The needs of a project must be carefully identified, sourced and acquired to have a successful procurement process. Procurement planning is essential to the overall success of a project. It involves identifying the materials and services, finding the suppliers, and properly documenting the transactions. This paper includes a description of the procurement planning process. The most valuable output of the plan procurement process will be identified. Furthermore, the various contract types will be explained. A source criterion that would be applicable to any project will be described and three criteria that would apply to most projects will be identified. An analysis of the ethical concerns that should be considered when identifying source selection criteria is also included. Finally, the role of risk management in the procurement planning process is explained. The Procurement Planning Process
The key tasks associated with procurement management planning are determining what items need to be procured, finding the suppliers that could satisfy the requirements, bidding process, and the approval process. These tasks must be completed step by step in the workplace. “The key benefit of this process is that it determines whether to acquire outside support, and if so, what to acquire, how to acquire it, how much is needed, and when to acquire it” (Project Management Institute, 2013, p. 1). When dealing with a similar project, a firm can use historical data to compare and determine what needs to be procured for the project. The potential sellers must be properly identified. This can be easy for firms who have already established a good relationship with their previous suppliers and the projects they deal with are almost similar. Then it would be easier to undergo the bidding and supplier selection process.
The bidder who can satisfy the needs of the project will be chosen and the signing of contract follows. An organization can improve alignment between procurement and project management by having close coordination between the procurement team and project management team. This will avoid conflicts and to ensure that the resources will be delivered on time with the cost that is within the project budget. The most valuable output of the plan procurement process is the procurement management plan. According to the Project Management Institute (2013), “The procurement management plan can include guidance for: Types of contracts to be used;
Risk management issues;
Whether independent estimates will be used and whether they are needed as evaluation criteria; Those actions the project management team can take unilaterally, if the performing organization has a prescribed procurement, contracting, or purchasing department; Standardized procurement documents, if needed;
Managing multiple suppliers;
Coordinating procurement with other project aspects, such as scheduling and performance reporting; Any constraints and assumptions that could affect planned procurements; Handling the long lead times to purchase certain items from sellers and coordinating the extra time needed to procure these items with the development of the project schedule; Handling the make-or-buy decisions and linking them into the Estimate Activity Resources and Develop Schedule processes; Setting the scheduled dates in each contract for the contract deliverables and coordinating with the schedule development and control processes; Identifying requirements for performance bonds or insurance contracts to mitigate some forms of project risk; Establishing the direction to be provided to the sellers on developing and maintaining a work breakdown structure (WBS); Establishing the form and format to be used for the procurement/contract statements of work; Identifying prequalified sellers, if any, to be used; and
Procurement metrics to be used to manage contracts and evaluate sellers (Project Management Institute, 2013). Contract Types The contract types include fixed-price contracts, cost-reimbursable contracts, and time and material contracts. Fixed-price contracts use a fixed total price for the defined product, service, or result to be provided. The seller has the most risk in this contract type because they are obligated to complete the contracts and they will have to pay financial damages if they do not complete it. In the cost-reimbursable contracts, cost reimbursements are involved with additional fee that represents seller profit. This contract type is flexible especially when the project scope changes. Buyers have the most risk in this contract because it is possible that sellers increase prices and fees in the process. The time and material contracts is a hybrid of the fixed-price contracts and cost-reimbursable contracts. Buyers have the most risk in this contract type because the contracts can be open-ended allowing the sellers to increase the price of materials or services. Source Criterion
A source criterion that would be applicable to any project is supply price. This is the main concern for a firm because it needs to get supplies at the most competitive price. This can be a good basis when selecting a supplier in the short and long term project management process.
The three criteria that would apply to most projects include payment terms, on-time delivery performance, and reputation. It is important for a company to use the reputable supplier and the one who it has partnered in past projects. These criteria are essential in the project success because these could affect the quality and timeliness of task deliverables. If the supplier does not deliver on time, the completion of tasks will also be delayed. If the price is not competitive, the allocated budget may not be enough. If this evaluation leads to a tie between suppliers, a firm must inform them and let them bid on the project. This could help to further reduce the price. Ethical Concerns
The procurement planning process must also consider ethical issues that may arise. Firms must also inspect certifications of suppliers and the quality of materials they supply to determine if it has passed quality standards and environmental policies and regulations. The suppliers must not show any violation on corporate governance, human rights, and internal employee safety standards. These requirements must be checked by an organization before putting them into their supplier list. Also there are requirements and regulations that need to be updated. The suppliers need to pass documentation on these regularly. Role of Risk Management in Procurement Planning
Risk management is a continuous process. It starts early in the procurement management process. A firm will identify the needs of the project and the suppliers available who can meet these needs. There are different needs and resources to each project thus not all previous suppliers can provide what is needed in particular. Risk management starts in this phase because a firm needs to identify what are the risks involved if it will get a new supplier. Trust needs to be earned because of the lack of experience with their products and services. Then there is a need to determine what supplier will give the least risk level. This is an effective approach for an organization because supplier selection is based on facts, not just intuition or advice. Conclusion
The procurement planning process includes identifying the needs of the project, finding potential suppliers, bidding, and approval through contracts. The different contract types include fixed-price contracts, cost-reimbursable contracts, and time and material contracts. A firm must determine the appropriate contract for their projects by identifying the risks involved in each contract type. The criteria that could be used in selecting a supplier include price competitiveness, payment terms, on-time delivery performance, and reputation. A firm must also consider ethical concerns when selecting a supplier. To avoid ethical risks, the firm must inspect and update all certifications and documents on the regulations and policies that the suppliers must comply to. Risk management is an essential part of procurement planning. The risks involved in each stage of the planning process must be identified especially with regard to choosing the right supplier for the project.
Project Management Institute. (2013). A guide to the project management body of knowledge: PMBOK® guide (5th ed.). Newtown Square, PA: Author