12.1 Plan Procurement Management The process of documenting project procurement decisions, specifying the approach and identifying potential sellers. It identifies project needs that are best met by acquiring products or services from outside of the project organisation. It considers potential suppliers and the contractual arrangements that may be required to manage these external parties to achieve the project objectives. Closely related to Risk Management Occurs during Planning Initiation Planning Execution Close Monitor Control Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Inputs to Plan Procurement Management Scope Baseline - Scope Statement, WBS and WBS dictionary Requirements documentation Risk Register Activity Resource Requirements Project Schedule Activity Cost Estimates Stakeholder Register Enterprise Environmental Factors Marketplace conditions and products/services available Suppliers past performance Typical terms and conditions Organisational Process Assets Formal procurements policies, procedures and guidelines Preferred Supplier Agreements Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Tools and techniques to Plan Procurement Management – Preferred Supplier Agreements Make or Buy Analysis Contract Types Procurement Approach Expert Judgement Procurement Policies & Procedures Market Research Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Make or Buy Analysis Determines whether particular work can be accomplished by the project team or must be purchased from outside sources The capability may exist internally but may be committed to other projects Budget constraints can influence make or buy decisions Make or buy decisions need to cover the following – Purchase versus lease Related costs – direct costs and indirect support costs Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Expert Judgement Consulting procurement and legal professionals May be internal or external to the project organisation Preferred Supplier Agreements Many organisations (particularly government) negotiate agreements with pre-qualified suppliers of regularly purchased products or services The project team then needs to select the supplier from the preferred supplier agreement It makes it much easier to find reputable suppliers and reduces requests for information within the market Exceptions normally need to be approved by an internal Procurement Department Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Procurement Approach Once the Buy decision has been made, many different approaches can be used to procure the required products or services Three Quotes – traditionally three quotes are obtained for certain trades and then the cheapest is selected, depending on conditions Previous Supplier – may be related to preferred supplier agreements, a well known supplier that has been used in the past is automatically chosen Tender Processes – can be open to the entire market or closed to specific suppliers often from the preferred supplier list Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Procurement Policies and Procedures Most large organisations and all government departments will have extensive policies and procedures to govern purchasing These often include – Preferred Supplier Agreements Purchase Ordering and Supply processes Delegated authorities for approval of expenditure Contract Types Fixed Price Cost Reimbursable Time and Materials Adapted from PMBOK 5th Edition

Fixed Price Contracts Fixed Price Contracts Involves setting a fixed total price for a defined product or service Often include financial incentives for achieving or exceeding objectives such as time, cost and quality Suppliers assume much of the delivery risk and are legally obligated to complete the contract Financial and legal penalties are common if the contract conditions are not met Normally the most complex to negotiate and administer Adapted from PMBOK 5th Edition

Cost Reimbursable Contracts Involves paying the Seller for all legitimate actual costs incurred plus an agreed fee for Seller profit May also include financial incentive or penalty clauses Delivery risk is shared between the Buyer and Seller Gives flexibility to the Buyer to redirect the Seller whenever the scope of work changes Especially popular where the Buyer cannot define detailed requirements or for high risk projects Financial and legal penalties are harder to enforce if the contract conditions are not met, simpler than Fixed Price to negotiate and administer Adapted from PMBOK 5th Edition

Time and Material Contracts (T&M) Time and Materials Time and Material Contracts (T&M) Hybrid type of contract containing both aspects of cost-reimbursable and fixed-price contracts Often used to acquire consultants, contract staff and subject matter experts Also used when the Buyer cannot, or doesn’t want to, specify the statement of work or requirements in detail Gives flexibility to the Buyer to redirect the Seller whenever the scope of work changes Many organisations will require not-to-exceed values or time limits on such contracts in order to manage and monitor costs VERY Common for contract labour Risk is shared between the Buyer and Seller

12.1 Plan Procurement Management Market Research – Examination of industry and specific vendor capabilities Information can be from many places: for example conferences, online. Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management Outputs of this process include – Procurement Management Plan Procurement Statements of Work Derived from the project scope baseline That portion of project scope to be included in the particular contract Procurement Documents Requests for Information (RFI) Requests for Proposal (RFP), Requests for Quotation (RFQ), invitation for bids (IFB) ect Seller Evaluations Contracts Source Selection Criteria Make or Buy Decisions Change Requests Project Document Updates Adapted from PMBOK 5th Edition

Procurement Management Plan The Procurement Management Plan describes how the procurement processes will be managed. It is critical that it is linked to relevant industry regulations and organisational policies and procedures. Common inclusions in the Procurement Management Plan – Links to organisational procurement management policies and procedures Types of contracts to be used and contract templates Delegated authorities and required involvement from internal purchasing, finance and legal experts/departments Tender document templates Assumptions, constraints and risks related to procurement Schedules of contracted deliverables Preferred supplier lists Procurement metrics and performance measurements Adapted from PMBOK 5th Edition

12.1 Plan Procurement Management 12.1 Plan Procurements: Procurement Management Plan It is often very useful to document all procurement approaches and decisions in a table known as the Procurement Planning Register Includes information about the sourcing approach, type of contract, selection criteria, requirements, risks etc Content can be tailored to organisational policies and procedures Procurement Item Manager Requirements Sourcing Approach Summary Selection Criteria Contract Type Major Risks Key Dates Budgeted Amount Name of the item being purchased Summary requirements for the product or service Primary criteria on which the selection will be made Summary of Risks Major date and dependencies Name and position of the person responsible for managing the procurement – often NOT the Project Manager Approach selected for the procurement e.g. – three quotes, preferred supplier, tender Fixed Price, Cost reimbursable or Time and Materials, often includes performance criteria Budget estimate or allowance

Example Procurement Register When documenting all the goods and services the project needs to obtain externally, a procurement register is used. This clearly lists all the items, who is to procure them and how. An example of a procurement register for a kitchen renovation is shown below. Procurement Item Procurement Manager Product/ Service Requirements Sourcing Approach Contract type and budget Risks Kitchen benchtops Fred Brown Italian marble - beige 10 lengths 40cm x 1m   Use current preferred supplier - Kitchen Incorp Purchase order for maximum $5,000 Benchtop may not be delivered on time. Tiles 300 tiles - 15 x 15 cm Sea blue Standard strength Choose three local suppliers based on recommendations by client and go to tender. Purchase order for maximum $1,500 Tiles may not be available in sea blue. Tiles may be more expensive than $1,500.

12.1 Plan Procurement Management Selection criteria are often included as part of tender documents and are used to rate or score different suppliers Facilitate and provides justification for procurement decisions Can be limited to purchase price for commodity type items or can also include other selection criteria such as reputation, financial viability, fit with requirements etc Often weighted based on relative importance Management Approach Risk Technical Capability Understanding Of Requirements Overall or Lifecycle Costs Technical Approach Industry Experience Business Size & Type Financial Viability Production Capacity Warranty Past Performance & References Intellectual Property

Example Supplier Selection Based on the kitchen renovation scenario, we then need to choose the right supplier of the tiles. The selection criteria needs to be documented and the potential suppliers rated against the criteria. Based on this one seller is selected. An example is shown below: Supplier Price Sea blue tiles Can deliver on time Reputation The Tiling Showroom 1 2 Marks Tile Place 3 Legend: 1= Unsatisfactory 2 = Acceptable 3 = Exceptional Conclusion: Marks Tile Place will supply the tiles as the price is the most competitive and they can deliver the correct tiles on time.