1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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. 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

13. 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

14. 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

15. 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.

16. 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

17. 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.