Chap 12.1 Plan Procurement Management

PMBOK 6 - All rights reserved; By: Anand Bobade (nmbobade@gmail.com)
Chapter 12 –
Project Procurement Management
PMP
Trainer: Anand BobadePMBOK 6th Edition, 2019, All rights reserved.
Plan Procurement
Management
SIXTH EDITION

12.1 Plan Procurement Management
Overview
Plan Procurement Management Definition?
Plan Procurement Management -> ITTO
Build vs Buy
Source selection criteria's
Procurement documents
Contract types
Review

Determine if procurement is required
Full or partial procurement requirement
Make or Buy Analysis & decision
Identify & evaluate potential sellers
Decide on requirements (How, What, how much, When)
Can influence schedule, estimating & make or buy decision.
Includes reviewing risks involved & type of contract.
Overview

The process of documenting project procurement decisions,
specifying the approach, and identifying potential sellers.
Whether to acquire goods & services from outside, what to
acquire, how to acquire , how much and when to acquire it.
Plan Procurement Management -> Definition
Procurement
decisions
Specifying
approach
Identifying
potential sellers.

Typical Procurement steps
Planning Choosing a source
Acquiring - product
or services
Administering the
contract
Closing contract
Generic Procurement process:
Procurement
applied to
Internal work
orders
Formal
agreements
Contracts
between
organization units

Prepare SOW or TOR
Prepare high level cost estimate to determine budget
Advertise the opportunity
Shortlist qualified sellers
Prepare & issue bid documents
Seller submits the proposals
Conduct technical evaluation
Conduct financial evaluation
Prepare final evaluation report (quality & cost)
Finalize negotiation & sign contract
Typical Procurement steps

Plan Procurement Management-> ITTO
Expert Judgment
Data Gathering
Data analysis
Source selection analysis
Meetings
Project Charter
Business Documents
Project Management
Plan
Project documents
Enterprise
environmental factors
Organizational process
assets
Procurement Management
Plan
Procurement strategy
Bid Documents
Procurement Statement of
Work
Source Selection Criteria
Make-or-buy Decisions
Independent cost estimates
Change Requests
Project document updates
OPA updates
Inputs Tools & Techniques Outputs

Plan Procurement Management->Input
Project Charter Business Documents
Project Management
Plan
Project documents
Enterprise
environmental factors
Organizational
process assets

Project Charter
Contains Objectives, project description, summary milestones & preapproved
financial resources.
Plan Procurement Management->Input-> Project Charter

Business Documents
Following Business Documents may provide key inputs.
Business Case:
• Procurement strategy & BC need to be
aligned.
Benefit Management plan:
• Expected benefit delivery will drive
procurement date, contract language.
Plan Procurement Management->Input-> Business Documents

Project
Management Plan
Following subsidiary plans & scope baseline will provide key inputs.
Scope Management plan:
• How contractor will manage scope of work during
execution.
Quality Management plan:
• Applicable industry standards & codes
• Information will be used in bidding documents (RFP)
Resource Management plan:
• Which resource will be purchased of leased.
• Assumptions & constraints that may influence
procurement.
Scope baseline:
• Known scope elements are used to develop SOW & TOR
(Terms of Reference)
Plan Procurement Management->Input-> Project Management Plan

Project documents
Following project documents will provide key inputs.
Requirements
documentation
Requirements
Traceability Matrix
Milestone list
Resource
requirements
Project team
assignments
Risk Register
Stakeholder Register
Plan Procurement Management->Input-> Project documents

Project documents
Plan Procurement Management->Input-> Project documents -> RD
• Product, service or
result requirements
• User requirements
• Acceptance criteria
Business Requirements
• Security
• Safety
• IPR
• Licenses
Project procurement
requirements.
• Performance
• Insurance
• Intellectual
property rights
• Licenses, and
Permits
Contractual and legal
implications
Requirements documentation:
• Contains all Business, technical requirements, non-technical
requirements that seller is required to satisfy.

Project documents
Milestone list:
•Contains information on when sellers are required to deliver their results.
Include timelines, milestones & delivery dates.
Provides Schedule constraints & dependencies.
Schedule constraints can be major factor in
procurement.
Consider time saving techniques: Preferred seller /
Templates.
Plan Procurement Management->Input-> Project documents -> ML

Project documents
Resource requirements:
•Contain information on specific needs such as team & physical resources that may need to be
acquired.
Type
Business Analyst
System Analyst
Programmer
Laptops
Quantity
2
3
10
20
Plan Procurement Management->Input-> Project documents -> RR
People
EquipmentLocation

Project documents
Project team assignments:
•Skills & capabilities of team & their availability to support procurement.
Plan Procurement Management->Input-> Project documents -> Team

Project documents
Risk Register:
• List of Risks, results of Risk analysis & response planning.
• Transfer risks to seller through procurement agreements.
Ex: Change in Oil
Prices
Ex: Change exchange
rates
Plan Procurement Management->Input-> Project documents -> RR

Project documents
Stakeholder Register:
•Provides details on project participants & their interests.
•Can help you to setup vendor selection board/team.
Plan Procurement Management->Input-> Project documents -> SR
Regulatory agencies
Legal experts
Procurement Experts

EEF
Marketplace conditions.
Availability of Products, services, & results in marketplace.
Suppliers along with their past performance or reputation
Terms & conditions for products, services (specific to industry)
Unique local requirements.
Legal advice
Contract management system; Contract change control
Multi tier supplier system of prequalified sellers
Financial accounting & contract payment system
Plan Procurement Management->Input-> EEF

Most organizations have formal
procurement policies.
Project team should supply both
resources & expertise to perform
procurement activities, if there is no
procurement dept.
Procurement Management systems -
An established multi‐tier supplier
system of prequalified sellers based
on prior experience
Plan Procurement Management->Input-> OPA
Formal procurement policies, procedures, and guidelines.
Organizational
process assets

Plan Procurement Management->T&T
Expert Judgment Data Gathering Data analysis
Source selection
analysis
Meetings

Contracting Expert Technical Experts Financial Experts
Legal experts
Project Management
experts
Procurement & Purchasing
Experts
Plan Procurement Management -> T&T-> Expert Judgement
Experts with specialized knowledge or training in:
Procurement &
purchasing
Contract types & contract
documents
Regulations & compliance
topics.
Expert Judgment

Data Gathering
Market Research:
• The process of gathering information at conferences, online
reviews, & variety of sources to identify market capabilities.
Plan Proc. Manag. ->T&T->Data Gathering -> Market Research
Examination of industry & specific vendor capabilities
Leverage information gained to identify market capabilities.
Team may refine procurement objectives to leverage maturing technologies.

Data analysis
Make-or-buy analysis:
•Gathering data about product requirements & analyse them against available
alternatives including purchase or internal manufacture.
•Use Payback period, ROI, IRR, Discounted cash flow, NVP & BCA techniques.
•Capacity and Capability
•Exploit Opportunity
•Shift risk (cost, time, or
scope)
Reasons to Buy
•Idle resources
•Want to control
•Confidential information
Reasons to Make
Plan Proc. Manag. ->T&T-> Data analysis -> Make-or-buy analysis
Buy Make

Data analysis
•Gathering data about product requirements & analyse them against available
alternatives including purchase or internal manufacture.
•Use Payback period, ROI, IRR, Discounted cash flow, NVP & BCA techniques.
Major factor to consider in the decision:
Schedule Budget Cost Skills
Proprietary
information
Contract
type
It is important to consider scope of Make vs Buy Analysis
Renting or leasing is good, if it is one time need
Purchasing is good, when it is long term requirement
Buy
RentLease

Data analysis
•Gathering data about product requirements & analyse them against
available alternatives including purchase or internal manufacture.
•Use Payback period, ROI, IRR, Discounted cash flow, NVP & BCA
techniques.
How to calculate breakeven point
Cost Categories Make
(in-house)
Buy
(From Market)
Difference
Product development 100,000 60,000 40,000
Operational cost / month 6,000 10,000 4,000
Breakeven point: 40,000/4,000 = 10 Month
If software is used for < 10 months then “ Buy”
If software is used for > 10 months then “ Make (in-house)”

Source selection
analysis
Review prioritization of competing demands before deciding on selection method.
Its good practice to include evaluation method in the procurements documents.
Commonly used selection methods includes:
Least cost:
•Routine or standard procurement
Qualifications only:
•Value of procurement is relatively small
•Time & cost of full selection process will not make
sense.
Plan Procurement Management->T&T -> Source selection analysis

Source selection
analysis
Quality-based/ highest tech. proposal score:
•Technical proposal with cost is submitted.
•Seller is invited to negotiate, if technical proposal is acceptable.
•Highest ranked technical proposal is selected, if financial proposal is
acceptable.
Quality and cost-based:
•Similar to above
•Cost to be included as a factor in sellers selection process.

Source selection
analysis
Sole source:
• Buyer asks specific seller to prepare financial & technical proposal.
• This is expectation process hence proper authorization is required.
Fixed budget:
• Buyer to disclose available budget to sellers.
• Buyer to ensure budget is compatible with SOW.
• This can be used only if SOW is precisely defines & no changes are
anticipated.

Meetings
Meeting with team to formulate a procurement strategy.
Meetings with potential bidders.
Discuss approach, potential issues & seller evaluation
Plan Procurement Management->T&T-> Meetings
Contracting
Experts
Technical Experts Financial Experts Legal experts
Project
Management
experts
Procurement
Experts

Plan Procurement Management -> Output
Procurement
Management Plan
Procurement
strategy
Bid Documents
Procurement
Statement of Work
Source Selection
Criteria
Make-or-buy
Decisions
Independent cost
estimates
Change Requests
Project document
updates
OPA updates

Procurement
Management Plan
Plans describes activities to be undertaken during procurement process.
Document type of bidding like International, national competitive bidding or local bidding.
Alignment of sources & availability of funding, in case of external funding.
How procurement will be
coordinated with other
project aspects
Time table of key
procurement activities
Procurement metrics to be
used
Stakeholder roles and
responsibilities
Constraints and
assumption
Legal jurisdiction and
currency
Determine need of
independent estimates
Risk management -
identifying requirements
for performance bonds or
insurance
Prequalified sellers
Plan Procurement Management-> Output-> Procurement MP

Procurement
strategy
Procurement strategy is developed once “Make or Buy” decision is done.
It helps to determine project delivery method, type of agreement & how to proceed with procurement phases.
Delivery methods
Contract payment
types
Procurement phases
Plan Procurement Management -> Output -> Procurement strategy

Procurement
strategy
Delivery methods:
•Different for professional services versus construction projects
For professional services:
Service provider
with no
subcontracting
Service provider
with
subcontracting
Joint venture
between buyer &
services provider
Service provider
acts as a
representative
For industrial or commercial construction projects:
Turnkey
Design build
(DB)
Design bid
build (DBB)
Design build
operate (DBP)
Build own
operate
transfer
(BOOT)

Procurement
strategy
Contract payment types:
• Coordinated with buying organizations internal financial system.
• They include but not limited to contract type plus variations.
• Lump sum, FFP, CPAF, CPIF, T&M, target cost etc.
Fixed fee contracts are suitable when the type of work
is predictable and the requirements are well defined.
Cost plus contracts are suitable when the work is
evolving, likely to change
Incentives and awards may be used to align the
objectives of buyer and seller

Procurement
strategy
Procurement phases:
•Sequencing or phasing of the procurement, description of each phase.
Procurement performance indicators and
milestones to be used in monitoring
Criteria for moving from phase to phase
Monitor and evaluation plan for tracking
progress
Process for knowledge transfer

Make-or-buy
Decisions
Decisions made regarding external purchase or internal manufacture of a product (Formally documented)
Make
•Document Internal process
•E.g., Develop Software in-house
Buy
•Document external process
•E.g., Buy Seller services to develop software
Plan Procurement Management-> Output-> Make-or-buy Decisions
Whether particular
work/Service/Product
can best be developed
internally
Needs to be purchased
from outside sources.

Procurement
Statement of Work
Developed from the project scope baseline and defines related contract scope.
It describes all the procurement item in detail.
Specifications
Performance
desired
Work location
Delivery
Schedule
Collateral
services (e.g.,
Warranty)
• Clear, complete, and concise.
Written
description
• there are specific content and format need to be used
In some
application areas
Plan Procurement Management-> Output->Procurement SOW

Procurement
Statement of Work
Plan Procurement Management-> Output->Procurement SOW
Terms of reference (TOR):
Tasks the contractor is required to perform
Coordination requirements
Standards the contractor to fulfil
Data that needs to be submitted for approval
List of data and services provided by buyer to contractor
Schedule for initial submission and review / approval time required

Independent cost
estimates
For large procurements, buyer
Prepare its own estimates Get is done though outside estimators
Plan Procurement Management -> Output ->Independent cost estimates
Significant difference in estimates means
SOW was deficient or ambiguous Seller misunderstood or failed to fully respond

Plan Procurement Management-> Output->Source Selection Criteria
Proposal1
Proposal2
Proposal3
0
50
100
150
Seller1 Seller2 Seller3
Source Selection
Criteria
Used to compare sellers proposals based on documented selection
criteria to rate or score proposals.
Capability and
capacity
Product cost and
life cycle cost
Delivery dates
Technical
expertise and
approach
Specific relevant
experience
Proposed
approach and &
plan in
responding
Key staff’s
qualifications,
availability &
competence
Financial stability
of the firm
Management
experience
Suitability of
knowledge
transfer (training)
Criteria1
Criteria2
Criteria3

Bid Documents
The documents utilized in bid and proposal activities.
Price based decision:
Bid, tender, quotation.
Proposals:
Technical capability or approach are the most
important.
Plan Procurement Management ->Output -> Procurement document
RFI
RFP/RFQ
Request for information(RFI):
•provide various pieces of information related to a
product or service or seller capability.
Request for Proposal (RFP)
•request a detailed proposal on how work will be
accomplished with price.
Request for Quote (RFQ):
•request price quotations from prospective sellers
of common or standard products or services.

Procurement
Documents
•Used when buyers
doesn’t have clear
information.
•Used for consolidation
of proposals
•Ex., Constructing a
Hotel
•ERP System
implementation
RFI
•Used when you have
detailed requirements
•Finds cost & detailed
proposal on how work
will be accomplished.
•Ex., Constructing
hotel based on a plan
•IT Automation of
business process
RFP
•Used when your main
focus is on cost.
•Time and Material
contracts.
•Ex., Construction Crain
for 1 year
•6 months consulting
to setup PMO with 2
resources
RFQ
Plan Procurement Management-> Output->Procurement documents
Terminology
may vary by
Industry or
geography.

Change Requests
A decision that involves procuring goods, services, or resources typically requires a
change request.
May cause Frustration, possibility due to
change in original decision.
It will go though Integrated Change
control process.
Change Request due to:
More clarity on the work -> New scope addition.
Project duration may change as Vendor selection process takes time.
Cost may change based on Vendor & development approach (onsite/ offshore)
Plan Procurement Management-> Output-> Change Request

Project Documents
Updates
Following Project Documents may get updated.
Lessons learned
register
Milestone list
Requirements
documentation
Requirements
Traceability Matrix
Risk Register Stakeholder Register
Plan Procurement Management->Output-> Document updates

Project Documents
Updates
Requirements documentation
• New/Changed Requirements
• Requirement with contractual/ legal implications -
health, safety, security, performance, insurance, IPR,
Equal employment opportunity, Licenses, permits etc.
Requirements Traceability Matrix:
• New/Changed Requirements
• Link to sellers deliverables.
Lessons learned register
• Updated with lessons regarding regulation,
compliance or source selection analysis.

Project Documents
Updates
Milestone list
• Major milestone's when seller is expected to deliver
their results.
Risk Register
• Each approved seller comes with its own set of risks.
• e.g., Sellers organization, Contract duration, project
delivery method, contract type, final agreed price etc.
Stakeholder Register
• May updated with regulatory agencies, contracting &
legal personals.

OPA updates
Updated information on qualified sellers.
Below table shows comparison of procurement documents.
Plan Procurement Management -> Output -> OPA updates

Plan Procurement Management -> Review
Procurement Management plan
Plan Procurement Management -> ITTO
Procurement SOW
Build vs Buy
Source selection criteria's
Bid documents

Chap 12.1 Plan Procurement Management

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Chap 12.1 Plan Procurement Management