Procurement Management Plan
Project management indeed comprises many parts – the stakeholder matrix, management of resources, and the schedules. At one point in time, you will need to procure goods and services through vendors and suppliers. That is what we call procurement management.
The procurement management plan is within the project management plan. Throughout the life cycle of any project, there will be instances when you’ll come into contact with suppliers, which needs some form of management. And to do this, you will need a procurement management plan.
In this article, we will be exploring everything regarding procurement plans – from the definition of a procurement management plan, why it is essential and how to the steps you need to take when building an effective procurement plan, so keep reading.
- What Is Procurement in Project Management?
- Components of a Procurement Management Plan
- Why Do You Need a Procurement Management Plan?
- What Does a Procurement Management Plan Do?
- 10 Steps for a Procurement Management Plan
- Step 1: Define the Procurement Terms
- Step 2: Determine Which Type of Agreement to Use
- Step 3: Identify the Risks
- Step 4: Mitigate the Risks
- Step 5: Cost Determination
- Step 6: Identify Which Forms are to be Used
- Step 7: State the Project Constraints
- Step 8: Contract Approval Rules
- Step 9: Identify the Decision Criteria
- Step 10: Create a Vendor Management Plan
- Bottom Line
What Is Procurement in Project Management?
Procurement is the process of coming to terms with suppliers or vendors and acquiring goods, services, and works. Project procurement is the process of agreeing to terms with suppliers to supply the buying entity with goods, services, or works for a specific project being undertaken. Therefore, we can say that project procurement management includes all the processes involved in ensuring that a project procurement succeeds.
Components of a Procurement Management Plan
A procurement management plan will detail how purchasing will be done in a project. According to the Project Management Body of Knowledge Guide, a procurement management plan is responsible for the external buying for the project to be undertaken.
It is important to note that the procurement management plan is different from the Statement of Work, sometimes referred to as Terms of Reference. The Terms of Reference always details the technical specifications of the contracted company or individuals.
Below is a breakdown of the nine main components of a procurement management plan:
- Project scheduling
- Vendor control
- Constraints and assumptions
- Prequalified vendors
- Risk management
- Legal jurisdiction
- Roles and responsibilities
Why Do You Need a Procurement Management Plan?
It is essential to have a procurement management plan because it helps an organization or a company state the requirements to get the project going. This means that an organization or company will have a greater understanding of the entire project.
Below are some other reasons why you need a procurement management plan.
1. Incorporates Stakeholders
The advantage of drafting a procurement management plan is that it can attract stakeholders to come on board and input the process.
Stakeholders are the project’s lifeblood, and it will be a big stepping stone if you can get their approval and satisfaction. Usually, stakeholders will suggest changes to the procurement management plan to make it even better. Before contacting the procurement stakeholders, it would be best to use the RACI chart to see their previous projects’ involvement.
2. Informs Strategy
Any organization or company without a procurement management plan will have no procurement, and not having a procurement strategy will pose risks to the project.
A procurement strategy and a procurement management plan informed by including the market survey, the market prices. This helps in defining the right items needed to carry out the project.
What Does a Procurement Management Plan Do?
A procurement management plan details all the requirements needed for a project and the specifications associated with those items. A procurement management plan is critical to an organization or company because it gives timelines as to when somebody should implement the project’s procurement.
A procurement management plan will help with the monitoring of the purchasing process. When purchasing the project items begins, the actual purchasing can be compared with the procurement management plan to see if everything was done in line with it. If there are any discrepancies at all, the procurement process can be adjusted to rectify those discrepancies.
The evaluation of your project management plan will only get easier when you leverage some of the project planning software. You can automate communication with team members, track results, produce reports, and make adjustments.
10 Steps for a Procurement Management Plan
Step 1: Define the Procurement Terms
The initial step in the procurement process is to outline the specific items that should be procured. Define the items based on their terms, the service it will provide, along with its justification. Find out whether it’s a tool necessary for the project completion, but the organization doesn’t process. Should there be any technical issue relating to the procurement process, address it at this point.
Next, group the items with their specific dates. The dates should vary from item to item, depending on the project’s completion. Meanwhile, the products will have to seek the authorized personnel’s approval before they are released into the market.
Step 2: Determine Which Type of Agreement to Use
Often, a contract is an agreement between an organization and a dealer. Here, specifications of cost-management are discussed. Cost reimbursement and fixed price are some of the contracts a company can agree on. Also, there are time and material contracts based on fixed hourly rates, fixed add-on costs, and actual material amounts.
Additionally, the contact management specifics are determined at this step. This includes the contract management cycle in general, which also incorporates approvals, e-signature necessities, and post-signature management processes.
Step 3: Identify the Risks
Many projects contain risks that could be a threat to the project’s completion. However, the project manager must plot the risks that are pertinent to the procurement process.
Such could include inflexible schedules, unrealistic cost expectations, shipping delays, and dealer conflicts that could arise from a vendor’s inability to meet the standards.
Step 4: Mitigate the Risks
For a successful project completion, the organization should incorporate a section to mitigate any potential risks. For instance, if the professional subcontractor cannot perform up to standards, the company should look for a replacement.
The plan should also include a naming section for authorized personnel to approve resolutions for potential risks that haven’t explicitly been outlined.
Step 5: Cost Determination
At this point, it would help if you outline precisely how the costs related to the project will be identified. For the most part, a proposal request (RFP) with the company’s demands will be provided, appealing to the dealers to offer bids.
Therefore, their responses should outline the services they are willing to offer, how they intend to carry the project, their level of experience, timelines, and a detailed outline of their costs. Meanwhile, the first proposal request should be precise and to the point, outlining important schedules and costs.
Step 6: Identify Which Forms are to be Used
Most purchasing entities or organizations prefer to standardize the forms used in the procurement of items. Deciding on what type of forms, templates, and formats will simplify the process and make it easy to manage the project.
An effective procurement system should create forms that every team member, including third parties, can use to procure items.
Step 7: State the Project Constraints
Identify any constraints that would hinder the project from being successful. Identifying constraints early enough provides an opportunity to look through them and know how you’ll better handle them before beginning the project.
Additionally, listing them will help your team members to see that they are constraints and learn how to handle the project more effectively. Some of the procurement constraints you can outline include costs, limited resources, scope, and technical specifications.
Step 8: Contract Approval Rules
At this stage, you will need to outline the contract approval rules. This section should clearly explain the criteria by which the contracts should be approved. Include the processes that lead to the approval of a contract. For example, you can include reviewing all bids and checking the service and costs before approving any contracts.
Include the names and the order of those who will review and approve the contracts. Creating a contract approval workflow will ensure that all contracts approved have been thoroughly scrutinized. Any contract lifecycle must, therefore, streamline these approval rules.
Step 9: Identify the Decision Criteria
Here, you will need to describe the review team’s criteria to decide which vendor is awarded the contract.
For example, you might want to include the supplier’s ability to meet deadlines, the supplier’s ability to supply the goods, services, or works needed, the ability of the contractor to deliver goods, services, or works in the required quality as some of the decision criteria that should be used before awarding any contract.
Step 10: Create a Vendor Management Plan
Any procurement organization should include a section where dealers can manage themselves. It would be best if you outline a list of products or services delivered on time with reasonable quality levels.
Even more, including a section of how often project meetings should be held, how project managers and vendors will meet, the meeting agenda, and the accomplishment. These meetings will usually keep the project manager updated.
Finally, you will need to develop performance metrics for every supplier once the project is complete. Rate each of them according to the quality of the goods, services, or works delivered, the final costs, the delivery time, whether the delivery was done late or on time, among other metrics. The above metrics will help you improve the process when you need to procure for another project.