12.1 Plan Procurement Process

Activities in the Plan Procurements process encompass two main purposes: first, they create the procurement management plan; and second, the activities ensure that every need is evaluated to determine whether the product, service, or result will be built by the project team or whether it will be procured.

There is only one procurement management plan created for the project, but the make-or-buy analysis occurs for all products, services, or results needed by the project.

Procurement Management Plan: This component of the project management plan defines how the overall procurement needs of the project will be planned, executed, managed, monitored, and closed.

There is one procurement management plan established for the entire project, so other than iterative planning and changes, this portion of the Plan Purchases and Acquisitions process occurs once.

Make-or-Buy Determination: Each and every project need is analyzed and a decision is made as to who will supply the product, service, or result.

If the product, service, or result will be handled by the project team then appropriate activities and costs will be incorporated into the project management plan to execute meeting the need. If the need will be met by an outside source then further procurement processes are needed.

Procurement Documents: When a need will be procured, the Plan Procurements process will establish:

  • The contract statement of work.
  • The procurement documents.
  • The evaluation and selection criteria to be used to select sellers.
Plan Procurements Process Decomposition

Plan Procurements Process Decomposition

Plan Procurements Process : Inputs

  • Scope baseline
    The scope baseline is the approved project scope statement, WBS, and WBS dictionary. It identifies the needs, deliverables, and requirements of the project.
  • Requirements documentation
    The product scope and project objectives are broken down into requirements and described in a collection of documentation that's applicable to the project. Requirements may contain contractual and legal needs that must be met.
  • Teaming agreements
    Teaming agreements are contracts that establish a joint venture or similar agreement that offers business advantages for all parties.
  • Risk register
    Outsourcing can be a method to transfer risks to a third party. The risk register is a comprehensive list of all threats and opportunities the project faces. It also contains supplementary data about each risk, including its impact, probability, risk response, budget, risk owner, and contingency and fallback plans.
  • Risk-related contract decisions
    Risk responses may include procurement needs, such as insurance, as well as specifically outlining buyer-seller responsibilities as they relate to risk response activities.
  • Activity resource requirements
    The activity resource requirements document describes the resource needs at the activity level.
    These requirements are needed for make-or-buy analysis and for procurement document preparation.
  • Project schedule
    The project schedule specifies the planned start and finish date for each scheduled activity. It’s needed to determine milestone or deadline dates, which are important considerations for make-or-buy analysis.
  • Activity cost estimates
    Activity cost estimates are a complete accounting of all component costs, such as labor, resources, services, fees, and licenses, of a scheduled activity. They can be used to check the reasonableness of quotes from vendors.
  • Cost performance baseline
    The project cost baseline is a time-phased budget that is used for project cost management, monitoring, and reporting.
  • Enterprise environmental factors
    Any of the many enterprise environmental factors and systems that influence procurement activities should be considered.
    These factors can include its personnel, its organizational culture, its tolerance of risk, and its formal and informal hierarchy.
    Organizations may also have custom or commercial analytical databases that can include cost estimating, risk, or demographic data. Even elements outside the enterprise, like business conditions and political climate, can influence procurements.
  • Organizational process assets
    Organizational process assets are the source of existing policies, processes, organizational data, and knowledge.
    These assets include the entire collection of formal and informal methodologies, policies, procedures, plans, and guidelines, as well as the organization's "knowledge base," which includes historical performance data, labor information, service and maintenance history, issue and defect history, project files, and financial data.

Plan Procurements Process: Tools and Techniques

  • Make-or-Buy analysis
    A make-or-buy analysis is a general management technique that considers both qualitative and quantitative factors to determine whether it's more efficient, less costly, or better quality to meet the need in-house or externally.
  • Expert judgment
    Expert judgment is based on the experience and knowledge of subject matter experts. It's used to assess and evaluate the inputs and the information they contain.
  • Contract types
    Contract types establish a legal relationship between the buyer and seller. The type of contract both parties are willing to accept depends upon many factors, including organizational policies and the amount of risk and uncertainty in the procurement need.

Plan Procurements Process: Outputs

  • Procurement management plan
    A component of the project management plan, the procurement management plan defines how the overall procurement needs of the project will be handled.
  • Procurement statements of work
    The procurement statement of work clearly describes the deliverables, materials, specifications, milestones, requirements, acceptance criteria, and any other characteristics applicable to a procurement need.
  • Make-or-buy decisions
    The determination and its rationale as to whether the project need is developed by the project team or procured from outside sources are documented in the make-or-buy decision.
  • Procurement documents
    Procurement documents refer to the collection of written materials that provides the potential sellers all the information they need to develop and submit a bid or proposal.
  • Source selection criteria
    This is the evaluation and selection criteria that will be used to assess bids and proposals. It can be based solely on price for commodity-type of materials, but it often includes a host of other subjective factors.
  • Change requests
    Procurement planning activities will result in changes to the project management plan.

Procurement Management Plan

The procurement management plan typically includes:

  • How make-or-buy analysis and decisions are to be made.
  • What qualified seller lists will be used or how qualified seller lists will be created.
  • The types of contracts allowed.
  • The explicit procurement roles and responsibilities and levels of authority those roles have within the project and within the performing organization. These include who is responsible for approving and signing contracts, seller performance monitoring and reporting, payments, and purchase orders.
  • If the performing organization doesn't have procurement personnel then the project management team will have to have the experience, knowledge, and skills to fill these project procurement roles.
  • The procurement documents to be used, such as any standardized forms, and the formats for statements of work.
  • The procedures for bid and proposal solicitation.
  • When and how independent estimates will be gathered.
  • Identified constraints and assumptions related to procurement processes.
  • How sellers will be managed, performance monitored, and what reporting and frequency will be required.
  • What insurance or performance bonds will be required and under what situations.
  • Milestones that need to be established in contracts.
  • What the procedures are for seller payments, vouchers, and reimbursements.
  • How appropriate coordination between procurement processes and other project management processes (scope, time, cost, quality) will be ensured.
  • The frequency, responsibility, and guidelines for procurement audits.

Make-or-Buy Analysis and Determination

Each and every project need for a product, service, or result will be analyzed to determine whether it's best for it to be met by the project team or acquired from outside. Though outside usually refers to another organization, it doesn't exclude other divisions or business units within the performing organization from being contracted with to provide the product, service, or result.

A make-or-buy determination shouldn't be made without adequate analysis, on instinct alone, or based only on past precedents. Many projects fail when their cost or duration expands beyond their original estimate due solely to poor procurement decisions.

A make-or-buy analysis helps to critically and objectively evaluate each need before a decision is made. Make-or-buy analysis should occur early during project planning and quickly as new needs are found because decisions made will have direct impacts on all other project management planning processes.

The specific details involved in a make-or-buy determination will vary, and there is no single, best way to approach it, but it's usually accomplished through three steps:

  1. Identify: Identify all the project needs for products, material, supplies, solutions, results, and services.
  2. Analyze: Gather the characteristics of the need, what objectives are important, and explore all possible methods to meet the need. This is referred to as a make-or-buy analysis.
  3. Decide: Assemble the appropriate people to review the analysis and make a determination.

Procurement Preparation

If the decision has been made to satisfy the project need through outside sources then some additional preparation is needed before further procurement activities can begin.

Procurement statement of work

The potential sellers will need a document that focuses specifically on the requirements they'll need to meet.

The procurement statement of work provides the potential sellers the deliverables, materials, specifications, milestones, requirements, acceptance criteria, and any other characteristics they need to accurately develop their bid or proposal, and once a seller is chosen, the statement of work is used to create the final contract.

The SOW is derived from any parts of the project management plan needed to sufficiently scope out the need --project scope statement, WBS and WBS dictionary, activity resource requirements, activity list, activity attributes.

Since the statement of work will also include any other requirements the potential seller will need to meet, the project cost baseline, schedule, and quality management plans may also be needed.

The procurement SOW should be looked at as the potential seller's preliminary project scope statement, so it needs to provide any and all relevant details the seller will need to accurately decompose and estimate the work and materials involved in providing the product, service, or result.

Items such as permits or licenses, safety and environmental regulations, security requirements, technical specifications, equipment or facility requirements, milestones, and any constraints (cost, schedule, etc.) are contained in the contract statement of work.

The SOW will contain a lot of information and it'll be relied heavily upon during development of the contract, so it needs to be formatted in a logical, easily-referenced manner, usually with numbered headings, subheadings, and paragraphs.

Source selection and evaluation criteria

Before the bid or proposals are solicited, the selection and evaluation methods that'll be used for choosing the seller should be established. By addressing this up front, it helps the buyer clarify its needs and decide the relative importance of each criterion, and introduces objectivity into the selection process.

When the potential sellers are made aware of the evaluation criteria, it helps them to better understand the priorities of the buyer, resulting in submitted solutions that better match the procurement need.

One of the first things that must be considered before developing evaluation criteria is what procurement elements can be thought of as commodities and which are value-added. Commodities are most likely to be judged heavily on price while value-added needs will involve subjective criteria.

For example, if the procurement need is for 1,000 pounds of 4-inch galvanized nails, this is a commodity that is readily available on the open market, and potential sellers will be judged primarily on price. Value-added needs include requirements that go beyond the basic prerequisite needs.

For example, the prerequisite need of an architect is for creating building plans, but there is an expectation that the architect will also work with the buyer in determining what the physical and aesthetic needs are, assisting in surveying the site, working through zoning limitations, and collaborating with the buyer through many stages of preliminary designs.

Value-added needs involve subjective criteria that rely on experience, skills, foresight, innovation, and creativity to name only a few.

Procurement documents

Procurement documents are the collection of written materials that provide the potential sellers all the information they need to develop and submit a bid or proposal. Care needs to be taken towards the terminology used in developing the procurement documents.

Each industry (and sometimes even each organization) has subtle differences in meanings between terms that are not evident to a layperson. The term bid or its equivalent usually implies a commodity-type procurement where price is the determining factor.

The proposal indicates that the seller will need to respond with a value-added approach or solution to the procurement need. The collection of procurement documents is also referred to differences between industries.

 

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