Intro to Project Management: Project Procurement Management Procurement Management Processes Plan Conduct Control Close

What This Is

Procurement Management is a critical process in project management that involves planning, conducting, controlling, and closing contracts with external parties to acquire goods, services, or works necessary for project completion. Effective procurement management ensures that the project gets the necessary resources on time, within budget, and to the required quality standards. For example, when building a new hospital, the project manager must procure construction materials, labor, and equipment from various suppliers, ensuring that the project is completed on schedule and within budget.

Key Terms & Formulas

• Procurement Management Plan: A document that outlines how the project will acquire the necessary goods, services, or works.
• Request for Proposal (RFP): A document that outlines the project requirements and invites suppliers to submit proposals.
• Request for Quotation (RFQ): A document that requests suppliers to provide a price quote for a specific good or service.
• Contract: A legally binding agreement between the project and the supplier.
• Contract Type: The type of contract used, such as fixed-price, cost-reimbursable, or time-and-materials.
• Contract Value: The total value of the contract.
• Payment Terms: The schedule and method of payment for the contract.
• Procurement Documents: The documents used to solicit and award contracts, such as RFPs and RFQs.
• Supplier Selection Criteria: The criteria used to evaluate and select suppliers, such as price, quality, and delivery time.
• Earned Value (EV) = % complete × BAC (Earned Value = percent complete times Budget at Completion)
• Cost Performance Index (CPI) = EV ÷ AC (Cost Performance Index = Earned Value divided by Actual Cost)
• Schedule Performance Index (SPI) = EV ÷ BCWS (Schedule Performance Index = Earned Value divided by Budgeted Cost of Work Scheduled)

Step-by-Step / Process Flow

1. Plan Procurement: Develop a procurement management plan, identify the procurement documents, and select the suppliers.
2. Conduct Procurement: Solicit and evaluate proposals, negotiate contracts, and award contracts to the selected suppliers.
3. Administer Procurement: Manage the contracts, track progress, and make payments to the suppliers.
4. Control Procurement: Monitor the contracts, identify and report any issues, and take corrective action as needed.
5. Close Procurement: Finalize the contracts, settle any outstanding issues, and document the lessons learned.

Common Mistakes

• Mistake: Not developing a procurement management plan.
• Correction: Develop a procurement management plan to ensure that the project has a clear strategy for acquiring the necessary goods, services, or works.
• Mistake: Not evaluating suppliers properly.
• Correction: Evaluate suppliers based on the supplier selection criteria to ensure that the project gets the best value for money.
• Mistake: Not monitoring contracts closely.
• Correction: Monitor contracts regularly to identify and report any issues, and take corrective action as needed.

Exam Tips

• Tip: Be able to distinguish between different types of contracts, such as fixed-price, cost-reimbursable, and time-and-materials.
• Tip: Understand the importance of developing a procurement management plan and the supplier selection criteria.
• Tip: Be able to calculate the Earned Value, Cost Performance Index, and Schedule Performance Index.

Quick Practice Questions

1. If the CPI is 0.8, is the project under or over budget? Answer: Under budget. Explanation: A CPI of 0.8 means that the project is earning 80% of the budgeted value, indicating that it is under budget.
2. What is the purpose of a Request for Proposal (RFP)? Answer: To solicit proposals from suppliers to acquire goods, services, or works. Explanation: An RFP is used to invite suppliers to submit proposals that meet the project requirements.
3. What is the difference between a fixed-price contract and a cost-reimbursable contract? Answer: A fixed-price contract has a fixed price for the goods or services, while a cost-reimbursable contract reimburses the supplier for the actual costs incurred. Explanation: A fixed-price contract provides a clear price for the goods or services, while a cost-reimbursable contract provides a reimbursement for the actual costs incurred.

Last-Minute Cram Sheet

• Procurement Management Plan: A document that outlines how the project will acquire the necessary goods, services, or works.
• Request for Proposal (RFP): A document that solicits proposals from suppliers to acquire goods, services, or works.
• Contract: A legally binding agreement between the project and the supplier.
• Contract Type: The type of contract used, such as fixed-price, cost-reimbursable, or time-and-materials.
• Contract Value: The total value of the contract.
• Payment Terms: The schedule and method of payment for the contract.
• Procurement Documents: The documents used to solicit and award contracts, such as RFPs and RFQs.
• Supplier Selection Criteria: The criteria used to evaluate and select suppliers, such as price, quality, and delivery time.
• Earned Value (EV) = % complete × BAC (Earned Value = percent complete times Budget at Completion)
• Cost Performance Index (CPI) = EV ÷ AC (Cost Performance Index = Earned Value divided by Actual Cost)
• Schedule Performance Index (SPI) = EV ÷ BCWS (Schedule Performance Index = Earned Value divided by Budgeted Cost of Work Scheduled)
• ⚠️ A fixed-price contract is not the same as a lump-sum contract.
• ⚠️ A cost-reimbursable contract is not the same as a reimbursable contract.
• ⚠️ A procurement management plan is not the same as a contract.
• ⚠️ A contract is not the same as a purchase order.