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Project Procurement Management

May 11, 2015
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To run a successful software project, the team needs desktops, servers, management software, stationery, other services etc. These need to be acquired for the project. Procurement management is the project process that includes the processes necessary to get things and services needed for the project to run smoothly and achieve its objectives. Procurement management includes -

  1. The first step is to request for proposals for the product/service that one wants to procure if it involves external vendors. Details of the requirements are mentioned and relevant information from vendors is asked for. If vendors are internal, there would be existing procedures to avail services or procure materials and process would be simpler.
  2. The vendors send in proposals and the project manager reviews them. In some cases the senior management is involved. Finance, Quality, Risk and Purchase Team representatives also review the proposals.
  3. All teams take a joint decision to select one vendor and the vendor is informed of the next steps accordingly. The selection depends on various factors. If it is a service contract, factors like price, technical implementation plan and skill level of the vendor team are evaluated. If hardware has to be acquired, price, quality and warranty are some of the evaluation parameters.
  4. The contract is drawn with the terms and conditions of purchase or products or service utilization. It includes pricing, delivery terms, clauses for incentives and penalties etc.
  5. During the course of the project, the project manager has to perform several roles. He has to monitor if the terms of the contract are being followed. The project manager has to manage and review if the procurement process is being done properly and if the work being done is as agreed upon in the contract. He has to have change control process in place. He has to control risks and manage the project documentation related to procurement appropriately.
  6. After successful delivery, the contract has to be closed as per terms and conditions in the contract. The project manager has to audit the procurement process and performance of vendor. The process could also be closed because of contract failure or breakdown of negotiations before the contract is signed. It could be closed if during the procurement process, either party finds discrepancies compared to the contract.

What decisions need to be taken in procurement management?

In this process, there are many decisions to be taken. The project management must evaluate various factors and make the most optimum decisions.

-   A decision as to whether to procure, what and when to procure has to be made.

-   The project stakeholders must decide on the vendor.

-   They need to negotiate and draw up a contract which has the terms and conditions.

-    An important decision to be taken is the “Lease or Buy” decision. One can either buy products/hardware or lease the requirements.

When to Lease -

If budget is limited and hardware needs to be upgraded frequently for a long running project, it is better to lease equipment. Maintenance issues will also be taken care of by the vendor.

But leasing can be expensive in the long run and the project will never own the equipment.

When to Buy -

If the project is long-running or the hardware will be used for multiple projects and one is certain that the same equipment will be used for a longer period like 3 years or more, it makes sense to buy provided there is budget. Sometimes purchasing can give tax incentives also.

Purchasing equipment has some drawbacks like higher investment, risk of equipment becoming obsolete and time, money and resources required for maintenance. Today, there is cloud computing also wherein one can use server space, computing power, hardware and software services provided by other companies.

-   The other decision to be taken is whether to build or buy. If you need to track time spent by resources on the project, you can build your effort and time tracking tool else buy a product off the shelf. The decision depends on time and resources available to the project manager and the requirements. For many standard project management tasks, there are good products available, which can be used and even tweaked to suit your requirements. Sometimes organization dictates use of certain products and the project manager has to use them.

What are the different types of contract?

There are different types of contracts and depending on requirements, one must select the contract that fits best -

Type of Contract

What does it mean

Fixed Price

The buyer has to pay a fixed price for the products/services. The vendor is at higher risk of overruns

Cost + Fixed Fee

The buyer pays a fixed price plus a certain percentage of the cost of pre-determined amount. This is not used too much now. The buyer is at higher risk.

Cost + Incentives

There is a cost price in place. Incentives are set up depending on delivery terms. For example, the vendor can earn more if services are delivered early. It can also include disincentives in case delivery terms are not met like quality issues. These delivery terms should be clearly mentioned in the contract.

Unit Cost

In this contract, price is calculated on per unit cost or per hour utilized.

Time and Materials

The vendor estimates the time and resources required to supply the product/service and prices it accordingly.

Some tips for Effective procurement management to a project manager

  1. There should be a procurement plan in place before going out to purchase materials/services.
  2. Price is important but it is important to get optimum value from the contract.
  3. The contract should be such that it is mutually beneficial to both parties. This will help in a mutually beneficial business deal.
  4. The contract should be managed effectively so that risks are mitigated.It is important to have clarity regarding the contract details and all parties have the same understanding of the contract. This is important for smooth working of the project,renegotiating contracts etc.

Procurement management is an important part of project management and the success of the project depends on the products/services that need to be procured. So it is important to properly identify and acquire the services/goods necessary to execute the project smoothly.


About the Author

Vidya Kumar is a management graduate with 14 years of experience in the IT industry managing complex Software Projects across various industry verticals. She has around 6 years experience in content development. She has co-authored two eBooks and writes regularly on personal finance, IT, travel and other business topics.


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