This article incorporates PMI best practices on Procurement. PMBOK 4 defines procurement knowledge area from Buyer point of view, my articles bring forth the Seller point of view for a Project Manager.
Why Project Manager should gain knowledge of procurement Process: Main objective of project manager is to integrate project elements into cohesive whole to attain project objectives; many project managers are less interested in the procurement process. This is misinterpretation that only procurement managers need to be involved in procurement, yes it’s true that procurement managers are accountable for successful procurement but project managers are also responsible for the same. I believe readers understand difference between accountability and responsibility. Project Manager is accountable for the project for which he/she authorized through signed project charter and Procurement manager is accountable for the successful completion of Procurement. In case of decentralized procurement system Procurement Manager owns the procurement processes and project manager is part of procurement team.
1. Why a project manager need to understand the procurement process, following are the important reasons:
a. Project Manager Involvement with procurement manager in conduct procurement process (Pre Sale): Project Manager In service based organizations need to understand how sales enquiries flow in the company and need to understand whole process that is performed in the company before project formal initiation. Project manager involvement started when any sales enquiry come to the company. Buyer provides the procurement documents including PSOW, terms & conditions and contract type.
i. Every project has associated business needs aligned with strategic plan, project manager may need to review and analyze the business need of project (included in PSOW). For example a sales enquiry has come where customer’s objective is to enter new area of business, and customer asked to provide the cost estimates. Project manager is needed to research PSOW along with proposed contract details, and provide the feasibility report of project whether it is possible to achieve business need under the given constraint specially budget constraint. At this time budget and other constraint detail is found in procurement documents provided by buyer.
ii. Many times contract type are fixed fee. I have mentioned in my estimation article that range of estimates at this stage is +_50% but if contract type is fixed then PSOW must be complete and clear and range of estimates cannot be ROM. Services of project manager become critical in fixed fee type of contract. High risks are not acceptable in this situation.
iii. Many times bidder conference conducted prior to proposal development to discuss the details of project with buyer, project manager services may be needed to either ask or answer technical queries. Seller side questions are asked to clarify details of PSOW or sometime buyer ask question to get acquaintance technical expertise and project management approach of seller.
iv. Most of the time buyer decides the type of contract and procurement documents, Seller procurement manager may need assistance of project manager to review these details. RFP is suggested in performance or functional PSOW and cost reimbursable contract type, IFB (Invitation for Bid) is suggested in design PSOW and Fixed price contract type. RFQ is suggested in any PSOW when contract type is T&M. Seller procurement manager may need project manager to review correctness of Procurement documents, for example when contact type is fixed price then seller need to review whether PSOW conveys precisely what work is to be done including details of project management approach like details of meeting, communication and reports.
v. Review of procurement documents (PSOW, contract type & terms & conditions) completed to get a full understanding of what the buyer wants and assess the risk involved in the project.
vi. Now seller procurement manager decides whether to submit a bid or proposal to try to win the work. Seller need to prepare a response to the procurement documents. Proposal is developed with the help of project manager. While preparing proposal document, if technical team lead by the project manager have difficulty understanding the project they get back to the client. The co-ordination with the client is done normally through co-coordinator who is deployed at client side. This can be exception also where the technical team directly coordinates with client. Client can be contacted in the following ways :
· Telephonic conversation
· Email.
· Through Business analyst or coordinator appointed at client side.
· Client himself comes to company to clarify doubts.
vii. During this clarification small technical samples can also be prepared to ensure technical feasibility of the project. Example the project has requirement to send reports to mobile. Now is that possible so for this small code samples can be run and seen. This is called as POC [Proof of
Concept]. If the technical department says it’s not possible then probably again coordinate with the online client coordinator or client himself to clarify things.
viii. Technical department starts prepare estimates which will involve estimating effort using Function Points (FP), Use Case Points (UCP), and WBS or ADHOC methodologies. My recommendation is to use FP and analogous estimation at this stage. For more details please refer my estimation article: http://seema-sonkiya.blogspot.in/2012/03/project-estimation-important-notes.html
ix. After technical department finishes the effort estimate it passes it to procurement manager and other key stakeholders may be included like the board of directors, or senior members of the company for final approval. They review the estimated amount once before sending to the clients.
x. Finally the estimates are sent to the client. If client gives a positive feedback then proposal document is signed off, initial payment given (if in the terms and conditions) and the project is started. If the client is not happy with the quotation pricing amount it moves to negotiation table. So probably client will remove some functionality and ask for a fresh estimate or will stress the company management to minimize the estimated amount.
xi. Care need to be taken to include the estimates for the following:
· Technical and procurement manpower engaged to send the estimates.
· Client co-ordination investment
· Telephonic conversation. In short telephone bills can be high when its international client.
· Business analyst appointed at client side if any.
· Traveling charges to client location especially can be problem if the client is international.
· Preparing POC and prototype screens to understand project better will also need quiet an effort.
xii. A good proposal should at least take the company to a negotiation table. So that company at least does not lose the project.
xiii. In addition project manager is required to tailor the contract for the unique need of the project. Project manager is involved in procurement negotiation to protect the relationship with the buyer; this negotiation is lead by the procurement manager.
b. Project Manager Involvement with procurement manager in administer procurement process: Project is awarded and project manager is still required in procurement process that is Administer Procurement along with other project management activities. Project manager work with procurement manager in administer for:
i. Protect the integrity of project and get the work done as per the defined procurement process.
ii. Manage interface with the buyer.
iii. Report procurement performance. For example in case of T&M, provide hours spent report.
iv. Monitor performance against the contract
v. Submit cost submittals with the procurement manager.
vi. Maintain records of everything, each phone call, each email etc.
vii. Help to make sure with procurement manager that all work in the contract is done, including the release of lines and ownership of materials not just the technical scope.
viii. Work with the procurement manager to manage changes in the contract.
c. Project Manager involvement with procurement manager in close procurement process:
i. Involved in lesson learned.
ii. Complete final contract performance reporting to submit buyer.
iii. Verify the product with buyer
iv. Create a procurement file.
v. Get financial closure.
I believe after reading this article project managers will understand their importance in procurement also, including presale and will contribute in its whole success.
Seema Sonkiya
Thank you Seema Sonkiya for this useful article.
ReplyDeleteThanks Satya!!
ReplyDeleteGreat going Seema! Thanks for sharing this useful article.
ReplyDeleteThanks Yunus
ReplyDeletevery well documented, however have a question that why "Verify the product with buyer" in the closing part, should this be considered as a feed back to the vendor ?
ReplyDeleteThanks for appreciation Mr. Atif!
ReplyDeleteQuestion is very good!! Verify scope is performed as part of close project or phase and whenever any interim deliverable completed and validated and then needs formal acceptance with the customer or sponsor. Purpose in close project or phase is to get final acceptance or sign off from the customer. After gaining final acceptance, financial closure is performed for the phase or project and completed product or final phase deliverables are handed off to the client then we solicit feedback from the customer.