Explain project procurement management and outsourcing?

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Explain project procurement management?

Describe project procurement processes?

1 Answer
  • Project requires resources, products, or services that must be purchased or acquired externally. According to PMBOK project procurement management includes :
  • The processes necessary to purchase or acquire products, services, or results needed from outside project team. The project team can be both a buyer and a seller of services. A buyer could be client or customer, while seller could be a consultant, vendor or subcontractor. Project management also includes contract management and change control processes needed to create contracts to support project team.

  • Project Procurement Management Processes

    The PMBOK outlines four processes to support project procurement management. It is good to seek advice of specialists such as lawyers, accountants, or agents to avoid problems and conflicts.

  • Plan Procurements This process begins by determining which project needs can be fulfilled internally by project team & which can be best met externally and also how, when, where, how many products and services will be acquired. This plan will be based on analysis of the requirements for the project, consulting documents such as the scope baseline, the project schedule, the risk register etc. which will provide the information needed. The project manager and team may consider what products or services are available, the associated cost, quality, terms and conditions and develop a formal or informal project procurement plan for managing scope changes, schedule, budget, quality and communication must be in place and understood by all stakeholders. Plan procurement focuses on developing a request for proposal document (RFP) that will be used to solicit bids, proposals from prospective sellers.
  • Conduct Procurements The second major process is to conduct procurements. The idea is to obtain a reasonable number of high qualities, competitive proposals. In this process the vendors are selected and the procurement contracts are awarded. Resource calendars that will detail when resources will be used are created and the project management plan will be updated based on the availability of the resources. This may include advertisement in newspapers, trade journals, or web to let other parties know that the requests are being sought. Various tools and techniques are used for conducting procurements. Conferences may be held with bidders to brief them on the project requirements and answer questions. Proposals will be carefully evaluated, advertising may be undertaken to solicit bidders, internet searches for vendors may be used and negotiations may take place.
  • Administer procurements The third major process is Administer Procurements. Once the contract is signed, these are the processes that are used to administer the relationship with the vendors as the project proceeds. It results in the creation of procurement documents and may result in changes to the project. A system of contract change control will be used to carefully analyse and determine whether changes to contracts are needed. Reviews will be undertaken of procurement performance, inspections and audits may be used, performance reports will be produced and systems used to ensure payment to contractors when appropriate.

     This process includes:
    • Authorizing & coordinating the contracted work & change control
    • Risk identification, assessment & control
    • Monitoring contractor’s performance with respect to scope, schedule, budget, & quality
    • Monitoring all payments as stipulated in the contract
    • Evaluating seller’s performance in terms of fulfilling contract obligations & response when problems arise and require corrective action
    • Deciding if the contract should be terminated for convenience or when seller is in default
  • Close procurements The final major process is to Close Procurements which verifies that all work outlined in the contract if fulfilled. These are the processes that are needed to end procurement contracts, either after their successful completion or earlier if that is appropriate. Audits might be undertaken on project work and negotiations may be necessary to resolve contract disputes. Usually a record management system will be needed for contract documentation. Early termination of project may occur when one party is unable to fulfil their rights and responsibilities. Based on terms and conditions in contract the other party may have the right to terminate the contract or seek punitive damages.

  • Outsourcing

    It can be defined as the procurements of products or services from external vendor, supplier, or manufacturer. Outsourcing is a strategic approach that makes project procurement management a more tactical approach. Outsourcing can offer greater budget flexibility and control. Outsourcing lets organizations pay for only the services they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses. Example, an individual home owner, for instance, who needs his house painted. He could go out and buy paint brushes, rollers, scaffolding, ladders and insurance and then, take the risk that he can do a good enough job -- and not fall off the scaffolding! He'll also be stuck with the expense of purchasing all that equipment for a task that he only needs to do once every few years. Or, he could just hire a painting contractor. The decision to outsource works in the same way.

    Types of outsourcing relationships

    1) Full In sourcing:- In this approach all products and services would be retained internally. The project team is responsible for all the project’s processes and scope.

    2) Selective In sourcing:- This approach provides greater flexibility to choose which project process deliverables should be outsourced and which should be kept internal. Although low cost is one advantage for outsourcing and off shoring, the objective should be to increase flexibility & quality.

    3) Full Outsourcing:- This approach is followed if organization or project acquires all products or services from external sources.

    Managing Outsourcing Relationships:

    1) Outsourcing activities that should not be outsourced

    2) Selecting the wrong vendor

    3) Writing a poor contract

    4) Overlooking personal issues

    5) Losing control over outsourced activity

    6) Overlooking the hidden costs of outsourcing

    7) Failing to plan and exit strategy

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