TCMFramework_SM.gif (5258 bytes)TCM Framework: An Integrated Approach to Portfolio, Program and Project Management
(Rev. 2012-01-09)



7.7 Procurement Planning

7.7.1 Description

    Procurement planning is that part of the project control planning process that ensures that information about resources (e.g., labor, material, etc.) as required for project control is identified for, incorporated in , and obtained through the procurement process. The TCM process map does not explicitly include the procurement process. As with engineering, construction, programming, and similar functions involved with project execution, TCM only addresses the project control interface with procurement. The term procurement is used here in the broad sense of the collective functions that obtain labor, services, materials, tools, and other resources.

    Asset owners usually obtain most of the labor, materials, and other resources used in projects from outside enterprises. These outside enterprises typically include vendors and fabricators for materials and contractors for labor. Even when the asset owner obtains resources from within their own enterprise, the project team’s control of the internal resource supplying organization may be limited. In all these cases, procuring needed resources from these suppliers and contractors (and their suppliers in the supply chain) requires extra effort to plan and establish agreements. There are also additional concerns with assuring that other parties have acceptable values regarding society, ethics, environment, health and safety, and so on because problems with one party in this regard are likely to affect others with whom they have relationships (see Sections 11.1 and 11.2).

    The relationship of suppliers and contractors with the project team, or between suppliers and contractors involved in the project, is defined by contracts, purchase orders, or other legal or procedural documents or agreements. Therefore, in order to institute a project control process, all interfaces of the suppliers and contractors with the project control process must be defined and established in the agreements that we refer to here as contracts. Contract clauses that define project control interfaces must be included in the overall project plan.

    For project control, suppliers and contractors must be obligated to provide cost, resource, and schedule information as needed to plan the project (i.e., they may develop all or part of the project estimate and schedule), measure progress of the work, support change management, and support historical database needs. Payment methods to the suppliers and contractors and methods for resolving disputes with and between them must also be defined. The goal of procurement planning then is to ensure that labor, materials, tools, and consumables that are obtained from or through suppliers are obtained in a way that optimally achieves project objectives and requirements.

    Interface between procurement and project control begins in the scope development process (Section 7.1) where the work breakdown structure, organizational breakdown structure (OBS), work packages and execution strategy are developed. The execution strategy identifies general approaches through which the work packages and activities will be performed, including the role of suppliers and contractors. As regards procurement, the primary execution strategy decisions involve determining the type of contracts to be used for various elements of the work. The decisions are based on a variety of factors such as the status of scope development, the owner’s project control capability, perceived risks and risk allocation strategies, prevailing purchasing and contracting practices, and so on. Each contract type (e.g., lump sum, unit price, time and materials, cost-plus, etc.) has specific risk and project control interface implications.

    For example, lump sum contracts are generally used when scope development is well advanced and design changes are unlikely, and/or when the owner has limited project control capability. Reimbursable or unit price contract types are used more often when the scope is less well developed, new technology is involved, and/or the owner has better project control capability (i.e., better able to measure and assess progress and direct corrective actions).

    As was mentioned, suppliers and contractors must be obligated to provide cost, resource, and schedule information as needed for project control. Each supplier and contractor should be required to use a common chart of accounts at the information flow interfaces (i.e., they may use their own accounts internally, but they should use the common accounts for progress reports, billings, etc.). This facilitates project control and cooperation between all parties.

    For planning and scheduling, suppliers and contractors generally prepare their own detailed plans and schedules, but any applicable milestones that are required by the overall schedule must be a contracted requirement. For costs, bid, and change order pricing, cost reports, billings, and other submittals should be in accordance with the project WBS/OBS and common chart of accounts (which is made part of the contract) to the level of detail needed to measure and assess the participant’s progress and to capture in historical databases. Likewise, estimated and installed labor hour and material quantity information should be reported per the chart of accounts. Also as was mentioned, the owner must establish in the contract requirements for payment methods and timing, change management, and dispute resolution.

    At the conclusion of the procurement planning process, all requirements for project control deliverables (e.g., schedule data, cost and progress reports, closeout data, etc.) from the suppliers and contractors and project control procedures they must follow will be incorporated in contracts as appropriate. Likewise, all the project control information (e.g., milestones, chart of accounts, etc.) that is needed by the suppliers and contractors will be incorporated in the contracts as well.

    Project procurement planning may be affected by decisions made at a strategic asset management level (Section 2.3) when the enterprise has established relationships with key suppliers and contractors to support project work. In that case, business management of the enterprise will communicate strategic procurement planning requirements to the project team as appropriate (Section 4.1).

    Procurement planning is facilitated by having a database of historical procurement data. These data should include past experiences with suppliers and contractors and the contract approaches used. Development and maintenance of procurement planning tools (e.g., checklists, standard procedures, contract terms, etc.) is also a step in the process. A standard chart of accounts, along with the WBS/OBS, facilitates procurement planning by establishing ways for all suppliers to consistently categorize and exchange project control information.

    Procurement planning is a team effort. The team includes the project manager or project leader, the project control leads (e.g., estimating, scheduling, etc.), purchasing, contracting and legal personnel, and the managers or coordinators of the work that will be done by vendors, suppliers, and contractor officers. Because much of procurement planning involves issues of information flow between project participants, having an information technology person on the team is often desirable. Generally, the project control leader, in close cooperation with the purchasing and contracting functional leaders, leads the procurement planning effort as covered here. However, everyone on the project team with interface roles with suppliers or contractors should have input to and buy-in for the procurement planning aspects of the project control plans.

7.7.2 Process Map for Procurement Planning

    At its core, procurement planning involves studying the capabilities of various resource providers and alternate procurement approaches, and establishing project control requirements for the relationships established. Historical information including lessons learned is a valuable asset in determining the best approaches. Figure 7.7-1 illustrates the process map for procurement planning.

Figure7.7-1.jpg (109340 bytes)

Figure 7.7.1 Process Map for Procurement Planning

    The following sections briefly describe the steps in the procurement planning process.

.1 Plan for Procurement Planning

    The procurement planning process requires activities and resources, so the work to be performed during the process needs to be planned. The project team identifies procurement planning tools that will facilitate the process, and the team assesses past project experience for lessons learned. Project requirements and initial execution strategies must also be considered.

.2 Identify Project Control Requirements, Capabilities, and Priorities

    Based on initial overall project control plans (estimates and schedules), the initial execution strategy, and the scope of proposed changes, basic supplier, and contractor project control requirements are identified and prioritized. In addition, the project control capabilities of the project team need to be prioritized and evaluated.

.3 Evaluate Procurement Approaches and Constraints

    Various approaches for establishing contract project control requirements for the various project suppliers and contractors need to be evaluated for their affect on project control plans and execution strategy. The affect of various procurement approaches on estimated cost and schedule (e.g., when to procure) also are evaluated. Opportunities to increase project value, reduce risks, and effectively allocate risks should also be assessed. The project control capabilities of the project team, suppliers, and contractors need to be considered.

.4 Review and Establish Procurement Requirements

    The project team must review selected requirements for project control deliverables from the suppliers and contractors, and the project control procedures that they must follow. Likewise, all the project control information needed by the suppliers and contractors must be reviewed. The review ensures that project objectives and requirements are met. Resource planning outputs (e.g., resource expenditure charts based on resource loaded schedules, recruitment and training plans, etc.) are reviewed by the project team to determine whether they are complete and suitable as a basis for planning, whether they meet project objectives and requirements, and whether they are competitive with industry best practices and historical approaches.

.5 Develop and Maintain Procurement Planning Methods and Tools

    Standard contract terms, procedures, and other tools for procurement planning must be created and maintained. Past project data (including project procurement approaches, suppliers and contractors used, and experiences with the same) must also be collected and maintained. Historical information and lessons learned are a key resource for evaluating the approach to use on future projects.

7.7.3 Inputs to Procurement Planning

.1 Project Planning Basis (Objectives, Constraints, and Assumptions). The enterprise may establish requirements for procurement planning such as the use of pre-selected vendors, alliance partners, and so on (see Section 4.1).

.2 Changes. During project execution, changes to the baseline project plans are identified in the change management process (see Section 10.3). Each change goes through the procurement planning process so that project control aspects can be appropriately integrated into contracts and project control plans. The change management process also concerns dealing with disputes and claims.

.3 Basis for Project Control. The integrated schedule, cost, and resource plans (Sections 7.2, 7.3, and 7.4) define the project control basis and requirements for the project.

.4 Estimate and Schedule Information. As alternate procurement approaches and requirements are assessed, the estimate and schedule effects are evaluated. The results of the evaluation support the procurement assessment. In addition, cost and schedule information provided by suppliers and contractors during the project control and procurement process is input for evaluation.

.5 Execution Strategy. Scope and execution strategy development (see Section 7.1) define how the project work will be implemented (i.e., the general approaches through which the work packages and activities will be performed). The strategy will generally specify the general contractual approaches to be used; however, it does not include the specific tactics, which are developed in procurement planning.

.6 Chart of Accounts. Coding structures that support the accounting and cost/schedule integration processes (see Sections 5.1 and 9.1) are provided. Each supplier will generally have its own chart of accounts; therefore, coordination requires that suppliers and contractors map their accounts to the one that is contractually required so that cost and schedule information can be exchanged.

.7 Historical Project Information. Past project procurement approaches, suppliers used, lessons learned, claims experience, and similar information is used to support future project procurement planning.

.8 Information for Analysis. Procurement planning is iterative with the other project planning steps including value analysis and engineering and risk management (see Sections 7.5 and 7.6, respectively). These analytical processes may identify changes in procurement plans that will increase value and/or reduce risks.

7.7.4 Outputs from Procurement Planning

.1 Basis for Project Control. Procurement requirements, as they affect the integrated schedule, cost, and resource plans (Sections 7.2, 7.3, and 7.4), are integrated into the project control basis.

.2 Estimate and Schedule Information. The results of procurement approach and requirements assessment are inputs to the planning and scheduling and estimating and budgeting processes (Sections 7.2 and 7.3).

.3 Execution Strategy. The results of procurement approach assessment are inputs to execution strategy development (Section 7.1).

.4 Contract Requirements for Project Control. All requirements for project control deliverables (e.g., schedule files, cost and progress reports, closeout data, etc.) from the suppliers and contractors and project control procedures they must follow will be incorporated in contracts and purchase orders as appropriate. Likewise, all the project control information (e.g., milestones, chart of accounts, etc.) needed by the suppliers and contractors will be incorporated in the contracts as well.

7.7.5 Key Concepts for Procurement Planning

    The following concepts and terminology described in this and other sections are particularly important to understanding the procurement planning process of TCM:

.1 Procurement. The acquisition (and directly related matters) of equipment, material, and services by such means as purchasing, renting, leasing (including real property), contracting, or bartering, but not by seizure, condemnation, or donation. Includes preparation of inquiry packages, requisitions, and bid evaluations; purchase order and contract award and documentation; and expediting, inspection, reporting, and evaluation of vendor or contractor performance.

.2 Supplier. A manufacturer, fabricator, distributor, or vendor that supplies materials, products, or goods for a project or for production. There may be some limited services associated with the supply of material or goods (e.g., technical support). Suppliers also generically applies to any internal resource suppliers that are not in the project team’s direct control (i.e., with whom agreements must be established).

.3 Contract. A formal agreement between the project owner and resource suppliers or between project resource suppliers. Contracts also include purchase orders, work orders, and similar documents that establish working agreements. Procurement planning established the project control requirements to be incorporated in the contracts.

.4 Contractor. A business entity that enters into a contract(s) to provide services to another party. There may be some materials, products, or goods associated with the contracted service (e.g., construction services often include the provision of materials of construction).

Further Readings and Sources

    There are many references describing procurement and contracting practices for various project types in various industries. However, procurement planning, as addressed by the process in this section, is generally covered in project management and control texts. The following references provide basic information and will lead to more detailed treatments.


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