Project Procurement Management
The acquisition of goods and/or services is called “Procurement”. Typically, procurements are acquired through a contract or agreement. A simple procurement however doesn’t necessarily require contracts, formal agreements or purchase orders. Complex procurements should involve looking for vendors or suppliers who want to establish a long-term buyer/seller relationship.
A person makes a buying decision after considering a number of factors such as price, shipping and delivery charges, quality of goods and/or services, other benefits and payment processing etc. Procurements could also involve making buying decisions based on economic analysis methods like cost-benefit analysis, cost-utility analysis, and risk analysis:
- Cost-benefit analysis: This involves looking at the overall costs and all the benefits of a decision, then weighing the pros and cons to determine if the planned action is beneficial before making the decision.
- Cost-utility analysis: This technique is often utilized as a basis for procurement decisions using a common unit of measure (for example, quality of life in health care, or money). This method tends to provide a more detailed analysis of total benefits over cost-benefit analysis.
- Risk analysis: This involves identifying and reviewing the factors that may jeopardize the success of a project. It can also help the project team in identifying the preventive measures needed to mitigate the risk (reduce possibility and the probability or impact) should the risk event ever occur.
The project manager can act either as the buyer or the seller, or both in a procurement transaction. For instance, a Project Manager could be a seller of project management services to a project sponsor and in turn contract for outside services from a third party or company (which makes the PM a buyer of vendor/supplier services). Regardless of which side of the fence you’re on, it’s always a good idea to understand the other side’s perspective and responsibilities from the standpoint of Project Management.
Project Procurement Management is all about the processes related to purchasing or acquiring the products, services or results needed from outside the project team. Here’s a look at the four project procurement processes according to PMI:
|Plan procurements: A part of the Planning process group this involves documenting procurement decisions on how procurements will be managed and deciding the criteria for seller selection on the project.|
|Conduct procurements: This is a part of the Executing process group and involves initiating the bidder selection process, obtaining seller responses, choosing a seller and ultimately awarding the contract.|
|Administer procurements: This involves maintaining the procurement relationship with the chosen vendor as well as monitoring contract performance and managing the changes and corrections needed to ensure compliance. The process group is Monitoring and Controlling.|
|Close procurements: This is the process of completing each project procurement transaction and the contract services at the end of the project. This is a a part of the Closing process group.|
The knowledge area of Project Procurement Management was cut down to four processes from six in the fourth edition of the PMBOK, thus streamlining the processes and making them a lot easier to comprehend.