Procurement Management PDF

Not all project procurements are created equal. Some purchases are big, others small. Some are complex, while most are routine. Some procurements carry high risks, while others have only minimal or perhaps no risks at all. Some procurements require a major long-term commitment from both the buyer...

Not all project procurements are created equal. Some purchases are big, others small. Some are complex, while most are routine. Some procurements carry high risks, while others have only minimal or perhaps no risks at all. Some procurements require a major long-term commitment from both the buyer and the seller, while other commodities are immediately available for purchase in the open market, including on-line or e-commerce buys. Question: why might it be a good practice to place all procurements into generic categories? Answer: because you manage project procurements differently, according to their complexity, their risks, their unique characteristics. Sometimes you must form project teams to manage the critical buys. Many project buys are routine and simply require that someone track the orders to make sure that the commodities arrive in time to support the project schedule, and are inspected to make sure that they work, and meet all quality standards. However, some procurements, because of their characteristics, require the management oversight of a full team of specialists representing multi-functional disciplines. With these types of procurements, which are always critical to the success of any project, no one individual can adequately manage them because they are too complex. Between these extremes lie generic categories of procurements, most being routine, but some by their nature requiring special treatment. In order to properly manage the procured items, some firms have found it beneficial to categorize their project procurements into broad but distinct \"generic families.\" This helps management better focus their attention on the unique problems and issues peculiar to each category of procurement. One such grouping of project procurements would create three generic categories, plus two special relationships as follows: 1\. Major (high risk) complexity procurements, the purchase of something which does not exist, tailored to the project\'s unique specification. These would be considered critical sub-projects. 2\. Minor (low risk) complexity procurements, will often represent large monetary values, but the commodities exist and will conform to the sellers existing product specification. (Note: Minor product tailoring such as unique name tags or special color schemes would not add risks to the procurement, and thus would not change their classification. However, major alterations to an sellers existing product, perhaps requiring a product redesign and perhaps new product testing, would likely place them buy into a Category (1) procurement). 3\. Routine buys of COTS (Commercial Off-The Shelf) commodities or purchased services. 4\. Special procurements: done under corporate teaming arrangements. 5\. Special procurements: to other segments of the project\'s company, typically called interdivisional work. We will discuss each type of procurement in greater detail below. **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 16BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 17** **(I)** **Major (high-risk) Complexity Procurements \... to the Buyer\'s Specification** These procurements are the most challenging buys for any project to manage. By their natures they typically represent high risks to the project\'s technical, quality, costs, and schedule. They often require the creation of something new by a seller, something that doesn\'t already exist. In order to be managed properly these items require that the project specify precisely what it needs, typically taking the form of specifications, drawings, and often includes a comprehensive statement of work. Sometimes, these new items may actually push the \"state of the technical art\" in the creation of the new product, as with perhaps a new advanced radar system, or a new computer software program. Other times they may be technically routine, but have never been done before, as with the design or the construction of a new high-rise office building. Sometimes they require that an existing product undergo a major redesign and development to essentially create a new product, requiring re-testing, re-certification, etc. Such procurements will often result in a long-term relationship being created between a company (project buyer) and a supplier (seller) where significant developmental and capital expenses may have to be incurred by the company or the supplier or both. With these procurements there will be strong economic and perhaps emotional resistance to any changes of supplier sources without compelling and overriding justification. Both the project\'s buyer and seller will have made a major financial commitment to the project, and pity the poor individual who ever suggests bringing in a new supplier simply to save a few dollars! Once the relationship is set between buyer and seller, further competition is often waived as long as the quality remains high and the seller\'s pricing seems reasonable to the participants. Typical characteristics for purchased items in this category might be: a new product or a system, a major new component, a major structural element, a design to a performance requirement, project interface documents, high risks to the overall project, and often, significant senior management and even customer oversight. Often these types of procurements will experience a phenomena typically called \"scope creep\" which are simply changes that seep into a nebulous product specification. Thus this category of procurements will normally carry high risks to any project. Such procurements must be managed well for the good of the overall project, and are best thought of as being critical sub-projects to the total project. Firms employing the \"integrated project team\" approach will likely create a separate team for each of the procurements which fall into this category. Each team will be managed separately for the project by a designated team leader, often a technical person acting on behalf of the project manager, with a buyer acting as a deputy. Early identification of these procurements will be critical to any project in order to adequately plan and organize for them. These procurements must be managed well for the success of the project. Some examples of these kinds of procurements would be: The architectural design of a new commercial center. The construction of a new production factory. \" The outsourcing of information technology services. The creation of a new software package. The development of a new computer. The development of a new airplane. The development of a new radar system, or any critical project component. **(2) Minor (low-risk) Complexity Procurements \... to the Sellers Product Specification** These procurements are for items which exist in some form with a given seller, and are defined by the seller\'s own product specification. They are commercially available from the seller, either in the seller\'s inventory or sometimes assembled after an order is received. Some articles may have a long lead-time delivery requirement due to scarce critical components. These items will often carry a high monetary value, sometimes exceeding the major complexity buys described above. Such buys are always critical to the success of a project, but do not require the creation of something new by the seller. These articles are generally bought without modifications to the seller\'s product, or perhaps with only minimal modifications, for example the painting of a company logo on a procured bus. In terms of risks to the project, these items will normally carry a lower risk, as long as they arrive in time to support the project master schedule, and of course they work. Often these articles are bought as a result of long-term relationships between the buyer (project) and seller (supplier). However, comparable performance items may sometimes be substituted as long as they satisfy the same requirements of the project. Early identification of these buys is important in order to properly schedule lead-times for each item and to budget the necessary funds for them. Some examples of these procurements might be: The purchase of existing automobiles, buses, transportation vehicles or perhaps aircraft.The purchase of an existing radar system, or large electrical generators. The purchase of existing, but high value software. The purchase of existing computers, and other developed, but high value components. **(3) Routine buys of Commercial-Off-The-Shelf (COTS) items or purchased services** It should be recognized that many projects will have considerable quantity of procurements to execute, but perhaps none which fit into the above two categories of major complex, or non-complex buys. Some projects may actually purchase substantial amounts of materials, but such procurements are often commercially available as \"off-the-shelf\" articles, or routine services. In these cases, the fundamental principles of basic purchasing will be more applicable than a requirement to manage complicated contracts or subcontracts as critical subprojects. The early identification of these procurements is typically not vital to the success of the project, that is, they can be identified in later phases and generally not cause difficulties to the project. These commodities will often have interchangeable (substitute) components. Some examples of these procurements might be: Purchased labor, which will brought in plant and supervised by the project\'s staff. Purchased services, or testing, of a routine nature. Raw materials: nuts, bolts, fasteners, sheet metal, paints, solvents, etc. \* Pencils, paper, office supplies. Existing computers, printers, scanners, etc. Packaged commercial software. Outsourced complete but routine services, for example, cafeteria, accounting, security, etc. (**4) Special Procurements: performed under strategic company teaming agreements** These are project procurements which are executed strictly in accordance with an overriding corporate legal contract typically called a teaming agreement or alliance or arrangement, etc. Here, the executives of one company and another company (or companies) agree to combine their assets, facilities, people, shared risks, etc., and go after a new segment of work, typically in the form of some new project. Teaming arrangements are normally strategic high dollar value accords between corporate executives whereby a major project or a new system is essentially divided into two or more parts, each part assigned to a separate company for performance. All subsequent resulting procurements must be executed in accordance with the overriding corporate agreement. The corporate teaming arrangement is the supreme governing document. Teaming agreements are typically created to enhance a firm\'s competitive posture, and usually will have high visibility with the ultimate buying customer. Such arrangements can divide the new project by creating a \"prime contractor subcontractor\" relationship, whereby the designated prime company will receive the contract. Or, sometimes they cover an \"associate\" type of relationship based on some percentage value allocated to each firm, whereby a single prime contract will have shared corporate performance responsibilities. Teaming arrangements are somewhat analogous to \"arranged marriages\" between families in certain ancient societies. The parents (the corporate executives) make a decision and their respective children (the projects) have no say in the matter. The role of the children (the projects) is to make the relationship a successful one... period, end of all discussion. Most often these arranged relationships do work out very well. The role of the project is to implement what the corporate executives have decided in their agreement. Early identification of these procurements is critical in order to adequately plan for them and to set up a project management oversight team. Procurements under Teaming Agreements will typically cover Category (1) or (2) buys as defined above, but could also include Category (3) items bought under a long-term relationship. **(5) Special Procurements: to other components of the project\'s company, interdivisional work** The significance of interdivisional work, sometimes also called intracompany work, is that such procurements should be the easiest arrangement to manage, after all \"we are one happy family.\" But too often interdivisional arrangements turn out to be the most painful for any project to manage. Why would such be the case? Likely such results are caused by the organizational relationships within the company, the alignment of the project to the performing division. Far too often, projects do not get the \"respect\" they deserve within their own company. Amazing. Interdivisional work are the procurements made within a single company by one operating unit (the project) with another operating unit (the performing organization). These procurements sometimes result from having a unique capability within the company which will enhance the performance of a project. However, at other times, the project manager may have little say in the matter and senior executives insist on the project work being kept within the company, even when a better price or better product might be available from an outside supplier. Sometimes, the most compelling justification for interdivisional work is simply the \"availability\" of a company **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 18**workforce, or facilities, or capability, etc. The project managers are called on by executives to help with \"our company problem.\" Controlling interdivisional work can be a nightmare for the project. Why? Because the internal procedures covering interdivisional cost transfers are typically created by the company accountants who are primarily concerned with the orderly allocation and the recovery of all incurred costs. Contrast these goals with the project manager who invariably wants value added for all dollars spent. However, the accountants will always win this issue, and project dollars will be transferred without regard to the value of the work performed. Project managers often have difficulty shutting off interdivisional costs. One problem with interdivisional work is the organizational relationship of the project to the performing group. The project manager\'s most senior executive is typically at the same corporate organizational level as the most senior executive with the organization performing the work. Neither executive has much clout over the other executive, and neither executive wants to do battle with the other because next month that same person \"could be my boss!\" Interdivisional procurements rarely enjoy the senior executive support that are given to critical procurements under teaming arrangements, where the senior executives will demand harmony and cooperation \... or else! Another problem for the projects can be the United States Government\'s attitude toward interdivisional work. In somewhat of a self-serving way the Government may treat such work as either as \"make\" work or as \"buy\" work, depending on the point they are stressing. On the one hand the Government will insist on all interdivisional work being classified as \"make\" work, no matter where in the company such effort is assigned. In this scenario, the Government considers everything done in one company as make work. It doesn\'t matter if the project or the performing division are on the opposite sides of the world, have never worked together, it is all one company and thus \"make\" work. However, the Government also expects that interdivisional procurements be conducted as if each were done under an \"arms-length\" arrangement, following all of the same purchasing procedures as with any external \"buy.\" The Government wants to pay the lowest price for all work done under their contracts and will often insist on a formal solicitation, formal evaluation, source selection, and a documented competitive procurement process. They will often insist that external competition be held. When things go right at the performing division, as they sometimes do, that division wants its fair share of the project\'s profits. After all it did perform the job in a responsible way, as any other outside supplier would have performed that same work. However, when things go wrong, as they sometimes do, perhaps experiencing cost overruns, schedule slips, poor workmanship, etc., that same performing division now expects to be treated not as an outside supplier, but as part of \"our big family\". The early identification of many of interdivisional procurements is typically not critical for the project, unless such work involves the creation of something new, a Category (1) major complex buy. In these cases, such procurements need to be identified early to start the planning effort. Interdivisional work, if complex, will often encounter the same challenges as with any outside supplier. Interdivisional work can take many forms depending on the capability which exists in the other company units. They can be any of the three procurement categories mentioned above. Some examples of these procurements might be: The development of some new component or product. The manufacture of parts. The procurement of parts for the project. Design and testing services. Purchased labor. **Understanding the anatomy of the project \"procured\" work.** In order to better understand and to properly manage that portion of a project which will be purchased from another company or another company organization, the case for placing all buy work into three generic categories and two special relationships has been suggested. These generic categories and special relationships are displayed in Figure 2.1. **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 19**There are at least three distinct generic families of project procurements, as are shown with Items (1), (2), and (3). Category (1) buys are for newly developed items, and will always represent high-risks to any project. Category (2) buys are also critical to the project, and often represent high monetary values. Category (3) buys represent commodities which are considered routine, but nevertheless must arrive in time to support the project\'s schedule. Most Category (3) procurements are now being performed by highly efficient Internet or Electronic e-Commerce type buys. Each category of procurement must be managed well for the success of the project. Thus, some firms have found it to be advisable to place their procurements into specific generic categories as discussed above. In addition, there are two unique procurement relationships which must be recognized: (4) the Corporate Teaming Arrangements and the (5) Inter-divisional work. Both these special categories have been found to represent unique management challenges in the successful completion of any project. **REFERENCE/S** Fleming, Q.W. (2003). *Project Procurement Management Contracting, Subcontracting, Teaming.* FMC PRESS **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 20Lesson 4** **TOPIC: PLANNING FOR THE PROCUREMENT SCOPE** **DURATION: 1 WEEK** **PREFERRED DELIVERY: Video/ Recorded Lecture/Printed Module** **LEARNING OBJECTIVES** By the end of this module, students will have completed the following objectives: 1\. How to define project scope. 2\. Performing the "Make-or-Buy Analysis". 3\. Deeply understand how to perform the procurement planning. **TO DO LIST** Reading o Course Content and Lecture in Module 2 (page 36-41) o Project Procurement PDF (uploaded on google classroom) Take Activity \# 4.1 **COURSE CONTENT** The process of planning for the procurement of project scope from an outside organization is perhaps the most critical of all the work done in procurement management. If not performed properly the project will likely suffer the consequences for the duration of the project. Earlier in Figure 1.4 the six procurement processes were displayed.1 The following chapters will cover the first process which requires the planning for the work of procurement management. This process will begin with the initiation of any new project and requires that the scope of the project be defined and decomposed to the extent possible. In order for any project to be fully defined, such definition must also include the \"make or buy\" choices, a decision as to who will perform the work. At the point where a project has taken a position with respect to the scope of the effort to be performed, such definitions should also include an understanding of what major critical elements of the project will be sent to another company or organization for performance. The procurement planning process should culminate with the release of a formal document called a Procurement Management Plan. This plan should have been coordinated and endorsed by all key functions supporting the project. Ideally, each major organizational function impacted by the procurement will have contributed to the creation of this document. **Defining Project Scope** In the management of projects there is likely nothing more critical to the success of a project than to begin with an adequate definition of the scope of work, and then to gain the acceptance of the definition by the customer. Project managers must define what they plan to do, and most important, must set the outer limits of what they are committed to do. Without a scope definition \"firewall\" in place, projects will be in the unenviable position of constantly accepting additional work, referred to as \"scope creep\" throughout the life of their existence. The only way to put finality into a project is to define the scope of work, and then to avoid the inadvertent acceptance of \"minor refinements\": *Large changes in scope are easily identified. It is the \"minor refinements\" that eventually build to be major* *scope changes that can cause problems. These small refinements are known in the field as scope creep.* One of the most unenviable positions any project manager can experience is to have an executive define a new project for them... in broad general terms... and then to refuse to accept a definition of the scope by saying: \"I have complete confidence that you will do the right things.\" Respectfully, this project manager is being set-up, because the project effort will never end, because the project was never contained in the first place. Rule number one in project management: define your project scope and get your customer to agree on the definition... before the project begins. A critical part of the process of completely understanding the work to be done for any project is to determine who will be performing the various segments of the project, particularly that work which will be purchased from outside the company. Why is this issue so important: because purchased work is done under legal relationships, called contracts. Such arrangements must be done **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 21**with great care, must be precisely defined, because project procurements are \"non-forgiving\" in the sense that all changes in direction to a seller will of course be accommodated... but for a price. It is likely that most projects today employ a technique to help define their projects called the Work Breakdown Structure (WBS). The WBS is to the project manager what the organization chart is to the company executive: it defines their universe. The WBS is a graphical portrayal of the project. Two authorities in project management have provided us with a solid definition of a WBS: *The work breakdown structure acts as a vehicle for breaking the work down into smaller elements,* *thus providing a greater probability that every major and minor activity will be accounted for.* Displayed in Figure 3.1 is an example of a Work Breakdown Structure for a new project: a Transportation Vehicle. Level 1 of the WBS represents the total project, everything the project manager has agreed to do. Level 2 of the WBS provides a reflection of the management approach, the major chunks of effort, the critical subprojects. Here the project has chosen to manage this new job by subdividing it into four major level 2 elements: vehicle structure, vehicle testing, data, and finally project management. The subordinate Level 3 and lower levels simply reflect a further decomposition of defined work into progressively smaller segments. Level 2 is likely the most critical subdivision for any project because it reflects the management approach. The WBS diagram provides an excellent device for not only defining the work to be done on a new project, but also to assign the defined work to a specific individual and organization for performance. Sometimes a project can be done entirely within the project\'s own organization. This is sometimes the case on smaller projects. But most other times, for reasons which will be discussed below, some work will need to be sent outside of the project\'s immediate organization, that is, it must be procured from another company. The WBS provides an excellent device to assist in such work assignments. For example, using Figure 3.1, the WBS at level 2 contains four major elements, all considered to be in-house work from the level 2 vantage. However, when we go down into level 3 of the WBS we can start to see the further subdivision of work into those tasks which will be done in-house, as contrasted with those elements which will be sent to other companies for performance. Under Vehicle Structure at level 2, we have four major subdivisions of work: two of which will be performed in-house (the Frame and Suspension), and the other two will be procured from outside the company (the Transmission and Engine). The critical distinction is that the Frame and Suspension work will be authorized by simply issuing an internal budget. However, the Transmission and Engines must be formally contracted, procured, using functional resources outside of the project\'s immediate organization, for example, purchasing, legal, and other key functions. It is fairly simple to place work within one's own organization. It gets complicated when one goes outside. Addressing the other two buy items, under Vehicle Testing the project has chosen to procure the Road Testing of the vehicle from another company. Also, under Project Data, management has elected to procure Test Manual services from another firm. With the use of the WBS to define and decompose a new project, the project manager, the project team, executive management, and most important the paying customer, can all immediately visualize the definition of the job and the assignment of all project elements. The WBS is the graphical portrayal, the detailed roadmap for any project to follow. **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 22Deciding who will perform the work: \"Make\" or \"Buy\" Analysis** The public will sometimes observe \"make or buy\" choices being made and may not be aware of it. For example, it is not uncommon to see firms doing a self-assessment in an effort to focus management attention on the \"core competencies\" of a company. The central issue: why are we in business? What are the key ingredients which put us where we are today? Often these same firms will then strategically decide to concentrate solely on their central core strengths, the unique activities which put them in business in the first place, and to reassign everything else. Executive management will often take segments of their organizations and sell selected assets, often involving both equipment and people, and then buy back these same assets and the services they provide under a long term contractual arrangement. This process is called \"outsourcing\", and outsourcing is nothing more than a management \"make to buy\" decision. Outsourcing is being done on a number of company services considered to be non-core to a firm, for example plant security, food services, routine accounting, etc. Virtually any service activity can be considered a candidate, but we are particularly seeing the outsourcing of information technology (IT) activities. Perhaps the IT departments are most vulnerable because they are complicated, expensive, have a reputation of being non-responsive, and often senior management doesn\'t have a clue as to what they do! Such services can be sold quickly and immediately bring in new cash to the firm. Whenever management elects to sell their computers and transfer IT employees to another company, and then enter into a long-term contract to procure these same services back from the other company, management has effectively made a strategic make to buy choice. The outsourcing of information technology services, so common today, has enabled certain major firms like IBM, EDS, and CSC to grow at a phenomenal pace. For new projects, the process of performing the make or buy analysis is one which will evolve from proposal to implementation. At the start of a new project the make or buy choices are often only tentatively set, as is displayed in Figure 3.2, on the left side of the chart. The initial position for a new project will have three categories of planned work: \"must make\" work, \"must buy\" work, and the as yet undetermined area of work in the middle labeled as \"may make\" or \"may buy\" items. The \"must make\" work are the easy choices to be made because some tasks will want to be kept in-house for a number of reasons. We may have a proprietary position in a certain technology and therefore we will want to perform this effort with our own people to protect our competitive position. Also, we may have surplus staff immediately available to do this work. Pressures to make work on any project will include idle plant capacity, an idle work force, and sometimes the attitude of some that internal work is easier to control than purchased work. Some other choices are also easy to decide as when we may have no capability in our company to do certain types of work. These will be the \"must buy\" tasks. Also, sometimes we have no other choice but to go outside for performance simply because the company people who could perform the work are already committed to doing other work during the same time frame they are needed. The third category of work, the one displayed in the center of the left side of Figure 3.2 is where we will need to make some hard choices. This category is called \"may make\" or \"may buy.\" Here based on all the factors available we must decide who will do the work: our internal company work force or another company. If we elect to send such work outside of the company for performance we will need to prepare a formal procurement package, solicit bids and make a final procurement choice. After the project has made their final determinations of who will perform all the project work, the result will be just two final categories: that effort which we will perform in-house (make) and that which we will obtain (buy) from an outside company, as displayed on the right side of Figure 3.2. In order to minimize the risks associated with the procurement of those items which will be performed outside of the company, a complete listing of the critical procurements (new developments) must be completed early in the scope definition phase. A complete definition of project scope must always include the identification of the major critical buys. Stated another **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 23**way, the late identification of major critical procurements will vastly increase the risks to the project. Why? Because in order to procure anything from the outside, we must be in a position to define precisely what we want from another firm. Late definitions, vague definitions, changing requirements only increase the risks to the project. Some time ago there was a study conducted entided: \"Make or Buy: Factors Affecting Executive Decisions.\" This study addressed the make or buy process in the United States and reached the following conclusions: 1\. Management tends to ignore the make-or-buy problem. 2\. Many make-or-buy analyses are based on invalid cost comparisons, due to the excessive use of historical data when estimates of future costs should be used. 3\. American businesses lose more money in making things that should be bought than in buying things that should be made. 4\. Nevertheless, millions of dollars are lost annually by buying items that could be more economically made. As we look around in industry today we may want to ask ourselves: have we come very far in improving the \"make or buy\" process over the last half century? Perhaps not. However, in the management of our projects, adequately defining the make work versus the procured work is critical for the successful implementation of any new project. **Matching Project Requirements with Market Availability: Locating Potential Sellers** In the marketplace today there is virtually everything available to us... somewhere. Typically, the availability of goods to purchase does not present a major constraint to the project. The one exception to this general condition might be when there is but a sole source or a single source for a given commodity. In these cases, the commodities will be available to the project, but often at an exorbitant price, and from suppliers who have an attitude! You stand in line to buy their goods. However, another sometimes more serious exception might be where the required commodity does not presently exist, perhaps it has never been developed. New developmental items add technical risks to projects. The risks are that the commodity can\'t be developed... period, or perhaps not developed in time to support the project\'s need date. Either can add serious risks to any project. With the availability of the internet and e-commerce many buyers supporting projects do not have to leave their offices to satisfy the procurement needs of the project. Most established firms will have a cadre of professional buyers (purchasing agents, supply-chain specialists) available to support the requirements of a project. Quite often the buying or purchasing organization will be organized along commodity lines, so there are product specialists to support the project. Also, most of the established purchasing or supply-chain organizations will have developed a supplier historical database, which will allow the matching of the needs of the project with what is available in the open market. Such databases will typically incorporate actual performance history from these sellers: did they deliver prior products on time, did they stay within their original price, how was the quality of their final delivered product, etc.? However, in those instances where the procured commodities have never been built before, and perhaps may be pushing the state of the technical art, there will be only a limited number of firms to provide these articles. In such cases the very best source for suggestions as to potential suppliers will often be the technical specialists, the expert opinions from those individuals who are designing the new system, or specifying the requirements. The engineers and scientists will have recommendations as to potential sellers, and typically their suggestions are quite valid. What is available to buy in the market place typically does not present a major hurdle to any project, with the exceptions of single sources, sole sources, and newly created state-of-the-art items. **Full Funding Considerations... the Impact of Procurements** It is most efficient for any project to be completely defined, and then for management to allocate all of the funds needed to completely perform the work. However, as many of us may have experienced, this does not always happen. Often projects find themselves in the position of being funded piecemeal. Piecemeal funding is expensive anytime, but particularly with procurements. It is inefficient to start internal (the make) work and then to stop or slow down the effort. But internal work is fairly easy to control. Not so with the outside (the buy) effort. To start and then slow down a procurement is always a painful and an expensive experience. There is probably no rational explanation for this phenomena except that when you slow down procurements, reduce the available funding, sellers view this as their \"opportunity\" to get back everything they may have lost in a tough negotiation, or under a highly competitive bid situation. As a practical matter, try not to adjust the full funding of procurements. But if you must change the funding of the procured work, be prepared to pay a premium cost for such decisions. **Scope definition must include the early identification of all critical procurements** It is important for any project to begin with a complete definition of what it intends to accomplish and then to get the customer to agree with this definition. This is called the scope definition process. One of the most important outputs from the **BSCA 2A,2B,2C,2D,2E▪ PROCUREMENT MANAGEMENT ▪ C.L. VILLARAMA▪ PAGE 24**scope definition process will be a tentative listing of the procurements for the project, particularly all the high-risk major critical buys. Make or buy choices should be a direct result from the definition of the project with use of the Work Breakdown Structure (WBS). Of greatest importance to the project will be the early identification of all of the Category (1) \"Major Complexity\" procurements. These are the high-risk developments of things which do not exist, or if they exist, must be modified to such a degree that they are essentially new components. There are risks related to procuring these items, and management must take decisive action to mitigate such risks down to acceptable levels. Having only a vague definition of the new critical commodity is one of the most common risks facing any project. Many projects in an effort to reduce the risks of the procured items have found it advisable to develop a matrix of their anticipated procurements, as is illustrated with Figure 3.3. The project will prepare a listing of the articles it expects to procure, then classify these items according to their complexity. To facilitate this process a listing of all buys items should be prepared as displayed in Figure 3.3. An electronic spreadsheet or database helps nicely with this effort. The first step in this process is to compile a complete listing of all buy items, sometimes referred to as the engineering Bill of Materials. This listing of procurements will evolve as the project definition evolves. The listing should be sorted into some type of generic classification, as with the five procurement categories as were described earlier in Chapter 2. It is imperative that all the Category (1) major complexity items be identified early, followed next by the Category (2) major non complexity items. The routine Category (3) COTS items can be identified later and likely not adversely impact the project\' schedule. Once the listing of key procurements is identified the next important step must be taken: the assignment of individual responsibility for all major critical buy items. There are typically three individuals who must be identified: 1) a project team leader, 2) a responsible engineer, the technical person (to start preparation of the technical procurement specification), and 3\) the responsible buyer (who will execute the actual purchase order). Sometimes the team leader and the responsible engineer may be the same individual. The key issue is that the appropriate people must be identified and assigned responsibility to manage each critical procurement... early. The risks associated with project procurements can be reduced in direct proportion to the early identification and assignment of responsibilities for all major critical buys. Potential sellers must also be identified as more details becomes known about these key procurements. Once the critical procured items have been identified and responsibilities set, the next critical work will be to relate the timing of each buy with the need dates of the project. The projects master schedule should indicate the dates required for all critical procured components. It will be the responsibility of the team leaders working closely with the technical person and the assigned buyer to make sure that all procured items are available in time to support the need dates of the project. The matrix of procured items, as is illustrated in Figure 3.3, is an important first step in defining that project scope which will be procured from outside of the project organization. This matrix is also an important initial step toward creating the Projects Procurement Management Plan, which will be covered in detail in a subsequent chapter. **REFERENCE/S** Fleming, Q.W. (2003). *Project Procurement Management Contracting, Subcontracting, Teaming.* FMC