Plan and manage procurement

Concepts

Project management is a comprehensive and multidisciplinary field, where procurement planning and management become crucial parts. Within the framework of the Project Management Professional (PMP) exam, understanding this process thoroughly is essentially required. This article delves into the fundamental knowledge regarding planning and managing procurement, highlighting key concepts, tips, and strategies.

Understanding Procurement in Project Management

Procurement in project management refers to the process of purchasing or acquiring the goods and services needed to successfully carry out a project. These could range from physical resources such as materials and equipment to external services.

The Importance of Procurement Planning

Procurement planning is a crucial part of any project management setup. It helps the team identify what needs to be procured, from whom, and within what budget, timeline, and criteria. The process provides a structure towards better decision-making and control, essential for a project’s success.

Procurement Planning Pros	Procurement Planning Cons
Improved budget forecasts	Requires time and resources
Prevents delays	Could need specialized personnel
Ensures resource availability	Dependent on market fluctuations

The Procurement Management Process

The process of procurement management, as laid out by the Project Management Body of Knowledge (PMBOK) consists of four steps:

Plan Procurement Management: Define procurement strategy, identify potential vendors, create procurement documents.
Conduct Procurements: Select vendors, award contracts and ensure all parties agree with the terms.
Control Procurements: Monitor vendor performance, manage and modify contract as necessary.
Close Procurements: Finalize all project procurement related matters, close contracts, and archive procurement documents for future reference.

Procurement Management Strategies

In-depth knowledge of the types of procurement contracts and the ability to choose the right one is a must-have skill for any potential PMP. Here are three types of contracts:

Fixed Price (FP): The seller bears most of the cost risk. The price doesn’t change unless the scope of work alters.
Cost-Reimbursable (CR): The buyer bears most of the cost risk. Any cost overruns need to be borne by the buyer, unless a cost ceiling is specified.
Time and Material (T&M): There’s an equal cost risk between the buyer and the seller. This is ideal for projects where the scope, size, and duration aren’t well-defined.

How you manage procurement depends largely on the risks involved, the complexity of the procurement, and the relationship with the supplier.

Tips on Answering Procurement Management Questions in the PMP Exam

Read Carefully: Pay attention to the question, and understand whether it is about planning, conducting, controlling or closing procurement.
Understand the Context: Questions may be based on real-world scenarios rather than theoretical knowledge. Use your experience and judgment.
Be Clear on Contract Types: Ensure clarity on the implications, suitability, and risks associated with each contract type.
Ethics Matter: PMP puts a heavy emphasis on procurement ethics. Stay clear of conflicts of interest or unfair practices.

In the spirit of the PMP exam’s emphasis on practical understanding and real-world scenarios, always remember effective procurement management is the result of thorough planning, informed decision making, and meticulous record-keeping – translating into successful project outcomes. Make sure you prepare well for this part of the exam, and you will reap the benefits in both your exam scores and your future project management career.

Answer the Questions in Comment Section

True or False: The process of Plan Procurement Management involves documenting project procurement decisions.

Answer: True

Explanation: This process requires documenting decisions related to procurement, identifying potential sellers, conducting procurements, and managing procurements.

Which of the following is NOT a principle of plan and manage procurement process?

a) Evaluate potential suppliers
b) Draft and sign procurement contracts
c) Ethical conduct in procurement activities
d) Neglect supplier performance management

Answer: d) Neglect supplier performance management

Explanation: Supplier performance management is crucial in procurement management. It does not involve neglecting but actively monitoring and controlling supplier’s performance.

True or False: According to the Project Management Institute (PMI), the procurement management plan is a part of the project management plan.

Answer: True

Explanation: The PMI states that the procurement management plan is a subset of the project management plan and must be integrated with all other aspects of the project management plan.

In procurement management, Request for Proposal (RFP), Request for Quote (RFQ), and Invitation for Bid (IFB) are examples of:

a) Procurement documents
b) Procurement contracts
c) Procurement strategies
d) Procurement policies

Answer: a) Procurement documents

Explanation: These are different types of procurement documents used during the procurement process to solicit bids and proposals from potential sellers.

Who is responsible for defining the procurement objectives and strategies in a project?

a) Project manager
b) Procurement manager
c) Project team
d) External suppliers

Answer: a) Project manager

Explanation: The project manager has the responsibility to define the procurement objectives and strategies, though contributions from the team and stakeholders are often sought.

True or False: A signed agreement in procurement management does not need to be formally closed.

Answer: False

Explanation: All agreements in procurement management, once they have fulfilled their function, need to be formally closed.

Multiple select: What should a procurement management plan include?

a) Types of contracts to be used
b) Risk management issues
c) Selection criteria for vendors
d) Communication disregards

Answers: a) Types of contracts to be used, b) Risk management issues, c) Selection criteria for vendors

Explanation: A procurement management plan should include these key elements, but should not disregard communication.

True or False: One of the benefits of proper plan and manage procurement process is improved risk management.

Answer: True

Explanation: Planning and managing procurement properly can help anticipate risks and set procedures in place to handle them, thereby improving overall project risk management.

During the procurement process, a “bid” refers to:

a) The process of requesting quotes from suppliers
b) The request for suppliers to provide goods or services
c) The document detailing the terms of a contract
d) The price a supplier proposes for providing a service or product

Answer: d) The price a supplier proposes for providing a service or product

Explanation: In the procurement process, a bid most commonly refers to the price a supplier proposes to provide the requested goods or services.

The focus of the Plan Procurement Management process is to:

a) Create relationships with vendors
b) Evaluate project risks
c) Determine whether to outsource a part of the project
d) Develop the project budget

Answer: c) Determine whether to outsource a part of the project

Explanation: While all are important aspects of project management, the primary aim of procurement planning is to determine which parts of the project should be outsourced.

True or False: The procurement process ends once a contract is signed.

Answer: False

Explanation: The procurement process continues even after a contract is signed, including the crucial step of managing the supplier’s performance and formally closing the agreement.

Fixed-price contracts reduce risks for:

a) Vendors
b) Buyers
c) Both buyers and vendors
d) Neither buyers nor vendors

Answer: b) Buyers

Explanation: Fixed-price contracts reduce risks for the buyer as the price for goods and/or services remains constant regardless of the actual cost incurred by the seller.