Plan Procurements – part of Procurement Management
This knowledge area and hence plan procurements, draws heavily from the processes, tools, techniques, and outputs used by many government and military institutions in the United States.
Procurement management and hence the plan procurements process for the PMP should be formal. There are four processes in procurement management; plan, conduct, administer, and close procurements. There are two main roles within the procurement which could both be taken by the project manager if appropriate:
This is the organisation or third party who are purchasing or procuring the goods or services from the seller.
This is the organisation or third party that provides for delivers the goods or services to the buyer.
Plan Procurements process.
Plan procurements is the first process within the procurement management knowledge area which is used to obtain goods, services or scope from outside the organization.
Plan procurements determines which components of services of a project will need to be performed or made internally, at which of those will need to be procured for an external source. Once this has been decided the project manager will determine the appropriate types of contracts that will need to be used on the project.
The decision being made here is either to ‘make or buy’ and project management best practice favours buying externally rather than building internally, but only of course if that is appropriate within each individual project.
A project may have several subcontractors and the services may be used in one or more phases of the project so that any of the procurement processes may need to be performed several times throughout the project.
There are eleven inputs to plan procurements, but many of them are straightforward and easy to understand:
If two or more organizations agreed to form a partnership in order to work on my contract or a project deliverable, one of them will need to become the buyer and the other the seller even though they are both servers to the customer. A teaming relationship and hence agreement will need to be created to describe and define this teaming agreement and this is used as an input into the plan procurements process.
The risk register.
The risk register contains the list of all known risks than anticipated at this point in time, and hence may include any procurement-relevant risks to be considered in the plan procurements process.
Risk related contract decisions.
In addition to the risks mentioned above, please specifically relate to how risk will be distributed among the contracting parties. Some of these contract decisions will in and of themselves course potential risks and must therefore be taken into consideration when carrying out plan procurements.
Activity resource requirements.
It is important to understand that the human and non human resources – and hence their costs, and these will help an informed choice to be made with regards to either buying and procuring rather than making in-house.
In a similar way to the activity resource requirements, the schedule in terms of duration and timing for the project work to be performed can also influence the ‘make or buy’ and other procurement related decisions.
Activity cost estimates.
As a result of the activity resource requirements, the cost estimates carry out both the buyer and seller form a solid base of information for bidding.
Cost performance baseline.
This is the project budget and clearly demonstrates to the buyer and seller when expenditures and funds are expected and will therefore help them determine their bids.
Enterprise environmental factors.
An organization and the industry within which it works will influence with the projects have a preference for make or buy. Other factors may include whether there is a culture of using preferred servers, the laws and regulations concerning the industry, or even marketplace preferences.
Organisational process assets.
These may include standard terms and conditions, policies and procedures or guidelines, legal frameworks, procurement tools or lessons learned.
There are six outputs from the plan procurements process:
Procurement management plan.
This describes how all of the other procurement management processes are to be carried out. It describes in detail what will be procured for the project, the type of contract used, how so there will be selected and managed, how their performance will be measured, and how procurement risk is to be managed.
Procurement statements of work.
The scope of the project will have already being defined at this point in time, and this will be used to prepare procurement statements of work. Each statement of work describes and explains the appropriate section of the project scope for use by potential Sellers. It should be in sufficient detail so that such Sellers can make an informed choice about whether they are able to, or want to bid for the work.
Make or buy decisions.
One of the tools that is used in plan procurements is make or buy analysis, S this outputs uses the information that is been gathered. Is important that the decision should now been made and documented with supporting information on why such a decision has been made to make or buy.
These may vary considerably depending on the type of project and may include such documents as a request for proposal (RFP) for example. It is important to understand that the buyer rights the statements of work describing the work to be performed, and that these are given to the seller.
Source selection criteria.
This criteria must be defined prior to the seller being selected so that the procurement process is fair and effective. This could include criteria such as financial or long-term stability, technical competence, on a preferred supplier list, security arrangements, etc. Such selection criteria may not be known by the prospective Sellers.
As a consequence of plan procurements, some changes to the activities all products within the project may need to be raised, and if so these will form an input into the ‘perform integrated change control‘ processes so that their impacts on the rest of the project can be evaluated.
There are three main tools used within the plan procurements process:
Make or buy analysis.
This analysis weighs the many factors that could influence the choice to either make or buy products or services within a project. These could include cost or price, risk factors, in-house skills, knowledge or experience, sharing of confidential information and other security matters, etc.
The factor that could also influence make or buy, is whether the project is a tactical or strategic one. In the long term it may be better to develop in house expertise even though for the sake of this individual project, it may seem less to procure such products or services.
Procurement and hence plan procurements, can have an impact on just about every aspect of the project such as and cost. Other areas may be technical or contractual risk. It may be that an organization has a procurement department in which case this should be used to provide guidance or better still be directly involved in some or all of the procurement aspects.
There are three main types that may be used, but only one calculation technique called the point of total assumption.
The type of contract that is chosen to procure goods or services will have a large impact on loan bears the risk. The fixed price type of contract will place the risk on the. The cost plus fixed fee and Time &Materials type of contracts will place the risk on the buyer. The cost plus incentive fee contract types will share the risk between the buyer and seller.
Fixed price contracts (lump sum contracts).
This type of contract is most suitable where the scope of work is well defined and understood, and there are three variants here:
Firm fixed price (FFP). The price is fixed and will negotiable and hence the risk is taken entirely by the seller
Fixed price incentive fee (FPIF). EMV this type the price is also fixed but includes an incentive fee described within the contract often for early completion of work.
Fixed price economic price adjustment (FP-EPA). This is often used where interest rates or exchange rates may affect the project, and this contract types will describe such economic adjustments based on some form of indices such as interest or currency exchange rates.
Cost reimbursable contracts
There are two types:
Cost plus fixed fee (CPFF). Here the seller passes across the back to the buyer and in addition receives a fixed fee once the project is completed.
Cost plus incentives fee (CPIF). The passes the cost back to the buyer as well as getting an incentive fee if a product is met such as costs.
Time & Materials contracts.
In addition to the costs of any materials needed in carrying out the work.
Point of total assumption (PTA).
Because of the many different contract types, it is necessary to determine how the risk is divided between the buyer and seller, and this is often use when using fixed price incentive fee contracts.
The PTA is the cost point where a seller takes full responsibility for any additional continuing costs. This uses a price ceiling point called a cap to protect the buyer from serious cost overruns, and a target price along with a share ratio of any such cost overruns.
The formula is:
Target cost + (ceiling price – target price) ÷ Sellers % share of cost overrun.
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David spent 25 years as a senior project manager for US multinationals and now develops a wide range of project-related video training products under the Primer brand. In addition, David runs training seminars across the world, and is a prolific writer on the many topics of project management. He currently lives in Spain with his wife Jude.
I hope you found my plan procurements article helpful!