What Is Project Procurement Management?
By Deepesh KotwaniJan 29, 2020
There is a chapter in statistics called decision making. In this chapter, we were asked to answer if a certain raw material should be produced in-house or should it be bought directly from outside.
Various things like what is the rate of the ready raw material, what would be the cost if we produce the raw material in-house, will it have an effect on the working hours, do we have the manpower and machines needed to produce the product, etc.
And I believe that whatever we are taught in the school comes from the real world, thus this is the original scene that many faces during project execution.
Suppose, you are a soft toy manufacturer and you have made a toy that needs plastic eyes, now you have two options, either you can simply buy them from outside or you can manufacture them in-house. To manufacture them in-house you will have to buy the necessary machines and the man-power. The first option costs you 1 Rs per pc and the second one 1.5, so what will you decide?
Most of the knowledge areas hint towards the vision statement that the project team can do everything, which is right. But, in today’s time, we should work smarter instead of working harder. If the raw material from outside can be bought at a cheaper rate compared to manufacturing it in-house and will be easier too, why not choose that?
Project procurement means the purchase or acquisition of products, services or results from outside. Project procurement management refers to the processes necessary to manage the transactions and to decide whether to procure them from outside or manufacture them in-house.
The project procurement management is divided into 4 steps, which are as follows:
Project procurement doesn’t happen in all of the projects. Whether there will be project procurement management in the project or not is decided in the project planning phase. It also depends on the project objectives.
It gets clear in the planning stage whether you can do it in-house or not. You can take the help of an expert in making the decision of whether to procure or not. If the expert says that procurement is the only or the best option, project procurement management starts. If you want further guidance in this decision, you can do market research or you can have a meeting with the stakeholders and ask their opinion.
Now the manager/owner will purchase, rent or will have a contract with some external resource to complete the goal. Once you finalize whether or not to procure the task, now comes the step of documentation. The main document that outlines the process is known as Statement of Work. It also includes requirement documents, activity resource requirements, risk registration, activity cost estimates, project scheduling, etc.
After you have decided to procure the task and have finished the paperwork, now comes the step to find the vendor to which they will procure the task.
You can either contact various vendors and can ask them to share the budget or they can advertise their requirements and can have various bids.
After this, you should compare all the budgets and bids and will finalize the most suitable one according to what budget they have and what quality of work they require and the project design. Negotiations are the most critical step here. After the vendor is finalized along with the deal value, a contract is signed.
Once the contract is signed, you are now the client and now you have to act as one.
There are many roadblocks on the road to finish a project and it is possible that the vendor’s project could go off-track, over-budget, or worse. You should make sure that despite all these factors affecting the project, you get the project on-time because if this project is delayed, their’s will also get delayed.
Therefore, the manager should take regular status updates. The manager should ask for daily or weekly progress updates and should review the work performance to see whether it is meeting the requirements of the contract or not.
Although you have hired an expert to do your job, it is necessary that you monitor and track whether the work is progressing as per the plan or not. You should also go for inspections and audits to ensure everything is going right.
As there is a process to start the procurement, there is a process to close the procurement too.
The procurement is closed in two cases, either the work is completed or the contract time is up. When the work is completed, the final product is analyzed and checked whether it meets the requirements mentioned in the contract or not. Then the vendor is asked to provide a detailed document along with the end date so that there is no confusion between them on when the work was completed or if it was as it was wanted or not.
If the closure is due to the second case, they go through the reasons why the deadline is not met and now what should be the next step.
Negotiations are made and they enter a new contract.
After this, a procurement report is made which contains all the paperwork, so that it could be used for future procurements or as a case study.
Benefits of Project Procurement Management:
- It helps in identifying the goods and services needed to be procured for the successful project completion.
- It gives agreed timeframes and methods regarding delivery.
- It validates the supplier contract milestones and approves their payment.
- It helps in identifying and resolving supplier performance issues.
- It acts as a communication channel, that updates the project status to the upper management.
- It acts as a reference that helps in reviewing the supplier's performance against the contract.
- Helps in reviewing and procuring goods and services from suppliers.
- Provides a complete list of Purchase Orders and related issues to the suppliers.
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