CHAPTER 16
Project Procurement Management in Practice
Procurement practice is one of those things that organizations and teams acknowledge is important up to a point—the point of actually performing the practice. The management rationale for not implementing the procurement practice is that it (1) costs too much or (2) takes too long. In fact, the standard practices for procurements are reasonably scalable. Many failed outcomes have root cause in avoiding key elements in the process. The risk of not performing the process is seldom assessed. Alternately, many organizations owe their successful outcomes to project procurement management best practice. Nonprofits are not immune from procurement difficulties and could benefit from the process.
PROCUREMENT PROCESS AND PROJECTS
Procurements should be a “project” and managed as such, even for small efforts. Successful procurements adhere to standard processes and implement a project management approach. A variety of process standards and guides are available to organizations, including the Institute of Electrical and Electronics Engineering (IEEE) standard 1062 from the software standards collection,1 as well as from the Software Engineering Institute (SEI)2 and other sources.3,4 Those sources’ processes are very similar to that found in the Project Management Institute’s Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition.5 Although the first two references describe software procurement standards, those process descriptions are essentially tailored for a general procurement. Each process step evolved to solve many problems and issues with procurements in meeting the desired business objectives. Standard procurement processes were developed to do the following:
• Overcome or reduce instances of contract fraud abuses.
• Reduce risk.
• Describe the needed goods and services.
• Monitor and control costs and performance.
• Determine criteria for selection and acceptance.
Keeping these objectives in mind, the procurement chapter in the PMBOK® Guide, Fifth Edition, describes four basic streamlined processes to obtain inputs to a project:
1. Plan procurement management
2. Conduct procurements
3. Control procurements
4. Close procurements
The guide reflects an efficient supply chain by adapting technological advancements with little bureaucracy. It recognizes economies gained by partnering arrangements, including items on “teaming agreements” in planning and conducting procurement. For small operation levels, tasks may have simple agreements, invoices, or requisition forms.
Procurement efforts satisfy the definition of “project” with specific required outcomes, varying complexity, and time frames. A procurement effort could be embedded in a larger project effort. Such efforts should have a project manager role to ensure the processes are completed and the team functions toward the desired objectives. This should be the case regardless of scaling for the following scope efforts: short duration for simple tasks, mobile environments, commodity purchases, long-term significant outsourcing, and new product development. Oversight for multiple efforts may be assigned a specific manager or agent.
Figure 16-1 shows typical timelines for a moderate scoped procurement effort where the time scale represents periods after initiating the effort from the strategic planning. After the make-or-buy decision point, other strategic milestone reviews may indicate “go” or “no go,” based on the information obtained during the various project phases or processes.
FIGURE 16-1. PROCUREMENT PROJECT MANAGEMENT ACTIVITIES AND DURATION
In scheduling a procurement effort, the project actually starts with initiation and planning to cover the preparation of solicitation documents, qualifying sellers (if necessary), and performing the selection. The execution of the project includes the monitoring and control of the seller while the seller executes the project. Procurement could involve co-developments with others and with the buyer organization. Acceptance of deliverables may occur at varying points depending on the contract agreements. The project completion includes the closure of the effort as well as the contract. The project effort depends on a variety of knowledge worker experiences, as discussed in the next section.
ROLES/RESPONSIBILITIES
Typically, no one person has the entire set of skills for completing the entire set of tasks in the areas of legal requirements, technical skills, business, purchasing, and project management. Therefore, forming a team with members from various disciplines is beneficial in providing checks and balances in the procurement tasks. Another justification for the procurement process becoming a project lies in this variety of teaming relationships, the set of stakeholders, and the unique business needs situations. Coordination of the procurement should come from an assigned project manager who understands the business and technical needs.
Table 16-1, the responsibility assignment matrix (RAM), shows the complexity of activities and roles in a typical medium-sized organization. Note that in the RAM, the following situations may occur for the project:
• One person may hold more than one role.
• Some roles may be outsourced.
• Role tasks may be delegated.
• Other stakeholders will be involved as procurement situations and issues arise during the executing or monitoring and control phases.
The project RAM should be updated as changes occur during project phase transitions. Some phases require more experienced knowledge workers who are tasked to integrate and deploy the procured items.
Contention in roles and responsibilities will be reduced when organizational processes and procedures address how the team is formed, the functional requirements for the roles, the processes to be performed, and approvals of the top-level project plans. The plan should be derived from organization standard practices addressing the following:
• Obtaining inputs for planning for solicitations
• Managing the acceptable sellers
• Qualifying new, potential sellers
• Defining the selection process
• Deriving the criteria based on type of purchase
• Controlling scope changes
• Reporting for oversight, defined for the project, approvals, and processes
*Notes:
• Typically the buyer role is from the procurement or purchasing organization.
• Outsourcing roles adds risk to be managed in addition to procurement risks.
• Other oversight may be needed to assure accountability of all participants to guard against fraud or mismanagement.
TABLE 16-1. RESPONSIBILITY ASSIGNMENT MATRIX (RAM)
SELECTION OF THE PROCUREMENT PROJECT MANAGEMENT TEAM
As you initiate the project, thought must be given to the makeup and training of the team members. The following factors should be considered in the selection:
• Members who interface with the seller should be “peers” who can gain the seller’s confidence and establish a working relationship.
• Task leads need project management and negotiating skills.
• Responsibility and methods for accepting the product or services need to be clearly defined in, for example, a joint RAM for the seller and the buying organization.
• The size of the team depends on the business and technology factors, as well as on the complexity and risk entailed in the procurement process.
• Stakeholders involvement needs to be identified in the project planning.
Other stakeholders’ considerations may be needed for the procurement project. They may include the project management office, line management, managers who are dependent on the procurement outcome, the quality-control organization, business units, other services, manufacturing, and clients/customers. The next section provides some experiences, lessons learned, and best practices from a variety of procurements.
SOME NEW CONSIDERATIONS IN PROCUREMENT
The fifth edition of the PMBOK® Guide updates the procurement practices to cover issues commonly faced in today’s marketplace. For example, the tools and techniques section of the chapter stresses the importance of market research, including examination of specific vendor capabilities. At the same time, procurement managers are cautioned not to rely on market research alone, but to collaborate with potential bidders and strive to develop a mutually beneficial approach or product. This is in keeping with the current practice of including vendors as stakeholders in the project success.
In addition, the chapter discusses the Procurement Statement of Work document, which provides suppliers with a clearly stated set of goals, requirements, and outcomes from which they can provide a quantifiable response. The statements of work may include, but are not limited to, the following:
• Specifications
• Quantity desired
• Quality levels
• Performance data
• Period of performance
• Work location
Also new in the fifth edition of the standard is that procurement managers are urged to use care in defining each need in such a way that vendors can bring value through their offerings, and to examine past performance information from former projects and contracts to identify areas of risk (for example, a vendor that has previously created issues for a product due to failure to meet a deadline or a specification). “To ensure that the need can be and is met, analytical techniques can help organizations identify the readiness of a vendor to provide the desired end state, determine the cost expected to support budgeting, and avoid cost overruns due to changes.”6
Similarly, project managers are advised to track work performance to better identify current or potential problems to support later claims or new procurements. “By reporting on the performance of a vendor, the organization increases knowledge of the performance of the procurement, which supports improved forecasting, risk management, and decision making. Performance reports also assist in the event there is a dispute with the vendor.”7 While such tracking includes traditional areas of concern, such as reporting compliance of contracts, it also advises the use of procurement agreements—sometimes termed a memorandum of understanding, a subcontract, or a purchase order—that include terms and conditions and may incorporate other items that the buyer specifies regarding what the seller is to perform or provide.
CONTRACTS AND OTHER DOCUMENTATION
Updated information in the new standard stresses the importance of creating and archiving procurement documentation, which may include the procurement contract with all supporting schedules, requested unapproved contract changes, and approved change requests. Procurement documentation also includes any seller-developed technical documentation and other work performance information, such as deliverables, seller performance reports and warranties, financial documents including invoices and payment records, and the results of contract-related inspections.
In addition to the discussion of different types of contracts traditionally found in the standard, the fifth edition spells out the major components, which will vary, but may include the following:
• Statement of work or deliverables
• Schedule baseline
• Performance reporting
• Period of performance
• Roles and responsibilities
• Seller’s place of performance
• Pricing
• Payment terms
• Place of delivery
• Inspection and acceptance criteria
• Warranty
• Product support
• Limitation of liability
• Fees and retainer
• Penalties
• Incentives
• Insurance and performance bonds
• Subordinate subcontractor approvals
• Change request handling
• Termination clause and alternative dispute resolution (ADR) mechanisms (the ADR method can be decided in advance as a part of the procurement award)8
PROCUREMENT LESSONS LEARNED AND BEST PRACTICES
Drawing from experience in a variety of procurement projects, including those of long duration, and expensive efforts as well as relatively simple commodity purchases for both defense and commercial projects, Table 16-2 organizes lessons learned and best practices by knowledge area or project management phase. These suggestions, based on experience in the field, do not repeat but amplify recommendations or practices described in the PMBOK® Guide. They emphasize the need to follow or adapt procurement processes and not to neglect the steps for seeming short term gain.
TABLE 16-2. LESSONS LEARNED AND BEST PRACTICES, ORGANIZED BY PROJECT MANAGEMENT KNOWLEDGE AREA OR PHASE
Some table items were adopted from significant support software procurement for a defense project.9 The software project procurement practices are no different from procurement process in general. Because of the invisible nature of both software development and other services, these efforts often incur more risk without the planning, coordination, and oversight.
INCREASING OPPORTUNITIES FOR SUCCESS
Procurements of all types involve risks.10,11 Some techniques have been shown to improve the opportunity for project success. Starting with an attitude for “getting it right the first time,” here are some suggestions:
Hold early “bidders” conferences to obtain feedback on the statement of work and specifications. These can be held by teleconference or mobile communications techniques. It is essential that all potential sellers hear the same message. Seller comments need to be managed for nondisclosure of competition sensitive information. From the feedback, hold a follow-up conference to show the updated documents. This also helps the sellers to determine their response strategy.
Obtain bidders list from social media connections and check bidder’s social media presence, which should be used to form interview questions for capability and experience.12
Obtain a “should cost” during the make-or-buy decision period to gauge the seller responses more accurately. Underbids by significant amounts require reasonable justifications for how the effort can be managed at that low cost without defaulting.
Do not rush through the procurement process steps only to find that the best opportunities were missed or the specifications are incomplete or inaccurate.
If changes are made to the solicitation documents, the process and procedures should require an update, and new bids should be obtained.
Competitive bidding is considered a risk reduction method that avoids locked-in solutions or favoritism. If the procurement process is performed well, then the procurement effort should yield the best outcome for the buyer.
Determine how to impose on the seller reasonable quality standards for the end product or service. The end result cannot be better than the weakest quality component.
Form integrated product development teams as part of the project team and stakeholders.
Ensure that the team is adequately trained on procurement processes. Provide refresher training for those with immediate need.
Update organization practices with lessons learned and best practices.
Define the responsibility and accountability for the team. Retain visibility into the project procurement practices and results. Audit the project for adherence to the practice and the project work statement and specifications.
Reduce risks by using the two-person (or more) rule to ensure oversight and ensure that evaluations are fair.
Require justifications for sole-source purchases to avoid buying in haste and repenting later. Cost/benefit analysis should be part of each decision process step.
Exercise strict change control on both sides of the buyer/seller relationship.
Define and know what acceptance means and the associated payment terms.
Thoroughly understanding the procurement process and practicing project management tenets aid efficiencies for the organization in getting products and services to market. Next, let’s examine some considerations in applying lessons learned to several different sizes, or classes, of procurements.
SCENARIOS BASED ON “SCALE” OR “CLASS” OF PROCUREMENT
Five scenarios show the tailoring of the process and summarize procurement considerations based on scale, scope, size, or class of procurement. The “class” is a category of procurements that address embedded, secure, highly reliable, or special requirements. Organizations may define processes and procedures according to the scale. Guidance is given to increase the probability of successful outcomes, avoid defaults, and reduce sunk costs.
Scenario 1: Existing Items from Catalogs or Commercial-Off-the-Shelf (COTS)
In buying existing items, some requirement specifications or criteria need to be defined for their selection. Often much time and money is wasted when the purchased item becomes “shelfware” because the desired capability was never defined. The definition needs to be more than just that someone saw a demonstration or that the competition uses it. The goal is to satisfy a business need.
The purchased items should be evaluated against the requirements. When deficiencies are found, an estimate is needed to determine the total cost to integrate the items into the end product. Often a slightly more expensive item would save integration and troubleshooting efforts. Therefore, conduct product evaluations to find the minimum cost impact for including the item in the final product.
Experience or training is also needed to assess purchased items’ quality. Volume purchase requires higher levels of specification for reducing rework or recalls. The selection of an existing item is dependent on the degree of risk the organization wants to assume. The result may end up with throwaway items and unnecessary costs for efforts. Key to the approach is investing in upfront feasibility or prototyping.
Scenario 2: Simple Contracting for Services or Support
Simple contractor or service efforts can be as disappointing and difficult as the large efforts. Obtaining mobile applications capabilities fit in this scenario. It is also important to have in writing what is expected, how completion is determined, and when the milestones will be finished. Payment should be in agreement with milestones met with mutual satisfaction. Warranties may be granted. Planned services should be structured as much as possible for direction of the effort and for follow-up of outstanding issues.
Scenario 3: Minimum Modifications to Existing Seller Items
An existing item may not completely meet the business needs unless it is modified. Ensure that you have the right to perform changes and to include the upgrade in your products or services. The procurement strategy may be to hire a seller to update an existing product to meet the specification. The solicitation documents need to clearly describe the responsibilities of the buyer and seller for the integrated solution and its support. If both organizations work on the item, then the responsibility is not clear, nor can it easily be determined how to maintain the item. Defined separation of responsibility and efforts is a good management approach. It is also important to focus domain knowledge on areas of expertise. The seller may be an expert in its technology but not in the business application where its products will be deployed. The buyer can provide the needed interface for the domain.
Strict management of product development interfaces aids in isolating difficulties and solutions. Decomposition allows better estimating of costs and integration efforts. Managing to clearly defined interfaces simplifies the tasks. It is difficult to have total knowledge of complex systems. By partitioning the effort along defined decomposition and interfaces, the buyer/seller teams need to know only their functionality and the interface requirements.
Scenario 4: Major New Development
This scenario considers allocating the entire component to the seller for development, as the buyer is procuring totally new technology or unique solutions. The size of the effort may be small, but it may be critical for some autonomous or embedded systems. The buying organization may be dealing with what Moore called “crossing the chasm”10 to plan and manage the delivered items from feasibility or research developments through integration to a stable environment. Specification practices may need to go through a variety of stages for preliminary to final versions. For risk reduction, a “go/no go” decision can be made based on performance at each stage. At some point, the buyer can even require a proposal for the subsequent stage. If performance is poor or the objective is not met, then the effort can be re-competed.
In this scenario, the procurement goal is typically to transform a unique feature or capability into a stable product. A high degree of new technology or special implementations incurs more risk. The procurement strategy should involve a phased approach to prove various incremental deliveries. In a phased approach, stage the effort of development from minimum required functionality in pre-production to several increased capability solutions. Key parts of the procurement project involve planning, risk management, monitoring and control, integrated change management, quality control acceptance, and communications.
Scenario 5: Offshoring or Outsourcing
Companies are tempted to outsource by sending major development offshore without enough risk analysis or management support planning. Core competencies are lost and difficult to recover.7 Unsuccessful procurements projects are numerous and have immense impact on productivity. What looks like a cost advantage is soon sacrificed because of lack of project management. A “me too” is not enough motivation for sending development out of the country. The rationale for more successful outcomes includes the amount of business the offshore will support in country. It is easy to lose branding and commonality if the entire development is sent offshore. The outsourcing may provide significant applied research advantages to the supplier, to the detriment of the buyer’s core capability. Also, the cost advantage may be fleeting, with the changes in the economy, the environment, and organizations.
Following are some considerations to include in the plan:
• The management approach
• Communications and travel
• Standards, which should be established
• Product acceptance and quality controls
• Additional procurements may be required
• Tracking and metrics established
• Cost reporting and containment
• Customer satisfaction
It would be advisable for all parties to see the project plan and create their own plan with approval. Before the project is initiated, significant organizational portfolio analysis and a core competency review for strategic advantages and disadvantages should be completed. Near-term gains will not sustain long-term losses. Eliminating process steps without safeguards will increase the risk in obtaining successful outcomes.
CONCLUSION
At several checkpoints, the decision can be made to go forward with the procurement to the next phase. The project procurement process steps are as follows:
1. Plan the purchase and acquisition.
2. Plan the contracting.
3. Request seller responses.
4. Select sellers.
5. Perform contract administration.
6. Perform contract closure.
Supporting project processes include the overall project planning, monitoring and control, stakeholder communications, and integrated change management.
The effort should be established as a two-phase project to cover (1) the activities through seller selection and (2) managing the sellers through project and contract closure.
Important aspects of this knowledge area’s processes include the following:
• Documentation, including plans, work statements, specifications, and acceptance criteria
• Project management performed by both the buyer and seller
• Skills training covering procurement processes, negotiations, assessment of capabilities, and performance
• Defined roles and responsibilities throughout the procurement project
“Classes” or “scenarios” of procurement may range from commodities, to COTS, to minor modifications to existing products, to special services, to unique/customized developments. Managing old and new technologies is always a challenge. Different controls and risk management are needed for each class, scenario, and scope.
You are planning to buy new technology for a product or service. Use reference materials and the Internet to determine a beginning supplier list to answer the following:
• What sections do you need in your project plan to facilitate your plan for procurement of goods or services?
• What should go into the make-or-buy analysis?
• What are your seller selection criteria?
• Using cost-benefit analysis, what are the pros and cons of sole source procurement versus competitive selection?
In performing due diligence at the candidate sellers, what are the questions that you would want to ask before entering into a business relationship? What project methods would be used to monitor and control the seller’s effort?
Under what circumstances and for what functions would it be reasonable to outsource or to send offshore?
How might you use social media to automate procurements in the five scenarios outlined in this chapter?
REFERENCES
1 IEEE Standard 1062, Recommended Practice for Software Acquisition (New York: Institute of Electrical and Electronics Engineering).
2 M.B. Chrissis, M. Konrad, and S. Shrum. CMMI Guidelines for process Integration and Product Improvement (Boston: Addison Wesley, 2003).
3 F.A. Mitulski, Managing Your Vendor (Englewood Cliffs, NJ: Prentice-Hall ECS Professional, 1993).
4 Q.W. Fleming, Project Procurement Management (Turstin, CA: FMC Press, 2003).
5 Project Management Institute, A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 5th edition (Newtown Square, PA: PMI, 2013).
6 PMI, 2013, p. 365.
7 PMI, 2013, p. 383.
8 PMI, 2013, p. 378.
9 J.A. Edwards and B.L. Mowday. “How to buy a compiler,” in WADAS: Washington Ada Symposium 1984 (March 1984)–1994 (July 1994) (New York: Association for Computing Machinery).
10 G.A. Moore, Crossing the Chasm (New York: Harper Business; Revised edition, 2002).
11 M.C. Lacity and R. Hirschheim, Outsourcing (New York: John Wiley & Sons, 1993).
12 Lon Safko, The Social Media Bible: Tactics, Tools, and Strategies for Business Success (New York: Wiley Desktop Editions, 2012).