms and Formats
Forms and formats play a great role in ensuring easy and simple management of the project. Standardized forms further add to the ease, so most procurement professionals prefer using standard formats.
Choosing the forms and formats allows cohesion between the project team, procurement team, vendors, and other associated parties. It simplifies the process and assists in project management.
These forms and templates basically deal with the contracts as well as other kinds of reporting, data entry, and calculations regarding procurements. You can either discuss it with the vendor or provide the vendor with the forms yourself.
7. Mention Project Essential Requirements
Not all the project requirements can be subjected to change and flexibility. Some essential requirements need to be fulfilled to keep the project on track. A procurement management plan should include all the essential project requirements and get all the concerned parties agreed upon.
For instance, if you cannot afford to change the project schedule, it must be clearly mentioned that the schedule cannot be negotiated in case of any delays or limitations. This way, the person will understand that they need to make decisions in a way that they are always on time. Some other critical requirements can be related to scope, cost, resources, and technical aspects of the project.
8. Establish Approval Rules for Contracts
In this step, you need to establish approval rules for the contracts. Include all the steps that move you towards approval, such as reviewing all the bids and vendor proposals, doing a service review, and conducting cost analysis.
Approval rules do not only mean the rules but the names and roles of concerned decision-makers. Also, there must be an order in which the contracts are reviewed and processed. Establishing approval rules helps you create a workflow that ensures that every single contract is appropriately looked into.
9. Decide the Decision Criteria
Next comes the decision criteria!
The procurement management plan must include the criteria that the review board and decision-makers will use to evaluate and finalize the vendor. Some important points to include in decision criteria are the vendor’s ability to meet deadlines, adhere to the costs, determining the quality of the work, and dealing with the history of the vendor.
Decision-makers themselves must hold great expertise in choosing and evaluating the right vendors. This proves to be profitable for the project, stakeholders, and organization alike.
10. Formulate a Vendor Management Plan
Choosing the vendor and signing the contract is just not enough – managing the vendors is a whole different story. A vendor management plan can help in managing your approved and alternative vendors.
The plan should outline the schedule and requirements so that the products and services are delivered on time and ensure high-quality levels. Include when the project manager should meet with procurement experts and vendors, how and where they will meet, what they will they discuss, and achieve in each meeting.
Finally, pick some performance metrics to evaluate the vendor’s performance in each meeting. Rate their quality of work based on product quality, pertaining to the project schedule, and final costs.
A project procurement management plan renders great help in managing procurement processes. At the start of the project, all of it seems like a big deal to look after. However, as you sit down to create your procurement management plan, things start making sense.
Pick up a few most capable team members and discuss all the procurement items that your project requires. Once you do so, you are already halfway through. Next, follow the right steps, use the right tools, and you will end up with the right procurement management plan. This way, you can plan, track, report, and make changes with respect to procurement in a smooth way.