Project procurement Management - Week 8

• Procurement's role in project initiation involves key decisions, strategies, and risk management.
• Procurement sets the stage for project success.

Impact of Procurement

• Procurement significantly affects the bottom line and can be responsible for 70% of revenue.
• Digital transformation is a key element, where 85% of organizations believe it will change service delivery.
• Supplier synergies include focusing beyond price and emphasizing supplier visibility.
• Smooth change management is crucial for procurement goals.

Key Procurement Changes

• Several important shifts are shaping procurement management
• Organizations are adopting digital solutions to improve efficiency and transparency.
• The focus is shifting from price to long-term value and visibility in supplier relationships.
• Effective change management is essential for achieving goals, and transparent systems optimize risk management.

Risk Management

• Optimizing risk management requires transparent procurement systems that reduce risk exposure.
• Transparency is essential for identifying and mitigating risks.
• Only 65% of procurement leaders have supply chain visibility.
• Proactive planning to prepare for unexpected disruptions is key.

Procurement Objectives

• Procurement objectives must be specific, measurable, and aligned with project and strategic goals.
• Resource planning should occur early, determining the types, quantities, quality, cost, and availability of resources.

Time and Cost

• Time and cost are critical, and procurement impacts both.
• Efficient procurement saves time and reduces expenses.
• Outsourcing offers expertise but can be costly.
• Open tendering reduces costs but extends timelines.
• Procurement choices shape project design; internal vs. external sourcing and outsourcing affect timelines and budgets.

Procurement Decisions

• When deciding on make versus buy, internal options should:
  • Assess internal capabilities.
  • Determine if resources exist in-house.
  • Evaluate capacity, expertise, and potential conflicts.
• When deciding on make versus buy, external options should:
  • Consider outsourcing benefits.
  • Access specialized skills externally.
  • Weigh costs and control factors carefully.
  • Evaluate potential risks.

Methods

• Open tendering:
  • Involves inviting public bids and promoting competition for fair pricing.
  • Can be time-consuming and requires detailed specifications.
• Direct negotiation:
  • Involves engaging directly with suppliers.
  • Suitable for specialized items, is a quicker process, and requires strong negotiation skills.
  • The method has limited competition.
• Outsourcing:
  • Is when delegating to external providers.
  • Allows access to specific expertise and focuses on core competencies.
  • Requires close contract management and regular performance monitoring.

Risk Management Strategies

• Supplier:
  • Assess financial stability.
  • Evaluate performance history.
  • Diversify supplier base.
  • Mitigate disruptions.
• Contractual terms:
  • Ensure clear terms and include dispute resolution.
  • Enforce compliance, and review legal aspects.
• Market:
  • Monitor price fluctuations
  • Stay informed about supply chains, and adapt to changing conditions by using data analytics.

Selecting Procurement Method

• Choosing the right method depends on project complexity, cost, timelines, and regulatory requirements.

Project Manager Role

• Key responsibilities include:
  • Defining requirements.
  • Identifying key suppliers.
  • Developing procurement plans.
  • Negotiating contracts.
  • Stakeholder communication.

Documentation and Software Use

• Documentation is maintained throughout the procurement process.
• Software is used to streamline the process.
• Record keeping maintains accurate records of transactions.
• Compliance ensures adherence to regulations.
• The audit trail creates transparency.

The 3 P's of Procurement

• People: stakeholders need information,
• Process: follow or create necessary processes,
• Paperwork: maintain thorough documentation.

Assumptions

• According to the PMI, an assumption is any project factor that is considered true, real, or certain without empirical proof.
• It is impossible to plan a project without assumptions.
• Spotting assumptions and implementing safeguards minimizes the impact on project delivery if proven false.
• All project assumptions pose a potential risk.
• Assumption analysis is critical in risk management planning.

Constraints

• Constraints are limitations on your project team, like budgets, timelines, and resources, with predefined limits.

6 Constraints in Project Management

• As per the PMBOK Guide, the six constraints are:
  • Scope
  • Schedule
  • Risk
  • Quality
  • Budget
  • Resources

Assessing Constraints

• Crucial to assess constraints, tolerances, who sets them, how project managers use them, and how stakeholders stay informed.

Example of Assumptions and Constraints

• A great supplier has financial issues, risking product delivery.
• If there are no mitigating responses, project owners may stop it to avoid resource waste.
• This situation falls outside their risk tolerance, emphasizing proactive mitigation for project success.

Resolving Issues

• To resolve the issue, find ways to mitigate risk or consider an alternative supplier.
• A reliable contingency plan reduces the impact, bringing the project risks within tolerance limits.

Key Takeaways

• Strategic Importance: Procurement is strategic and influences project success.
• Early Planning: Plan early in the initiation phase for efficient resource management.
• Risk Mitigation: Proactively address risks, mitigating supplier, contractual, and market uncertainties.