Question

1. Explain the importance of project procurement management.
2. Explain the activities associated with conducting and controlling procurements.

Answer 1

Procurement is the process of obtaining goods, supplies and services. Therefore, project procurement is obtaining all of the materials and services that are required for the project. Project procurement management encompasses the processes used for making sure project procurement is successful.

Project procurement management includes three primary processes. These are:

• Plan procurements - making a plan for obtaining materials and services
• Conduct procurements - execution phase of the project
• Control procurements - focused on monitoring and controlling project procurements to ensure all requirements are met.

Importance of project procurement management

Project management will at some points require project procurement, which involves the organization obtaining goods or services from third parties in order to complete a specific project. Procuring these goods or services provides several advantages over producing them inside the organization, helping to keep project costs down while still achieving the company's desired objectives.

External Resources

Project procurement does not deal with taking inventory of the resources already available within the organization. Instead, project procurement involves finding and obtaining the necessary resources, whether they are goods or services, which exist outside of the organization that are needed to successfully complete a project.

Outsourcing

Outsourcing is one tool of project procurement. An organization simply may not have the manpower to complete a project on time, meaning a sudden increase in workers is needed. Rather than going through the process of hiring and training new workers, an organization will outsource the work to a third party. The original organization can use the outsourced help for as long as needed, providing flexibility. The organization also does not have to incur the costs associated with hiring and firing employees as project demands change.

Expert Skills

Project procurement will allow an organization to bring in help from sources that have more skill in specialized areas. It may not be practical for a business to hire a group of structural engineers, for example, especially if the skills of the engineers are needed only on an occasional basis. Project procurement allows the organization to utilize specialized skills from other organizations or professionals as needed to complete a project. The outsourced help may also have technology that is not practical for the original organization to own, but which is necessary to complete a special project. These outsourced organizations can afford to have the technology and specialized professionals by contracting out with numerous organizations in need of their services.

Maintaining Focus

Maintaining an organization’s focus, or the ideals set forth in the organization’s mission statement as well as the strategic objectives formulated from the mission statement, will ensure that the organization moves forward with purpose. To maintain this focus, an organization may need to purchase goods or services from outside sources rather than produce the goods or services themselves.

The activities associated with conducting and controlling procurements

Conduct Procurement

Conducting procurements is the process of gathering seller bid responses, selecting a seller source, and then awarding that source a contract to provide the needed human resources or material. The key benefit to this process is that it helps ensure stakeholders understand expectations from project management. It is a method for establishing relationships between an organization’s purchasing department and external suppliers to order, receive, review and approve all the procurement items necessary for project execution. The supplier relationships are managed on a contractual basis. The process aims to ensure timely delivery of the purchased items which are selected and acquired according to the specifications and requirements set up by the purchasing department and approved by the project manager.

This includes five major steps, as follows:

• Specification. This step involves the purchasing department in communicating with the project manager to develop and approve a list of procurement items necessary for project implementation. The department must specify the approved items to external vendors.
• Selection. This step of the project procurement process requires the department to find potential suppliers which can procure the necessary items, according to the specifications. For this purpose the department needs to set vendor selection criteria, which may include such measures as Delivery, Service Quality, Cost, and Part Performance.
• Contracting. The department must communicate with the suppliers on delivery dates and payment conditions in order to ensure “on-time” delivery of the ordered items within the stated project budget. All the conditions should be listed in a procurement contract. Also a detailed delivery schedule should be negotiated with the procurers and approved by the purchasing department.
• Control. Success of the procurement management process depends on how the purchasing department controls the delivery and payment processes. Through arranging regular meetings with the vendors, tracking delivery progress, reviewing the ordered items against the approved product specifications, and making necessary changes to the procurement contract, the department can control the process and ensure successful accomplishment.
• Measurement. The final step of the project procurement management process refers to using a system of performance indicators and measures for assessing the effectiveness and success of the entire process. The project manager needs to set up such a system and the purchasing department needs to use it in measuring the process. Special meetings and workshops can be conducted to view KPIs, intermediate results of staged delivery, performance of procurers, adherence to product specifications, communications with suppliers, and the like. In case any deviations or gaps are revealed the department should notify the project manager and make necessary changes to the procurement plan.

In order for this process to be successful, the procurement management plan must be completed and provide the necessary guidance as to how the project team will acquire goods and services from outside the organizational resources. Before a seller can be chosen, each must submit their proposal, or bid, for the services or material they wish to provide. Once bids have been gathered, each will be assessed according the project criteria and the procurement management plan. Only then can a decision be made.  

Control Procurement

Control Procurements manages procurement relationships while monitoring the performance of contracts, taking corrective actions if required, and control of change. It ensures that the work results match the contract.

For projects that need to work with multiple vendors, it might be necessary to employ a procurement administrator to act within the control procurements process.The impact of the control procurements process causes the need for it to be integrated across the whole of the project, and it is therefore closely linked with the project management processes actions of:

• Monitor progress
• Execute plans
• Verifying the scope by accepting the result
• Track costs and ensure payments are made against the work that has been both verified and accepted
• Measure outputs
• Harmonizing contractual deliverables with the schedule
• Approve changes
• Take corrective action
• Report on status

During this process, the seller must meet the procurement requirements, and the buyer must perform according to the terms of the contract. This includes appropriate and timely payments and also contract change management. The procurement management plan (part of the project management plan) provides guidance on who will manage various aspects of the procurement as well as how to go about it. This includes information on how to use the payment systems, contract change control system, and performance reviews.