As a kid, have you ever had a project due the next day and you just told your parents that you needed supplies for it? Either your parents were upset and told you to find what you need at home, or you went to a store to get the supplies. This is what project managers call procurement. Procurement is when you get goods and services from an outside source. Procurement can be done internally and externally. For example, a project team can get goods and services from another project team or area in the same organization. On the flip side, the project team can get what they need from outside the organization. Either way, you are outsourcing and purchasing procurement services from an organization or individual. These sources can be called suppliers, contractors, sellers, vendors, or subcontractors. In this blog post, I will discuss with you how to plan procurement management for project management.

To plan procurement management, you have to decide if a project needs supplies from outside of the organization. Then you will decide on whether to, how to, what to, how much to, and when to procure for that project. When you do this, you are performing a make-or-buy decision, where the organization will decide on whether they need to internally or externally source to make products or perform services. To start planning you will need the project management plan, project charter, and business documents. The plan will also estimate the cost of purchases, make timelines for reorders and assess any risks within the supply chain.

You might be wondering, why do I need a procurement plan? Firstly, having a plan will list out every procurement that is needed for the project and the expected requirements for each of them. You will also be able to monitor the procuring process by being able to compare the actual procurement against the procurement plan. Whenever there are discrepancies, you will be able to adjust those procurements.

There are eight steps to make a procurement plan:

1. Define Terms: 

Procurement terms should be defined at the start. For each procurement, in detail, list how many, how much, what size, etc. Explain what the service is and why it is important to the project. For each procurement, add who authorized the service/ product purchase and the date of use. When you are ready to make a purchase order, which is a legally binding contract, this information will be helpful. You and the vendor should be on the same page as a purchase order defines the price, quantity, delivery window, and terms of payment. 

2.  The Type of Agreement: 

You need to define what type of agreement will be the best fit for the project so that it can be managed. There are many types of contracts, but I will explain fixed-price and cost-reimbursement contracts. 

Fixed-price/ lump-sum contracts are a fixed total price for a product or service. There is less risk for the buyer as the cost is predetermined. There is more risk for the seller as their prices still have to be competitive, therefore they will pad the price of the product or service. You can also include incentives for project objectives that are met or exceeded.

Cost-reimbursement contracts are when the buyer will pay direct and indirect actual costs to the buyer. Direct costs are directly related to producing the project’s product or service, like worker salaries. Indirect costs are indirectly related to producing the project’s product or service, like electricity or a workspace. These contracts have fees like incentives or a profit percentage. 

3. Risks:

You should identify risks that may be associated with buying products or services, assign different team members to mitigate those risks and document them in the risk register.

4. Define Costs:

List what costs are associated with the project procurements. After this, a proposal request will be given to the supplier. It should outline the needs and bid requests from the supplier.

5. Identify Constraints:

List any constraints related to procurements. This can include cost, technical specifications, scope, and limited resources. You want to identify these early to avoid problems during execution.

6. Contract Approval: 

Have a list of who will oversee the contract approval and who the decision-makers are. Perform a service and cost analysis and review the bids.

7. Decision Criteria:

When bids are being reviewed, it will be helpful to have a list of criteria on how to decide what bid to go with. 

8. Vendor Management Plan:

After a contract is signed, you will need a plan to make sure that the vendor is meeting the terms of service. You can add a performance metric to determine how well the vendor is meeting the terms. This can be helpful for future projects when determining what vendors to contract with again. 

Project procurement management is important when deciding what supplies and services are needed for a project. Do you need to outsource or can you acquire them from within the organization? What kind of contract will be the best option for the project? Who are the people who will need to review bids and approve the contracts? Choosing the right vendor who will meet or exceed the terms of the contract will be important to the project. Creating a procurement plan will be beneficial for everyone involved.