4.2 Plan Procurement

When planning procurement, there is numerous consideration that involves the following primary objectives:

• Procure all goods/services from a single source.
• Procure all goods/services from multiple sources.
• Procure only a small portion of the goods/services.
• Procure none of the goods/services.

Also, it is important to consider the internal and external environments in which procurement must take place.

Procurement Management Plan

It is important to start with the plan for the whole project. Before doing anything else, consider all work that needs to be contracted out for the project. Ensure the project’s needs are closely examined to confirm if contracting is even necessary.

A procurement management plan is used in projects with high complexity as it details how the procurement process will be managed. It includes the following information:

• Roles and responsibilities of the project team and procurement professionals
• Vendor selection criteria and the selection process
• The identification of prequalified sellers (if known)
• The types of contracts to use and any metrics that will be used to measure the vendors’ performance
• The requirements and specifications of the necessary products, services, and equipment
• The planned delivery dates for the work or products being contracted
• The company’s standard documents to be used on the project
• The number of vendors involved and how they will be managed
• How purchasing may impact the constraints and assumptions of the project management plan
• The coordination of purchasing lead times with the development of the project schedule
• Closing contracts

Depending on the project’s complexity level, procurement management plans can take hours or weeks to complete. The activities involved in procurement management are included in the project’s schedule and budget. The time involved in the procurement cycle can influence the scheduling of critical activities, including the decision to self-perform the work or contract the work to others. The delivery dates for equipment and materials and the work completion dates for contracted works are placed on the project schedule.

Any procurement activities that create a project delay or fall on the project critical path may require special attention. Procurement planning must address the risks on the contract as well as the risks with procurement. Some companies have project management manuals with sections that specifically address procurement risks using templates.

Like all other management plans, the procurement management plan becomes a subsidiary of the project management plan.

Let us explore some key activities, tools, and techniques used in the procurement management process. Feasible procurement alternatives include:

• Make-or-Buy analysis
• Lease-or-Buy analysis
• Buy-or-Rent analysis
• Lease-or-Rent analysis

Example 1: Lease-or-Buy analysis

Lease-or-Buy analysis is a technique used to determine if needed equipment should be purchased or leased on a project. This can apply to all kinds of equipment, including information technology.

Some of the key questions answered include:

1. How long does the organization need to use the equipment for the project?
2. What will the organization do with the equipment after the project is complete?
3. How will this decision affect the scope of the project?
4. How will it affect the project schedule?
5. How will it affect the stakeholders’ expectations of quality?

A simple example will help illustrate how this analysis is performed. Let us assume a project team needs a 3-D printer. The printer would cost about $15,000 to purchase and require about $200 per month to maintain. Alternatively, the project could lease the printer for $600 a month. The monthly lease rate includes all associated expenses like maintenance.

The first step is to determine when the cost to buy becomes equal to the cost to lease. This can be expressed mathematically as follows:

Cost to lease = Cost to purchase

Assume M is the number of months.

$600 x M = $15,000 + ($200 x M)

($600 – $200) x M = $15,000

$400 x M = $15,000

M = $15,000 ÷ $400 = 37.5

If the project is considerably longer than 37.5 months, it makes sense to buy the equipment. The organization could choose to reassign the printer to future projects or sell it using a very low-cost online alternative. Conversely, if the project is considerably less than 37.5 months, it makes more sense to lease the equipment. If the project’s duration is very close to 37.5 months, this becomes a judgement call, and the project leader may wish to consult with others in the organization to determine if there is a need for this type of equipment in other areas.

Example 2: Make-or-Buy analysis (Using Expected Monetary Value)

Another technique used is to consider the Expected Monetary Value (EMV); some of the questions to consider may include:

• How much does it cost to build it as opposed to buying it?
• How will this decision affect the scope of your project?
• How will it affect the project schedule?
• Do you have time to do the work and still meet your commitments?
• EVM – Expected Monetary Value (EMV) = Probability * Impact

Assuming you have two scenarios 1 and 2, and you have been provided with data for probabilities of receiving and losing a certain amount of money. You can use the EMV to determine the best option see below. The best option will be the scenario with the largest EMV.