Efficient Procurement Management is the key to all types of organizations when it comes to excellent operations and best results. Simply speaking, Project Procurement Management includes all processes and activities to acquire services and goods needed from external sources. It may be anything like furniture, office supplies, and facilities to consulting, heavy goods, training, and testing.
Managing all procurement activities properly ensures the smooth running of business operations and it also saves time, money and resources. With the help of procurement management, all the services and items have been acquired well so the processes and projects can go successfully and efficiently. Simply speaking, project procurement management plays a vital role to avoid expensive mistakes and delays, especially when it is applied well according to PMBOK.
PMBOK and Project Procurement
The PMBOK or Project Management Body of Knowledge is basically a guide which contains standard terms, process guidelines and best practices related to project management, according to the Project Management Institute. The PMBOK has been specified to evolve with time and is globally known as a vital project management resource in its sixth edition. The PMBOK is the guidebook which consists of 49 processes including 10 knowledge areas and five process groups.
Most of the guide includes topics focused on project management but covers larger themes like planning, budgeting, staffing, financial forecasting, management science, and organizational behavior. The PMBOK is designed on the processes which impact and relate to one another to accomplish a project as it is aligned with the same management standards.
The three phrases include tools & techniques, inputs, and outputs. These are known to create the overall lifecycle of the project to outline typical steps and techniques in project management. This tool is very vital for consistent and aspiring project managers. PMBOK has been widely accepted by well-known organizations like the Institute of Electrical and Electronics Engineers, the American National Standards Institute, and the International Organization for Standardization.
Plan Procurement Management
When planning for a project, procurements are the first concern in everyone’s mind. A statement of work should be served as a document for every contractor, which outlines the work which is being contracted. Several contractors get a request for proposal for which they have to bid on the job. It is up to the project manager as to whom they want to assign for the contract.
These requests are well planned as they work as per proper documents on the project. It is better to be more specific. It avoids confusion and develops plans more accurately for the future. This process is required for the proper procurement management plan, which includes project documents, project management plan, and contracts.
1. Analyze Current Project Documents
First of all, you should analyze the existing project documents to come up with better information about various dimensions, such as risks, opportunities, stakeholder interests, and challenges. Here are the documents you need to analyze –
- Project Charter – It helps determine the quality standards associated with the success rate in a project. Make sure to cover all the measurable project requirements and objects for your project charter.
- Project Management Plan – It is very important to consider and analyze small project management plans for best results.
- Requirements Management – To get details regarding analysis, identification, and management of requirements in initial steps.
- Risk Management – It is very vital to research and revise the challenges, risks, and uncertainties which seem to affect the project quality.
- Stakeholder Engagement – To gather the information related to approaches to document all the needs of stakeholders.
- Risk Register – It lists all the opportunities and risks associated with the project.
- Stakeholder register – It is another great document to know the needs and interests of stakeholders. Plan for the project quality to meet the needs of stakeholders.
- Contracts – There are different types of contracts available for the clients. Choosing the one which is a more favorable and fair deal for both the parties is the key. Some contracts offer a fixed price, no matter how much effort or the time a project takes, while some are based on cost and work.
- Fixed-price contracts – It is a legal contract which is signed between the organization and the company or individual to provide services or products at the specific price. It usually covers the quality of services or products, timing for the project, and price for providing services or goods. There are different variations included in it.
- Cost-Reimbursement Contracts – Under this contract, the organization agrees to pay the cost to provide the goods and perform the service. Also known as cost-plus contracts, the cost-reimbursement contracts are used most commonly when the scope of the costs or work to perform the work is not certain.
2. Develop Procurement Management Plan
After making the decision to getting services or products, it’s time to develop a procurement plan which covers the following steps –
- Selection of right contract approaches and relationships for each type of outsourced service or goods bought
- Preparation and evaluation of Requests for Proposals (RFPs), Requests for Quotes (RFQs) and considering opportunities for partnerships
- Awarding contracts and signing them
- Managing timely and quality performance
- Managing changes in contracts
- Closing contracts
According to the level of complexity, each step can either take a few hours or even weeks to finish the work. The time involved can affect the scheduling of major activities, such as contract the work or decision to perform the work on your own. The date of delivery for materials and equipment as well as the dates for work completed for the works contracted are given on the schedule.
3. Strategize Procurement Strategy
Procurements are initially identified in the planning phase. There is a statement of work needed to serve as a document defining the contracted work. But there is a request for proposal before signing a contract where different contractors have to bid on the project and project manager decides the deserving candidate for the contract.
These requests are well planned as they serve as the guides along with the project. There are tools and techniques to help those decisions. Market research, professional help, and discussing with stakeholders can help you well.
4. Perform Independent Cost Estimates
Project managers are usually approached by stakeholders and customers to figure out if cost and schedule can be met in a specific budget in a project. There are different ways to figure out whether one can meet the costs and schedule. Independent estimates are part of procurement management. This process involves the third party to gather and analyze information. Then, they can use this information to estimate the schedule and cost of a project.
The organization either prepares an independent estimate on its own or hires an external estimator. Creating a cost estimate is one of the best tools for project management. This way, project managers can estimate the costs and schedule on the basis of a given budget.
It is the process in which project managers have to gather responses from potential vendors, selecting the vendor, and awarding a contract to them. This process involves the roles of a buyer and a seller.
So, this process requires planning and managing activities, such as issuing a bid package to the sellers, bidder conferences, evaluating potential vendors, and, in the end, selecting the sellers. It aligns the expectation of stakeholders with the given agreements.
The team gets bids from the proposed vendors and they have to choose the best vendors for the job on the basis of their specific criteria. They may select single or several sellers on the process, according to the type of project. The document is created and sent to the vendor, including proper job description which should be performed during the whole lifecycle of the project.
5. Proceed with the Procurement Process
Along with meeting the needs for cost savings, there are other focus areas to work on for a proper procurement process –
- Advertising – Advertising is the way as to how you market your offerings to the customers. It is very vital for project management and to stand out in the competition. For customers, it is very vital to know about various products. On the other side, it is very important to increase sales for companies. It also helps in making an action plan and to know the completion. It is very vital for a quality plan. It sets the ground to launch a project. After reaching a specific level, it also builds customer loyalty.
- Data Analysis – Data plays a vital role in business management. It helps create major reports of a company. It becomes very vital for the procurement process. Most of the key decisions are made on the basis of data. There is a bright future ahead for procurement. It will further need many capabilities, systems, tools and processes for proper use of data to make the best decisions.
- Project Risk Management – It is a branch of project management discipline which covers controlling and identifying project risks. It is aimed to improve the chances of positive results.
- Project Cost Management: Step by Step Implementation Guide
- Project Scope Management: Step by Step Implementation Guide
- Project Resource Management: Step by Step Implementation Guide
- Project Communications Management: Step by Step Implementation Guide
- Project Schedule Management: Step by Step Implementation Guide
- Steps to Implementing Project Quality Management for Your Project
- Steps to Implementing Project Risk Management for Your Project
- 10 Steps to Implement PMO and Project Management Processes in Your Organization
6. Requesting Proposals
The proposal is an official response from the vendors to a request or any of the documents, which specifies the commercial terms, price, and technical specifications needed from the seller. It binds the vendor to perform the agreement under the project management after approval. Expert judgment may be required to evaluate the proposals. This process involves selecting a vendor and awarding a project. It aligns the needs of both external and internal stakeholders. It has both outputs and inputs, in which seller proposals fall under the category of inputs in project management.
7. Selection of Vendors
It would be of great help when project management experts have a good grasp of several factors in the process of selecting vendors. Especially for smaller organizations, it is very important as they may not have a specific department for purchasing resources. Project Managers should be able to make the right decision and know what to ask.
8. Signing agreements with Selected Vendors
In project procurement, different types of contract agreements are there to be signed between the owner and the vendor. The types of contract agreements depend upon the types of organizations. It is very vital to choose the right type of contract agreement in project management. Be sure to consider the dynamics of the market which change over time.
After signing a contract, your Purchase department should be held responsible to control all the payments and deliveries. They need to hold meetings with vendors regularly, perform delivery tracking, and review all orders against quality standards and specifications to ensure smooth processes. It is very vital to make changes to contracts over time.
9. Perform Inspection on Sellers deliverables
The project management team leader and their team, or other concerned parties, take inspection to review the project in detail to figure out whether the project meets certain criteria. They inspect all the activities, components, products, services, and results as part of the process. Sometimes, third-party inspection is also performed on several final deliverables from the vendors.
10. Claims Administration
Claims are always made in project management. They are tracked, processed, and managed over the lifecycle of the contract according to the terms of the contract. Some claims are resolved and processed. It should be handled well with the stipulated processes in the contract. So, after all the completed deliverables have been inspected and approved, a payment request can be made of them. Sellers can now request for payment for all the deliverables. So this will be where all claims will be administered.
11. Conduct Audits on Procurement documentation
The audits on procurement credentials are one of the important processes. It is a procurement management process which inspects various contracting processes and contracts to ensure efficacy, completeness, and accuracy. This process is aimed to determine the success rate of the project. It is an approach which evaluates the performance of the vendor in project management according to the contract and procurement tool. It also helps create a record that one can use to make the procurement process smoother in an organization.
12. Close Procurement process
Just like the start of the procurement process, there is also a process to finalize one. How to consider a project to be completed should be clearly mentioned in the initial agreement in order to avoid confusion in any part.
Bonding and insurance will also need releasing a liability in a formal way. It is vital to ensure there are no changes left to the completion date. Having structured negotiations and procurement audits can help in the process. You may also need a records management system to manage all the documents in this stage of the process.
After following and implementing all the above steps, Project Procurement management can be made a lot smoother and easier. These steps can help lower the complexities and risks associated with the project. Even better, you can complete the projects while meeting the needs of stakeholders.