The procurement management process includes Plan Procurements, Conduct Procurements, Administer Procurements, and Close Procurements. All of these processes occur in different groups. Planning procurements is done during the planning process group, while conducting procurements is done during the executing process group. Administering procurements is done during the monitoring and controlling process group, whereas the closing procurements process is done during the closing process group.
By PMP Exam Prep definition, "Procurement is a formal process to obtain goods and services." A project manager is usually not the one to handle things like managing the procurement process, but it is important for the project manager to understand all aspects of the procurement process. If you are familiar with the procurement process you will know what is happening, can possibly help the procurement manager, and could more easily identify risks. The project manager should be assigned to both parties in the procurement process, the seller's and buyer's sides. It is suggested in PMP Exam Prep to place yourself in the shoes of the buyer if no point of view is clearly defined. PMP Exam Prep also provides very useful tips on answering procurement questions:
- "Contracts require formality."
- "All product and project management requirements for the procurement work should be specifically stated in the contract."
- "If it is not in the contract, it can only be done if a formal change order to the contract is issued."
- "If it is in the contract, it must be done or a formal change order must be approved by both parties."
- "Changes must be submitted and approved in writing."
- "Contracts are legally binding; the seller has no choice but to perform as agreed in the contract."
- "Contracts should help diminish project risk."
- "Most governments back all contracts that fall within their jurisdiction by providing a court system for dispute resolution."
Inputs to the Procurement Management Process include, "Enterprise environmental factors, organizational process assets, procurement manager assigned, scope baseline, risk register, procurements already in place, identification of resources not available within the performing organization, project schedule, initial cost estimates for work to be procured, and the cost baseline for the project.", lists PMP Exam Prep.
The Plan Procurements process is part of the planning process group and creates a procurement management plan. A Make-or-Buy analysis allows the company to determine if they would like to do the work themselves, or if they should outsource. If they outsource, it does not have to include all work, it can include portions of the project work. If a company is trying to decide to buy or lease, they can use a formula to calculate the decision. PMP Exam Prep provides the following formula in a buy-or-lease situation where the daily lease cost is $120 and the investment cost is $1,000 plus the daily cost of $20. D represents the number of days, $120D = $1, 000 + $20D. In this situation D would equal 10, so after 10 days the costs would be the same. That is when a company would decide which process would be the most cost efficient for them.
There are three types of procurement statements of work; performance, functional, and design. A performance SOW is about the final product and what it should accomplish. The functional SOW provides a statement of the end result, whereas the design SOW details the work to be done. PMP Exam Prep suggests remembering contract types in three broad categories, "Fixed price (FP), Time and Material (T&M), and cost reimbursable (CR)." A fixed price contract is the most common contract and it is used to acquire services or goods with specific requirements. A Fixed Price Incentive Fee contract falls under the fixed price contract category and includes a target cost, target fee, target price, sharing ratio, ceiling price, actual cost, final fee, and final price. A fixed price award fee differs from a FPIF, in that it includes a predetermined award amount. Fixed Price Economic Price Adjustments create a contract that includes an economic price adjustment. A purchase order is a simple contract that requires a signature of acceptance, in order for it to become an official contract.
A Time and Material contract is best used for small dollar amounts, as it is not based on performance. Cost Reimbursable contracts are used when, "the exact scope of work is uncertain and, therefore, costs cannot be estimated accurately enough to effectively use a fixed price contract." informs PMP Exam Prep. Privity is a word that PMP Exam Prep suggests remembering, as it is a contractual relationship. So if my company (A) were hired by company B, and I hired company C, company B could not discuss things with company C, they would need to go through my company (A).
The Conduct Procurements process is done during the executing process, as it "involves getting the procurement documents that were created in the Plan Procurements process to the sellers, answering the sellers' questions, having them prepare responses, and reviewing the responses to select a seller." explains PMP
A seller may be selected through a weighting system, independent estimates, a screening system, past performance history, or presentations. Negotiations may be necessary in the procurement process and should be focused on getting a fair price, while developing a "good relationship with the seller." states PMP Exam Prep. A contract should create an agreement between both parties. The purpose of a contract is to, "define roles and responsibilities, make things legally binding, and mitigate or allocate risk." explains PMP Exam Prep.
Administering procurements happens during monitoring and controlling. This process involves watching over the buyer and seller to make sure they are abiding by the contract. Any conflict or change in procurement must be approved by the procurement manager, not the project manager. The project manager on the buyer's team will perform a procurement performance review to make sure the procurement manager is on track, and if not, will make suggestions for improvement. Records of the contract should be kept, as it is a legal document and may be needed for future reference. "Contract interpretation is based on an analysis of the intent of the parties to the contract and a few guidelines." defines PMP Exam Prep. Termination of the contract is usually done by the buyer, for convenience or cause. Terminating a contract has lasting effects on a project and negotiations can continue even after the work is stopped.
The Close Procurements process is last in the Procurement Management process and occurs during the closing process group. PMP Exam Prep explains, "Procurements are closed when a contract is completed or when a contract is terminated before the work is completed." During procurement closure all work must be verified, a final settlement must be made, all finances must be closed, and the procurement process must be reviewed. "Record updates, final contract performance reporting, lessons learned, procurement file, and other." are a few more things involved in the close procurements process according to PMP Exam Prep. The procurement is official closed once formal acceptance and closure are made. The seller must receive a formal "sign-off" from the buyer, showing their acceptance of the products of procurement.
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