While creating a procurement management plan, project managers should use some steps to ensure its success. So, in this article, we’ll discuss the 11 steps of creating a procurement management plan and its benefits.
Table of Contents
What Procurement Management Plan in Project Management
The project procurement management plan is a document that should be created during the planning process of procurement management. Furthermore, this document can be formal or informal, broadly framed or highly detailed. However, these things depend on the project’s needs. So, a procurement management plan outlines the project scope, objectives, strategies, and other relevant activities for acquiring and managing the goods and services for a project. Moreover, the following guidance (according to the PMBOK 6th edition) can include this document.
- Appropriate timetable for procurement activities
- Procurement metrics (to manage contracts)
- Project stakeholders’ roles and responsibilities related to procurement
- Constraints and assumptions
- The legal jurisdiction and the currency (for payments made)
- Risks and issues (for identifying requirements for performance or mitigating risks)
- Determination of whether independent estimation
- Guide for how procurement will be coordinated with other project aspects
This document will provide crucial information that will help you as follows.
- A procurement management plan helps you identify what you need ( this may include materials or equipment, but your needs depend on the nature of your project)
- When you need it
- How you will get it
- How you will measure and evaluate its quality and performance
As a project manager, you can create your procurement management plan using various templates or software tools, such as Microsoft Project, Google Spreadsheets, Microsoft Excel, or other specialized procurement management systems.
11 Steps for Creating a Procurement Management Plan
Before creating a procurement plan, outline the procurement processes. This process is crucial because that helps you to lay the foundation for all subsequent activities in the procurement plan. Typically, many companies use procurement process steps, including need assessment, support research, request for proposal, proposal evaluation, negotiations, and contracting, releasing a purchase order, delivery and inspection, receiving an invoice and completing payment, and record keeping. So, let’s explore the crucial steps needed for creating a procurement management plan.
Define Roles and Responsibilities
As discussed earlier, once you have documented all the steps in the procurement process, you should allocate clear roles and responsibilities to the team members. Through that, every team member can clearly understand what they’re supposed to do, maintain effective communication with others, and run their duties smoothly. Furthermore, the whole procurement cycle becomes more efficient. Here are the people who are top players in the procurement cycle.
- Project Manager – Responsible for monitoring all the procurement processes and controlling the project risks, budget, and schedule before they become a big problem.
- Procurement Manager – Responsible for appropriately developing and implementing the procurement strategies
- Procurement Officer – Responsible for identifying relevant suppliers and managers, building and maintaining better relationships with them, and maintaining purchase records and other data
- Contract Manager – Responsible for developing and negotiating contracts that define terms and conditions for suppliers.
- Supply Chain Manager – Responsible for overseeing the logistics involved in the procurement process, including warehousing and transportation.
- Account Payable – Responsible for invoicing and arranging payments
- Control Manager – Responsible for overseeing the inspection of goods received to ensure they meet the required quality standards.
- Legal Department – Responsible for ensuring all contracts and agreements comply with the relevant laws and regulations.
Define Needs and Requirements
In this step, you must list all the goods and services your organization needs to procure. Typically, this may include quantities, technical details, sizes, and other criteria that should be met. Furthermore, it’s crucial to include the reason for the purchase. Therefore, briefly describe what the item will be used for, who needs it, and why that is necessary. Moreover, add a date of use to each of these procurements (items) and who on the project team member is authorized to make the purchases. So this information will help you when you’re ready to make a purchase order because that specifies the price, quantity, delivery window, and payment agreements of the items you purchase.
Outline the Types of Agreements (contract types)
The contract means that everyone agrees on the terms of service. There are different types of contracts, including fixed-price contracts, cost- reimbursable contracts, time and materials contracts, and fixed-price plus incentive contracts.
- A fixed price contract means setting a fixed total price for well-defined items (goods or services). Typically, this price doesn’t change unless the scope of work changes. Therefore, this contract type is appropriate for projects with clear specifications and a stable scope.
- Cost reimbursable means the buyer agrees to cover the actual costs incurred in completing the work plus a fee representing profit. Therefore, this type of contract is appropriate when the scope isn’t clear or uncertainties are high.
- Time and materials contract is an agreement where the company pays for the contractor’s time and materials. Therefore, this type of contract is appropriate with clear cost itemization but an uncertain timeline.
- A fixed price plus incentive contract means setting a price with a bonus for the seller if delivery is completed than the agreed timeframe.
Market Research and Review of Past Procurement Data
Market research is crucial because it helps you understand potential suppliers and gauge their reputations in the market. As well as get a sense of the prevailing prices for the items you need.
On the other hand, you can review past procurement data to get more ideas about the estimated costs of items (goods and services). So, this approach helps improve budgeting capabilities while offering a strategic advantage during negotiations. With procurement solutions such as assessing information, project managers can get ideas as follows.
- Historical expenditure with a vendor
- Timing
- Details of purchased items (goods and services)
Risk Management
Risks are uncertain events or conditions that can occur in every part of a project process. So, they may occur during the procurement process. Therefore, you should identify what those risks might be and list them. Once your risks list has been collected, each must have a way to resolve them effectively and efficiently. However, if you can assign team members to mitigate those risks, it’s better because they have the ownership to follow through on closing them. Furthermore, you can use a risk register template to manage every threat that could pose a risk to the project. Here are several elements that should include the risk register.
- Risk identification
- Risk description
- Risk category
- Risk probability
- Risk analysis
- Risk mitigation
- Risk priority
- Risk owner
- Risk status
Related Post: Risk management in project management
Define Accurate Budget
Once you have identified the overall costs of the project procurements, you can request a proposal with the needs outlined. After, you can request bids from suppliers. Then, the suppliers will come up with their costs for products or services.
Furthermore, maintaining your project budget is crucial because you can monitor its consumption throughout the project to avoid overspending. Project managers can understand real-time budget information for every purchase using the right project management tool.
Define a Project Timeline
When creating a procurement plan, include the timeline because it will help you ensure you receive items exactly when needed and establish clear project deadlines. A well-defined procurement plan should provide specific ‘need by’ dates for each item. Through that, the purchasing team has a clear roadmap and can prioritize tasks effectively and efficiently.
Read More: 6 processes of project time management
Determine Constraints
Typically, constraints related to procurement include scope, budget, limited resources, and technical specification. It’s crucial to detail project constraints early on in the planning process. Identifying them prevents potential bottlenecks and can help you guide the entire procurement strategy.
Get the Contract Approved
Having a list of who the decision-makers ( you can use the DACI framework to identify decision-makers) are in the project group and passing the bids on to them for review is crucial because this process ensures that everyone who needs to oversee the contract approval is involved and can provide input.
Make a Decision Criteria
You already have a workflow. However, you need criteria to determine which bid to go into contract with. Every person who reviews the bid should have these criteria to evaluate their response.
Create a Vendor Management Plan
After contracting signoff, the procurement management plan will shift into a vendor management plan. Furthermore, the needs and requirements of the contract must be met. As well as a management plan surrounding suppliers will help ensure that goods and services are delivered as specified and on time. Through that, you can add a performance metric to rate how suppliers do their work, and it will help you improve professional relations on the next project and know who is worth contracting with again.
Benefits of Procurement Management Plan
Having a well-established procurement management plan, project managers can acquire many benefits. So, here are some benefits of a procurement management plan.
- A procurement plan helps project managers monitor the whole procuring process. So they can compare planned versus actual procurement to track progress. If there are any roadblocks, you can be adjusted to right those wrongs.
- A procurement management plan helps project managers inform strategies, and they help define the procurement necessary to fulfill the project.
- A procurement plan can involve stakeholders, and getting their input in this process is crucial because their satisfaction will help you measure the project’s success. Furthermore, they can express the requirements they want for procurements.
Conclusion
Creating a procurement management plan is crucial because it will help you meet the project’s objectives and increase the chances of the project’s success. Define roles and responsibilities, define needs and requirements, outline the type of agreement, market research and review of the past procurement data, risk management, define an accurate budget, define a project timeline, determine constraints, get the contract approved, make decision criteria, and create a vendor management plan are vital steps that needed for creating a procurement management plan.
