PROJECT MANAGEMENT CYCLE:PROJECT PROCUREMENT MANAGEMENT

PROJECT PROCUREMENT MANAGEMENT

Processes

Project procurement management involves six processes:

1. Procurement planning

2. Solicitation planning

3. Solicitation

4. Source selection

5. Contract administration

6. Contract closeout

These processes are required to acquire goods and services from outside the performing organi- zation (from consultants, subcontractors, suppliers, etc.). The decision to acquire such goods and services (the make or buy decision) has a short-term or tactical level (project-related) impact as well as a long-term or strategic level (organization-related) impact. At the strategic level, core competen- cies should rarely be outsourced even when outsourcing can reduce the project cost, shorten its duration, reduce its risk, or provide higher quality. At the tactical level, outsourcing can elevate resource shortages, help in closing knowledge gaps, and increase the probability of project success.

Management of the outsourcing process from supplier selection to contract closeout is an impor- tant part of the management of many projects.

Description

The decision on what parts in the project scope and product scope to purchase from outside the performing organization, how to do it, and when to do it is critical to the success of most projects. This is not only because significant parts of many project budgets are candidates for outsourcing, but because the level of uncertainty and consequently the risk involved in outsourcing are quite different from the levels of uncertainty and risk of activities performed in-house. In order to gain a competitive advantage from outsourcing, well-defined planning, execution, and control of outsourcing processes supported by data and models (tools) are needed.

The first step in the process is to consider what parts of the project scope and product scope to outsource. These are decisions regarding sources of capacity and know-how that can help the project in achieving its goal. A conflict may exist between the goals of the project and other goals of the stakeholders. For example, subcontracting may help a potential future competitor develop know-how and capabilities. This was the case with IBM when it outsourced the development of the Disk Operating System (DOS) for the IBM PC to Microsoft and the development of the CPU to Intel. The analysis should take into account the cost, quality, speed, risk, and flexibility of in-house vs. outsourcing. Outsourcing decisions should also take into account the long-term or strategic factors discussed earlier.

Once a decision is made to outsource, a solicitation process is required. Solicitation planning deals with the exact definition of the goods or services required, estimates of the cost and time required, and preparation of a list of potential sources. During solicitation planning, a decision model can be developed, such as a list of required attributes with a relative weight for each attribute and a scale for measuring the attributes of the alternatives. A simple scoring model, as well as more sophisticated decision support models prepared at the solicitation-planning phase, can help in reaching consensus among stakeholders and making the process more objective.

Solicitation can take many forms: a request for proposal (RFP) advertised and open to all potential sources is one extreme, while a direct approach to a single preferred (or only) source is another extreme—with many variations in between, such as the use of electronic commerce. The main output of the solicitation process is one or more proposals for the goods or services required. A well-planned solicitation-planning process followed by a well-managed solicitation process is required to make the next step, source selection, efficient and effective.

Source selection is required whenever more than one adequate source is available. If a proper selection model is developed during the solicitation-planning process and all the data required for the model are collected from the potential suppliers during the solicitation process, source selection is easy, efficient, and effective. Based on the evaluation criteria and organizational policies, proposals are evaluated and ranked. Negotiations with the highest-ranked suppliers can take place to get the best and final offer, and the process is terminated when a contract is signed. If, however, solicitation planning and the solicitation process do not yield a clear set of criteria and a selection model, source selection may become a difficult and time-consuming process; it may not end with the best supplier selected or the best possible contract signed. It is difficult to compare proposals that are not structured according to clear RFP requirements; in many cases important information is missing in the proposals.

Throughout the life cycle of a project, contracts are managed as part of the execution and change control efforts. Work results are submitted and evaluated, payments are made, and, when necessary, change requests are issued. When these are approved, changes are made to the contracts. Contract management is equivalent to the management of a work package performed in-house, and therefore similar tools are required during the contract-administration process.

Contract closeout is the closing process that signifies formal acceptance and closure. Based on the original contract and all the approved changes, the goods or services provided are evaluated and, if accepted, payment is made and the contract closed. Information collected during this process is important for future projects and supplier selection because effective management is based on such information.