The formal process organizations use to buy services, products or results through outsourcing, is called procurement management, it is a process for selecting, monitoring and closing vendors, but when these processes are written down in the form of a documentation it becomes a procurement management plan.
All the purchase framework is documented in the procurement management plan. Throughout the life of the project, the procurement management plan acts as a guide for all the purchasing needs of the project, and as the needs change, the plan changes along with it.
Procurement plan identifies all the items that need to be procured, the contracts required in the process and overall financial details of procuring services or products. If an efficient procurement plan is set to work then it may even lower the cost of procurement processes.
Key concepts for Procurement Plan:
Document names: a procurement plan has many documents with many different names: like Request for proposal (RFP), Invitation for Bid (IFB) and Request for Quotation (RFQ).
Contract: this is a mutually binding document for both buyer and seller. The seller is bound to provide a quality deliverable as promised and the buyer has to compensate monetarily.
Seller diversity: the seller can play be of various kinds, like: a contractor, a subcontractor, vendor supplier, service provider etc.
Seller alias: a seller often goes by various names as per their current role, like: he is a bidder initially, selected source after being selected, and contracted supplier after winning the contract finally.
7 steps of creating a procurement plan:
If these plans are developed step by step, then it makes it easier for the project managers and the teams to follow these plans more precisely.
- Define roles and responsibilities: the most important part of any plan is that the involved parties realize and accept their role in the plan
- Create a schedule: all procurement processes should complete in a required time-frame so when that specific purchase is needed it is already in our hand.
- Identify and mitigate risks: every plan has its underlying risks, which lie there until they start appearing and messing with the work. Sometimes a whole team is specified to identify all such risks and mitigate them before they affect our work.
- Determine costs: cost determination is the most important step of the procurement plan as it directly affects the budget of the project. So usually, a request for proposal is issued, and the vendors then bid on that RFP. This way the team can contract the lowest bidding vendor.
- Establish decision criteria and approval work flow: this includes outlining of complete workflows of different contracts. This includes all those elements required to be completed before signing a contract e.g., reviews of proposal, cost analysis etc. This step ensures that each contract is thoroughly reviewed before signing.
- Establish vendor management: this step includes strategies for managing the vendors. This keeps them accountable for the quality of the deliverable, schedule and cost that was promised at the time of initial approval of the contract
- Review and approval processes: this step includes the reviewing, changing, updating of the procurement management plan so only the valid amendments get approved.
The procurement management plan further defines the following things:
- List of items that need procuring along with justification statements and how they align with project timeline
- The contracts that would be needed throughout the project
- What risks may occur while doing procurement planning
- Approximate costs of items to be procured
- Contract deadlines, products/deliverables are also defined
- Coordination between scope, budget and schedule of the project, and the procurement and contracts
- Any constraints regarding procurement management
- Keeping a track of procurement activities
Procurement management plan for PMP:
The 3 processes with the procurement knowledge area, as per PMBOK are:
- Plan Procurement management
- Conduct Procurement
- Control Procurement
Plan Procurement Management:
Plan procurement management is the establishment of all the processes that define how the procurement is going to be carried out throughout the project. This process standardizes how the team is supposed to choose the vendors and how the contracts are going to be administered.
This process includes following key activities:
- Creating a procurement management plan
- Creating procurement statement of work (SoW) templates
- Selecting contract type for each procurement
- Creating procurement documents
- Determining the source selection criteria
The main output of this process is the procurement management plan, which can even subside the overall project management plan. It explains how the procurement processes are going to be planned, executed and controlled.
The process of receiving seller responses, selecting a seller and awarding that seller with a contract is called conducting a procurement.
The processes and concepts associated with this step are:
- Bidder’s conference
- Qualified seller’s list
- Seller proposal
- Proposal review
- Letter of intent
- Proposal evaluation techniques
The process of managing procurement relations, monitoring contract performance and making required changes whenever they are necessary, is called controlling procurement. It emphasizes and monitors that both the buyer and seller are working according to the terms and conditions documented in the procurement contract.
Processes and concepts in this process are:
- Contract change control system
- Procurement performance review
- Claims administration
- Escalation process for claims
- Records management system
- Contract interpretation
- Inspections and audits
- Payment systems
Procurement management plan in excel:
When you are drafting a completely new strategy an excel worksheet is very important. It gives a complete overview of the whole plan/process in one single viewed worksheet.
Components of a procurement plan excel worksheet:
- Initiating a request
- Development of requirements (technical, timing, quality, constraints)
- Request approval
- Purchasing authority
- Bid / proposal review
- Contract management responsibility
- Contract closure requirements
- Procurement process flowchart