PM - Pro& Contr mgt

1. PLAN PROCUREMENT
MANAGEMENT

4. PLANNING PROCUREMENT
MANAGEMENT
Identifying which project needs can best be met by using
products or services outside the organization
 Involves deciding whether to procure, how to procure, what to
procure, how much to procure, and when to procure
 An important output of this process is the make-or-buy decision
 If there is no need to buy any products or services from outside the
organization, then there is no need to perform any of the other
procurement management processes

5. TOOLS AND TECHNIQUES
FOR PLANNING
PROCUREMENT
MANAGEMENT
Several tools and techniques are available to help project
managers and their teams in planning procurement
management
 Make-or-buy analysis
 General management technique used to determine whether an organization should make
or perform a particular product or service inside the organization or buy from someone
else
 Expert judgment
 Experts both from inside and outside an organization can provide excellent advice in
planning purchases and acquisitions
 Market research
 Many potential suppliers are often available for goods and services, so the project team
must choose suppliers carefully

6. PROCUREMENT
MANAGEMENT PLAN
Describes how the procurement processes will be
managed, from developing documentation for making
outside purchases or acquisitions to contract closure
 Contents varies based on project needs

7. PROJECT PROCUREMENT
REQUIREMENTS
 First step in developing a plan for procurement is to
understand the requirements for what has to be
obtained to complete each work activity.
 Information gathering ----
 how many resources are available to assist.
 Ensure quality time to understand the true
requirement
 Details of each requirement.
 This is where errors can be made.
 It could simply be oversight by project manager or
resources available meets “most” of the needs but not
all.
 Mitigate or eliminate risk of failure by having accurate
and reliable sources of information.

8. PROCUREMENT INFORMATION
SOURCES
 Sources of information available
 Project Manager looks at details ----
 Indicate specifications
 Critical schedule requirements
 Capability requirements of a particular resource that
would be best as internal resource or procure external
resources.
 The information can be located in
 Project Charter
 Project deliverables
 May contain requirements identified by the
customer that are critical.
 Critical time requirement for delivery or testing

9. PROCUREMENT INFORMATION
SOURCES
 Sources of information available
 Customer Specifications
 Components of the project deliverables with specific
details of items critical for the customer.
 Used as the primary source of information to
develop project charter, checklists, WBS
 Critical that team reviews this document and clarify
all the aspects with the customers.
 Most of the information gathered is used for
procurement
 Needs to be as accurate, detailed and correctly
interpreted as possible.

10. PROCUREMENT INFORMATION
SOURCES
 Sources of information available
 Project Statement of Work (SOW)
 Generated at the beginning of a project
 Outlines details of a project deliverables
 Used as a primary source of procurement
information if the customer specification was not
available.
 Ensure that SOW has been developed and
interpreted correctly to reduce the chance of
error in procurements.
Network Diagram

11. STATEMENT OF WORK (1 OF
2)
A statement of work (SOW) is a description of the work
required for the procurement
 If a SOW is used as part of a contract to describe only the work
required for that particular contract, it is called a contract statement
of work
 A contract SOW is a type of scope statement
 A good SOW gives bidders a better understanding of the buyer’s
expectations

12. STATEMENT OF WORK (2 OF
2)

13. PROCUREMENT INFORMATION
SOURCES
 Sources of information available
 Work Breakdown Structure
 Created based on requirement and customer
specification
 Dismantle the project deliverable into its smallest
components and organize them into a logical
sequence.
 Activity Information Checklist
 Created based on requirement and customer
specification
 Dismantle the project deliverable into its smallest
components and organize them into a logical

14. PROCUREMENT INFORMATION
SOURCES
 Network Diagram
 Developed after WBS and activity information
checklists have been completed to arrange work
activities in sequence
 To analyze the flow of work throughout the project
lifecycle.
 Important because many activities can be done
simultaneously or in parallel and some activities
have to be completed before the next activity can
start.
 Bill of Materials (BOM)
 Specific list of items to be used in the creation of a
deliverable.
 Lists the quantity and actual part number or model

15. PROCUREMENT INFORMATION
SOURCES
 Special Customer Requirements
 Customer may have these.
 Special care in understanding these to correctly
identify special required procurements.
 Regulatory Requirements
 Project deliverable may have requirements that extend
beyond the customer requirements.
 May include items that state, local or federal
regulations mandate.
 May be simply acquiring permit for the construction of
a building, registration, specialized telecom broadcast
product, or special materials or products
 Project manager needs to be aware of these and to be
performed correctly to avoid problems with

16. EXAMPLE
A project manager overseeing the creation of a new food processing
plan must realize that several areas within his plan have FDA (Food and
Drug Administration) stipulations on specific pieces of machinery used in
food processing. This might include the type of metal used on storage
containers, the types of hoses and tubes used in the transfer of food
product from one machine to the next, and other specialized conditions
that need to be controlled while processing food for human consumption
in the United States.

17. PROCUREMENT DECISION
PROCESSES
 Once the project manager has acquired all the
required information, he can begin the task of
evaluating all procurement
 When evaluating different types of decisions need to
made such as
 Whether or not to purchase something or
 Simply make an item internally
 To use internal resources versus external
resources
 To purchase or rent equipment for specific work
activity.
 These decisions are critical as
 They determine how things are obtained
 Type of contractual arrangements required
 These decisions also need to be made in the best
interest of the project, the budget, the schedule and

18. EXAMPLE
A project manager working for a high-tech telecom organization is overseeing the creation
of a specialized telecom prototype. This new product requires a specialized heat-sink
housing that has specific, tight tolerances that have to be maintained. The project manager
has to decide whether to make this product in-house or have it produced externally. The
project manager, knowing that the organization has an internal machine shop, would have
to review the specifications of the housing with the machine shop manager to ascertain the
capability of the machine shop correctly producing the product. If it is something the
machine shop manager deems is possible, using internal resources would be a cost-
effective way to acquire this piece of material.
The project manager would then need to evaluate the level of quality the machine shop is
capable of as well as a schedule of when the item would be completed and available for
the work activity. If the project manager is convinced internal resources are capable of
supplying this item, the make option can be performed internally. If the machine shop
manager deems that it may be beyond the capability of internal resources, the project
manager needs to look to external resources to create this item in meeting all of the
specified requirements, keeping with the delivery schedule and living with the cost
associated with procuring this item externally.

19. PLAN PROCUREMENT
MANAGEMENT

20. BUSINESS RELATIONSHIPS
Business relationships range from transactional , or one time
purchase to strategic partnerships that are often like a
marriage. Somewhere in between are functional and affiliative
relationships that may look like friendship.

21.  Transactional relationships ----
 Each sale is a separate exchange, and
 The two parties o it have little or no interest in maintaining an
ongoing relationship.
 Example: when you fill up your car with gas you might no care if
it’s a Exxon, Shell or another company.
 Functional relationships ----
 Limited, ongoing relationships that develop when a buyer
continues to purchase a product from seller out of habit, as long
as her needs are met
 Example: If there is a gas station near your house that has good
price, you might frequently fill up there, so you don’t have to
shop around.
 If this gas station goes out of business, you will be more likely
to feel inconvenienced.
 MRO (maintenance, repair and operations) items, such as nuts
and bolts used to repair manufacturing equipment are oftn sold

22.  Affiliative selling relationships ----
More likely to occur when the buyer
needs a significant amount of expertise
needed from the seller and trust is an
issue.
The people in this segment trust
because they rely on them to help them
make good decisions on their behalf.
They know that seller wouldn’t do
anything to jeopardize that

23.  A Strategic partnership ----
 Both buyer and seller to commit time and money to
expand “the pie” for both parties.
 This level of commitment is often likned to a marriage. .
 Example: GE manufactures the engines that Boeing uses
in the commercial planes it makes..
 Both companies work together to advance the state of
engine technology because it gives them both an edge.
 Every time Boeing sells an airplane, GE sells one or more
engines.
 A more fuel-efficient or faster engine can mean more
sales for Boeing as well as GE.
 As a result, the engineers and other personnel from both
companies work very closely in an ongoing relationship.

24. STATEMENT OF WORK (1 OF 5)
A statement of work (SOW) is a description of the work
required for the procurement
 If a SOW is used as part of a contract to describe only
the work required for that particular contract, it is called
a contract statement of work
 A contract SOW is a type of scope statement
 A good SOW gives bidders a better understanding of the
buyer’s expectations
 During 1970s and 1980s, small companies were
bidding on mega jobs to subcontract out more than 99%
of all of the work.
 Low suits were abundant and the solution was to put

25. STATEMENT OF WORK (2 OF 5)
A statement of work (SOW) is a description of the work
required for the procurement
 If a SOW is used as part of a contract to describe only
the work required for that particular contract, it is called
a contract statement of work
 A contract SOW is a type of scope statement
 A good SOW gives bidders a better understanding of the
buyer’s expectations
 During 1970s and 1980s, small companies were
bidding on mega jobs to subcontract out more than 99%
of all of the work.
 Low suits were abundant and the solution was to put

26. STATEMENT OF WORK (3 OF 5)
Specifications are written, pictorial, or graphic information
that describe, define, or specify the services or items to be
procured.
Three types of specifications:
 Design Specification:
 Details what is to be done in terms of physical
characteristics.
 The risk of performance is on the buyer.
 Performance Specification:
 Specify measurable capabilities the end product must
achieve in terms of operational characteristics.

27. STATEMENT OF WORK (4 OF 5)
 Functional Specification:
 This is when the seller describes the end use
of the item to stimulate competition among
commercial items, at a lower overall cost.
 The risk of performance is on the contractor.

28. STATEMENT OF WORK (5 OF
5)

29. PROCUREMENT OR BID
DOCUMENTS
Request for Proposals: used to solicit proposals
from prospective sellers
 Final document which will go o the prospective suppliers on
major or minor complexity procurement.
 A critical document which must be clear, complete and allow
for a competitive response from the sellers.
 A proposal is a document prepared by a seller where they
describe what they will do to meet the requirements of a
buyer.
 Can be expensive and time consuming for a large contract to
prepare a good RFP.

30. PROCUREMENT OR BID
DOCUMENTS
Precise format may vary by company, it will
normally contain the following
 The cover letter, which will serve as the table
of contents
 Listing of all RFP attachments
 The order of precedence for RFP documents
 Individual’s name who will represent the
project, typically the project assigned buyer
 The proposed Statement of Work (SOW)
 All Technical specifications and supporting
drawings if necessary.
 Any special proposal requirements like
Bonding requirements, the names of key
seller individuals and their bios.
 A proposal is a document prepared by a
seller where they describe what they will do

31. PROCUREMENT OR BID
DOCUMENTS
Precise format may vary by company, it will
normally contain the following (contd.)
 Contract Data Requirements Listing to be imposed in the
resulting contract
 Cost and Pricing format requirements, including a
declaration of intended contract type.
 Proposal Certification, who will sign for seller, their
organizational title.
 Requirements for special proposal sections, like quality,
risk management, etc.
 A statement as to whether alternate methods may be
proposed by the seller.
 Proposal submittal requirements: time due , location,
number copies, format, expiration date
 A model contract which will be complete in all respects
except for seller’s name, date, price
 Any other requirements to be imposed on the seller.

32. PROCUREMENT OR BID
DOCUMENTS
 In order to get intelligent responses from prospective
sellers, the RFP (Request for Proposals) document must
be understandable.
 To assure a quality and understandable RFP some
companies will conduct what is often called a “bidability”
review of the RFP document before it is sent out to
prospective sellers.
 The final draft RFP will be reviewed by seasoned staff to
make sure if they themselves could respond to it in its
present form.
 This process may reject many a RFP and sent the
solicitation team back to reassemble a document which
can be understood and responded to with viable
proposal.
 Take care not to incorporate “dumb” and superfluous
demand from sellers e.g requiring a project manager
with a “PhD”.
 Be careful what you describe as “musts” will add costs to
the seller’s proposal to you.