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2.8P Plan Procurements
Overview (2.8P.P1)
Procurement refers to the aspects of project management related to obtaining goods and services from outside companies. This specifically refers to vendors and suppliers. It does not refer to other internal organizations within your own company. (For the purposes of this discussion, purchasing and procurement are equivalent terms.) This is an area that project managers definitely need to understand at some level, and it is an area into which the project manager will give input. However, in many, and perhaps most companies, procurement is an area that the project manager does not own. The project manager normally does not have the authority to enter into contracts on behalf of the company, and he normally is not asked to administer the contracts once they are in place.
If you are purchasing goods or services on your project, you should determine your project procurement strategy and plans. In some cases, you will simply follow the procurement contracts and plans that are already established by your company or your organization. For instance, you may purchase hardware from companies using a standard company contract. You may acquire contactors using your company’s preferred vendor list under prior master contractor agreements. In some cases, you will need to work with your Procurement Department to establish your own project-level vendor management plans.
Most project teams consider the vendor identification and vendor selection processes to be part of the actual execution of the project. In other words, they are done in the initial Analysis Phase after the project execution has started. However, there may be times when you need to perform these activities as a part of your up-front project definition process. If you need to perform this work now, see 3.6P Conduct Procurements for an overview of the vendor identification and selection process.
Plan Procurements (2.8P.P2)
For large projects, before you start a vendor selection process you should create a Procurement Management Plan. For more information see 2.1.3.9P Create Procurement Management Plan
There are times when all organizations look for vendors to fill certain needs. The process is usually simple. However, depending on the vendor, this might be a lengthy process to complete. The following process can be used in most any selection process – package selection, vendor selection, hardware selection, etc. This process is described at a high level and will require some drill-down on the details to make sure that it is performed with appropriate diligence for your project.
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Role |
Vendor Selection Process |
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1 |
Project Manager |
Gather and Rank Business Needs It’s hard to select a vendor if you are not sure what your requirements are, so the first part of the project is to gather business requirements. This is similar to the gathering of business requirements on a typical project. Ask questions such as:
Many times, you will not be able to determine all the requirements just by asking the clients. The clients may not know enough to get the requirements 100% complete and correct. On a normal project, you would add the rest using scope change management. However, with a vendor selection project, you need to get as many vendor requirements as possible correct the first time. It may be too late to discover missing requirements after a vendor has been selected. Each requirement should be weighted on a numerical scale, or high/medium/low, to reflect the relative importance of some requirements over others (other weighting scales can be utilized as well). Your sponsor and major customers and stakeholders need to review and approve this total list of vendor requirements and weighting. In addition to the business requirements, you may also be interested in other characteristics of the vendor.
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Evaluate Make vs. Buy Options (2.8P.P3)
The decision to make or
buy a product can be one of the key early decisions that will drive the
overall business case of the project, plus the underlying approach to
executing the project. In some instances it is more cost effective to
buy while in others it makes more sense to create an in-house solution.
There are a couple points in a project where make vs. buy decisions are normally made.
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Up-front in the planning processes. On many (perhaps most) projects you can decide up-front what items you will make and which items you will buy. The make-or-buy analysis should be made in the initial scope definition to determine if the entire project should be completed in-house or procured. As the project evolves, additional make-or-buy decisions are needed.
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After the business requirements are finalized. In many cases you are not sure of the details of what you need to build until after the business requirements are completed. At that time you can estimate the cost of building the solution and you can send out a Request for Proposal (RFP) for vendors to estimate what it will take them to build it. You can then make a decision on what should be built and what should be purchased.
There are other factors that come into play other than the cost of building and the cost of buying. The long-range strategy of the client organization is also a component in the make-or-buy analysis. The focus on a make-or-buy analysis can also include the following.
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Reasons to Make |
Reasons to Buy |
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Less costly |
Less costly |
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Use in-house skills |
In-house skills not available or don't exist |
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Control of work |
Small volume of work |
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Control of intellectual property |
More efficient |
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Learn new skills |
Transfer risks |
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Available staff |
Available vendor |
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Focus on core project work |
Allows project team to focus on other work items |
The make-or-buy decision does not have to be all-or-nothing. There are many options for building doing some things in-house and purchasing other things.
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Procure all or virtually all of the goods and services from a single supplier or from multiple suppliers
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Procure a significant portion of the goods and services from a single supplier or from multiple suppliers
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Procure a relatively minor portion of the goods and services from outside sources (single/multiple suppliers)
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Make everything in house; procure nothing from the outside
In some instances you may also have to decide whether to buy or rent a product. This is probably not a decision to be made on final products or services, but it may come into play for equipment, facilities, supplies and other products and services that your project needs. For example, you may need customized equipment for your project. You may be able to purchase the equipment or you may be able to rent the equipment. You can decide how best to procure the equipment. Renting usually costs less but of course you do not own the product when you are done. In some cases that may be a good thing and in other cases that may be a disadvantage.
You would make this decision in a similar way that you would for build-or-buy. Partly the answer comes down to the cost of buying and the cost of renting over the course of the project. There will be other factors including whether you will be able to leverage the product long-term, whether the support for the product will be a distraction, the tax and depreciation implications, etc.
