CompTIA Project+ PK0-003

Procurement Management Plan

by Steve Caseley

Start your 7-day free trial today.

This video is only available to subscribers.

A free trial includes:

  • Unlimited 24/7 access to our entire IT training video library.
  • Ability to train on the go with our mobile website and iOS/Android apps.
  • Note-taking, bookmarking, speed control, and closed captioning features.

What is Project Management

Project+ and how to prepare for the exam

Pre-Project Setup

Project Planning

Prepare Scope Statement

Create WBS and WBS Dictionary

Define Change Management Process

Develop Project Schedule and Resources and Roles

PERT/GANTT/CPM and Schedule Compression

Communications Management Plan

Risk Management Plan

Quality Management Plan

Cost Management Plan

Procurement Management Plan

00:00:00 - Our second last stop on our 2.0 project planning road map is
00:00:04 - 2.12 Procurement Plan, or as the CompTIA describes it, 2.12 Explain
00:00:12 - the procurement process in a given situation. Procurement planning
00:00:17 - may be a very significant part of your project or may be a very
00:00:21 - insignificant part of your project or even a nonexistent part
00:00:25 - of your project, literally depending on whether you need to purchase
00:00:28 - outside goods, services, supplies, materials, equipment,
00:00:34 - human resources for your project. Therefore, your project may
00:00:39 - have a large procurement aspect if you need to purchase a lot
00:00:42 - of pieces components for your project or maybe very minimal if
00:00:47 - you have none. Consistent with that or directly related to that,
00:00:51 - depending upon the procurement policies of your organization,
00:00:55 - it may be a very significant component, in which case your project
00:00:59 - is going to be responsible for all of the procurement components
00:01:01 - we are going to discuss in this Nugget, or if you have a very
00:01:05 - active, very well-defined procurement department in your organization,
00:01:10 - procurement for your project may be as simple as making a phone
00:01:15 - call, sending an e-mail to the procurement department and saying,
00:01:17 - "Hey, Procurement, I need to buy 15 Xs. Could you please arrange
00:01:23 - for that to happen for me on my project?" So recognizing that
00:01:27 - procurement may have a very high or very low impact on your project,
00:01:32 - let's find out what procurement planning is all about.
00:01:36 - Within the confines of understanding that procurement planning
00:01:39 - may not be appropriate for your project, we are going to continue
00:01:42 - the rest of this Nugget based on the assumption that procurement
00:01:46 - is part of your project and that your project itself will be
00:01:51 - responsible for most of the procurement activities. You may still
00:01:55 - have a procurement department that's going to provide some assistance,
00:01:58 - but largely speaking, you, your project are responsible for the
00:02:03 - procurement of the goods, the services, the equipment, the material,
00:02:07 - the supplies, the human resources that are required for your
00:02:10 - project. So procurement planning consists of five main steps,
00:02:16 - or procurement itself consists of five main steps. As you can
00:02:19 - see, a couple of the procurements are not planning activities
00:02:22 - but execution components. But procurement planning,
00:02:27 - understanding what it is we need to buy, when we need to buy
00:02:31 - it, how we should be buying it, and so on. So basically analyzing
00:02:36 - each and every opportunity where outside suppliers may support
00:02:42 - your project and deciding whether or not you should be buying,
00:02:45 - how you should be buying, and so on. Once we have determined
00:02:49 - that we do need to procure to buy for our project, we then need
00:02:54 - to go into a detailed purchase planning. How are we going to
00:02:57 - go about buying it? Are we going to go out on the street corner
00:02:59 - and buy it from a storefront, or are we going to go through formal
00:03:03 - processes, requests for information (RFIs), requests for proposals
00:03:08 - (RFPs), and so on and have it as a very formal administered process?
00:03:15 - What are the steps we're going to follow for vendor selection?
00:03:18 - We need to ensure that we are having a fair, unbiased, dependable
00:03:23 - selection process. What processes are we going to follow for
00:03:27 - vendor selection? We're then going to select our vendor, which
00:03:31 - is the end of the project planning process, but we need to then
00:03:36 - administer the contract. We need to make sure that our vendors
00:03:40 - are supplying what it is we wanted them to supply for our project,
00:03:44 - and we need to make sure that we are paying our vendors appropriately,
00:03:47 - that we are managing our vendors appropriately, that we are doing
00:03:51 - full contract administration for the project, and finally, that
00:03:55 - there is the appropriate contract closeout so that when we are
00:03:59 - done purchasing from vendor A, we are in fact paying them all
00:04:03 - that's due, implementing any warranty support processes that
00:04:08 - are required should the vendor have a warranty service for their
00:04:11 - goods and services, and so on. This Nugget is going to focus
00:04:16 - on the first three of the procurement activities, the plan processes,
00:04:20 - the procurement planning, the purchase planning, and the vendor
00:04:24 - selection. Procurement planning is an absolute next logical step
00:04:30 - beyond the WBS preparation. The WBS identified all
00:04:38 - the deliverables and all of the work
00:04:42 - required for your project to be a success. And when we develop
00:04:45 - our WBS, we are focused on the end state: what deliverables,
00:04:49 - what work is required for our project to satisfy the requirements
00:04:54 - which the customer, the client, the business unit asked us to
00:04:58 - take on the project.
00:05:01 - So literally, we need to go through our WBS, and for every line
00:05:05 - in the WBS, for every deliverable in the WBS, we need to make
00:05:08 - a make-or-buy decision. Is this task, is this deliverable best
00:05:14 - satisfied by using internal resources in the organization,
00:05:19 - which would be a make decision, or is this task, is this deliverable,
00:05:25 - is this work package best supported by using an outside service,
00:05:30 - a vendor, and that is the buy? And literally, we should go through
00:05:35 - each and every element of our project plan, doing that make-or-buy
00:05:39 - decision based on do we have the right resources, the skills
00:05:44 - to do the work internal, or should we buy? And each organization
00:05:49 - is going to make very different make/buy decisions. And one of
00:05:54 - the most interesting make/buy decisions I ever came across was
00:05:57 - related to a contract that the organization I was working for
00:06:01 - had, and basically, the organization I worked for was a software
00:06:07 - development organization. So software development, writing software
00:06:11 - code was what we did,
00:06:14 - and that's literally all that we did. The organization that we
00:06:17 - had the contract with, it was to implement a control system for
00:06:22 - a series of radio transmitters. And these radio transmitters
00:06:27 - required very specialized interface boards that were going to
00:06:31 - be the conduit, the interface between the computer system and
00:06:36 - the physical equipment that they had scattered around the field.
00:06:40 - And when this organization sat down to do their make/buy decision,
00:06:44 - their make decision was straightforward to them. We are going
00:06:48 - to make all of those hardware boards. We are going to get out
00:06:51 - our soldering guns and our resistors and our transistors and
00:06:54 - our chips, and we are going to physically make all of the hardware
00:06:59 - components that are required for the system, and we are going
00:07:03 - to go out and buy all of the software. We are hardware people.
00:07:07 - We are technicians. We are engineers. We are very much hardware
00:07:10 - people. We're very comfortable making hardware. We are very uncomfortable
00:07:16 - coding software.
00:07:19 - And to me, that was a very interesting make/buy decision because
00:07:23 - my history, my background, the company that I worked for would
00:07:26 - have made an absolute opposite make/buy decision. We need specialized
00:07:31 - hardware interface boards. We have no skills to do that. We are
00:07:35 - going to have to buy all of that. But in terms of writing the
00:07:39 - software, we have absolutely the skills to do that ourselves,
00:07:42 - so we will make it. Each organization is going to have a very
00:07:47 - unique make-or-buy determination based on the skills, the resources
00:07:51 - within the organization and the availability
00:07:59 - of the resources and skills in the organization. Again, assuming
00:08:03 - the make decision is yes, we should be able to make that piece
00:08:08 - of the WBS ourselves, we have the skills, we have the resources,
00:08:12 - we have the ability to do it, but do we have the availability?
00:08:17 - Are the resources with the skills required to make that piece
00:08:22 - of the project available, or are they fully committed to other
00:08:26 - projects? In which case, maybe the right decision is to buy as
00:08:32 - opposed to waiting to do the make
00:08:36 - or pulling priority, pulling rank over the other projects and
00:08:39 - saying, "Your resources need to be transferred to my project
00:08:43 - because my project has a higher priority."
00:08:47 - Once you have determined the make/buy decision, all of the makes
00:08:51 - stay within the WBS and we treat through the processes that we've
00:08:54 - already discussed in this Nugget series to date. All of the buys
00:08:58 - then move in to the next steps. How are we going to buy this?
00:09:02 - Are we going to go to the street
00:09:05 - and go to a store
00:09:07 - and buy?
00:09:09 - And for some commodities, if you need paper, if you need computers,
00:09:15 - laptops, if you need commodity items, often, how to buy is you're
00:09:20 - going to go to the street and buy. Or sometimes, it's going to
00:09:25 - be go to a preferred
00:09:28 - supplier. I mentioned we need to buy laptops. Maybe we are not
00:09:34 - going to just go to the street and go into the first computer
00:09:37 - store that we see and buy a laptop. Maybe our organization, and
00:09:41 - again, this is where a procurement department in your organization
00:09:43 - may come to play, maybe in our organization we have preferred
00:09:47 - suppliers, pre-negotiated prices for laptops, and we will simply
00:09:51 - go out and buy the laptops from the preferred supplier. And sometimes,
00:09:55 - you need to go to tender. This is where that RFP, the request
00:10:00 - for proposal process will come in to play, and we'll discuss
00:10:04 - the RFP process just in a few minutes in this Nugget series.
00:10:09 - What are you going to buy? Very consistent with the make/buy
00:10:12 - decision but are you going to buy finished
00:10:17 - turnkey? You need a piece of software. Are you going to buy it
00:10:23 - as a fixed price turnkey solution, "Vendor X, you are responsible
00:10:29 - for delivering 100% functionality, fully tested. It is turnkey,
00:10:33 - ready to plug and play," or are you going to buy programming
00:10:37 - services to write the software for you under your own management?
00:10:43 - So again, make/buy will be further refined by what are you going
00:10:48 - to buy? Is it finished? Is it services?
00:10:52 - Is it parts
00:10:54 - and components
00:10:58 - that your project will then integrate?
00:11:01 - How much are you going to buy?
00:11:04 - Do you need 15 laptops? Are you going to buy all 15? Are you
00:11:08 - going to scrounge around in the organization? Are you going to
00:11:11 - share? When to buy is often very consistent with how much. You
00:11:17 - need 15 laptops, but only five of those laptops are required
00:11:20 - in the development phase, and the remaining 10 laptops are required
00:11:24 - when we go in to production. Do you buy all 15 now or do you
00:11:29 - wait and buy only the five that you need now and wait to buy
00:11:32 - the remaining 10 when you go into production? Obviously, if you
00:11:36 - are buying technology, often, waiting is a good idea because
00:11:40 - the price performance curve will probably be better in six months'
00:11:44 - time, 12 months' time when you are ready to go to production,
00:11:47 - and you can get more functionality for less price if you do the
00:11:51 - wait. But the issue with waiting is if you wait and the new technology
00:11:57 - has a different chipset, has a different operating system, has
00:12:01 - some difference in the basic functionality, will that be 100%
00:12:06 - compatible with your project's development processes or will
00:12:11 - you need to do some degree of retrofit to make those later purchases
00:12:15 - fit in to the project? So I hope I've laid out that doing your
00:12:21 - procurement planning, you need to spend some degree of thought
00:12:26 - and effort to make sure that you are buying the right stuff,
00:12:29 - that you are taking on the right responsibilities for your project,
00:12:32 - and that you are buying the components, the services, the software
00:12:36 - for your organization in the most effective manner that's going
00:12:39 - to be cost-economical for your project as well as supportive
00:12:43 - of your overall project's goals.
00:12:46 - For any purchase decisions that's really more complicated than
00:12:49 - going out on the street and buying a commodity or potentially
00:12:52 - going to your preferred supplier and again buying a commodity,
00:12:56 - we as project managers need to spend a little more thought on
00:12:59 - our purchase planning process, and this is again based on the
00:13:02 - basic assumption that we are going to go out for a formal request
00:13:06 - for proposal.
00:13:08 - We are going to issue a formal document. We are going to publish
00:13:12 - our formal document and we are going to get that formal document
00:13:15 - reviewed by potential vendors, and they are going to respond.
00:13:19 - So that's the request for proposal process itself. And whether
00:13:23 - we use the term RFP, request for proposal, or RFI, request for
00:13:28 - information, or RFQ, request for quotation, or intention to purchase
00:13:35 - or whatever words your organization uses, the basic premise is
00:13:41 - the same. We need to have a very formal, very well-defined,
00:13:48 - very rigorous list of requirements.
00:13:53 - Literally, we are going to create a scope statement
00:13:59 - for the parts, the pieces
00:14:04 - we want to buy.
00:14:10 - So if we want to buy a turnkey solution that's going to do X,
00:14:14 - Y, and
00:14:16 - Z, we need to provide a very detailed list of the requirements.
00:14:20 - As I said, it's really a scope statement for the vendors, potential
00:14:27 - vendors to review and validate. And the more detailed those requirements
00:14:32 - can be, the more likely our selection will result in selecting
00:14:38 - a solution that's going to work for our project.
00:14:42 - Developing that list of requirements, that scope statement for
00:14:45 - the purchase, is a lot of work. You are literally going to take
00:14:49 - your whole project scope statement and say, "Okay. I'm making.
00:14:53 - I'm making. I'm making. I'm making." Look at this big chunk right
00:14:56 - here in my scope statement that I need to buy.
00:14:59 - Copying that out of your project scope statement, adding to it,
00:15:04 - making it self-sufficient,
00:15:07 - and then publishing that as part of the RFP is going to be critical
00:15:11 - to a good effective purchase planning process.
00:15:16 - With the list of requirements fully defined,
00:15:20 - I believe the next step of an effective purchase plan is before
00:15:25 - we ever release the RFP, we develop the evaluation criteria so
00:15:30 - that we have objective,
00:15:33 - defensible, predetermined
00:15:42 - evaluation criteria. And by doing that evaluation criteria before
00:15:47 - you issue the RFP, you've truly developed the evaluation criteria
00:15:52 - that is going to be neutral, going to be objective, and is going
00:15:56 - to support your project's true requirements, as opposed to the
00:16:00 - potential of being influenced by the, excuse me, smoke and mirrors
00:16:06 - of maybe the vendor's responses. So the vendor is going to write
00:16:10 - all kinds of very positive words to try to influence you to believe
00:16:15 - that their solution is going to be the most effective solution
00:16:17 - for your project, but those are going to be persuasive words
00:16:22 - written to influence you to believe theirs is the best solution,
00:16:27 - hence my term "smoke and mirrors," as opposed to predetermined
00:16:32 - evaluation criteria which should be objective, defensible, predetermined,
00:16:37 - and based on your project's true requirements. And I'll show
00:16:41 - you a spreadsheet that I often use to develop that evaluation
00:16:45 - criteria in just a moment. The next step to purchase planning
00:16:49 - is how are you going to deal with clarifications and questions?
00:16:52 - Are you going to have formal bidders' conferences where all of
00:16:56 - the potential vendors are going to come together in a room or
00:16:58 - on a conference call and each vendor is going to ask all of their
00:17:02 - questions for clarification and you are going to do public responses
00:17:06 - again in that bidders' conference? Are you going to allow vendors
00:17:10 - to contact you directly and ask for questions and clarifications?
00:17:14 - And what are you going to do with those responses for individual
00:17:18 - questions and clarifications? Are you going to publish them only
00:17:21 - to the vendor that asked them? Are you going to publish your
00:17:24 - questions and clarifications to all potential vendors independent
00:17:28 - of who asked the question? I have my own personal opinions of
00:17:32 - what works best. My own personal opinion is bidders' conferences
00:17:37 - often aren't that effective because in a public forum, the vendors
00:17:41 - are often resistant to ask too pointed questions because it may
00:17:45 - give away too many secrets about what their solution strategy
00:17:48 - is going to be, so you'll often get fairly neutral, nonfocused
00:17:52 - questions in a public forum. So I personally prefer to get the
00:17:56 - questions, the clarifications from the vendors in a nonpublic
00:17:59 - forum. I will respond to them directly, but no one will know
00:18:02 - whether it came from vendor A, B, C, D, E, or F. They'll have
00:18:06 - no idea if it's a vendor trying to influence a direction or simply
00:18:09 - get clarification. But I will take those clarification questions
00:18:13 - and I will publish them to all vendors so that all vendors are
00:18:16 - working from an absolute
00:18:19 - level playing field, that no one vendor who may have asked the
00:18:22 - right questions that I simply didn't think to provide the details
00:18:26 - in my requirements will have an advantage or potentially a disadvantage.
00:18:31 - That's my personal opinion of how we deal with clarifications
00:18:35 - and questions, may not suit your organization's procurement policies.
00:18:39 - If you work within a government organization, there will obviously
00:18:42 - be very, very succinct and clear directions given to you on how
00:18:46 - to deal with clarifications and questions.
00:18:49 - Find the policy for clarifications and questions that's consistent
00:18:53 - with your organizational policy. But much like the evaluation
00:18:56 - criteria, determine that in advance as part of purchase planning
00:19:01 - so you're prepared to deal with it when you get that flood of
00:19:04 - questions from the vendors.
00:19:06 - Now, let's look at that evaluation criteria in a little more
00:19:10 - detail. So here is a much simplified evaluation criteria that
00:19:15 - I might use if I was issuing an RFP. And I've put together my
00:19:20 - evaluation criteria at a high level. Cost is worth 10% of my
00:19:24 - total decision. Technical requirements are worth 45%. Customer
00:19:29 - references are worth 15%, and after-sale support is worth the
00:19:34 - remaining 15% of my total evaluation criteria. Within cost, price
00:19:40 - is 55%, maintenance is worth 25%, and so on. My technical requirements,
00:19:46 - requirements 1, 2, 3, probably up to requirements 45, because
00:19:51 - we are going to have many, many, many technical requirements,
00:19:54 - are worth these levels of weightings, and so on as we go through
00:19:58 - the evaluation criteria. I will do this in advance. I will ensure
00:20:03 - that column a truly represents all of my requirements. Remember,
00:20:07 - we are going to have that exhaustive list of requirements, a
00:20:10 - mini scope statement for everything we want to buy from our vendors,
00:20:14 - and we are going to establish the appropriate evaluation criteria
00:20:17 - based on that list of requirements. We are going to work with
00:20:20 - the business to understand what's their relative importance.
00:20:24 - Cost is important to me but it's far more important
00:20:28 - that it satisfies my requirements over the cost. And probably
00:20:33 - almost on an equal footing is my degree of confidence that I'm
00:20:37 - going to get support for my customer both during the project
00:20:40 - and after. So again, we are going to establish the evaluation
00:20:45 - criteria in advance. And then we get the RFP responses, we are
00:20:50 - simply going to go through and say, "Okay. Vendor 1, your price
00:20:53 - was in the middle so I'm going to give you a 5 out of 10. Vendor
00:20:58 - 2, your price was the very highest. I don't really like high
00:21:02 - price so I'm going to give you a 1 out of 10. And vendor 3, your
00:21:07 - price was the lowest. I like low prices so I'm going to give
00:21:11 - you that relative score. Vendor 1, on requirement number 1, I
00:21:15 - thought that you had a very good fit, and I gave you an 8 out
00:21:19 - of 10. Vendor 2, I thought your solution for requirement 1 was
00:21:24 - bang-on, and I'm going to give you 10 out of 10, and so on."
00:21:27 - Vendor 3 had a very inadequate solution for requirement 1, gets
00:21:33 - a 3, but
00:21:35 - every proposal, every vendor's response is going to be different.
00:21:39 - On requirement 2, vendor 3 was spot-on, had a perfect solution.
00:21:45 - On vendor 2 for requirement 2, they were so-so. It was pretty
00:21:50 - good so I'm going to give them a 7 out of 10. And
00:21:55 - vendor 1, let's say they're consistent, they're getting another
00:21:59 - 8. So there is some degree of subjectivity. Whether I'm giving
00:22:03 - them an 8 out of 10, a 10 out of 10, or a 3 out of 10 is subjective,
00:22:08 - but it's going to be subjective at an individual requirement,
00:22:12 - and although it is subjective, should still be very defensible.
00:22:16 - My requirement said your software should be able to do this,
00:22:20 - this, and this. Your response showed me that they could do two
00:22:25 - out of the three requirements. Your response said they could
00:22:28 - do three out of the three. And your response said they did one
00:22:31 - out of three. So again, although there is some degree of subjectivity,
00:22:35 - there is still a high degree of defensibility in this type of
00:22:40 - evaluation criteria. And obviously, when we fill in the incomplete
00:22:44 - evaluation criteria with all of the marks, we are going to get
00:22:47 - the scoring, and at this very preliminary stage, vendor 3 looks
00:22:52 - like they're going to get
00:22:55 - the award of the contract because they've got the highest score.
00:22:59 - Predetermined, defensible, and it's measured or designed to measure
00:23:05 - their response to your specific project requirements as opposed
00:23:10 - to potentially having your evaluation skewed by the quality of
00:23:14 - the writing, i.e. the smoke and mirrors associated with it.
00:23:19 - So I hope you see with that predetermined evaluation criteria,
00:23:23 - it makes the vendor selection fairly straightforward. A lot of
00:23:27 - work. You're going to have to evaluate 40, 50 different response
00:23:31 - or not responses but requirements for each response. But we literally
00:23:35 - go through, score the responses, plug them into our matrix, our
00:23:39 - evaluation criteria, and we come up with the winner
00:23:44 - as the vendor that has the highest score. Or
00:23:48 - depending on the degree of complexity of the evaluation and the
00:23:52 - degree of importance for that particular component for our project,
00:23:56 - we may decide to go to a vendor shortlist. So in this case, we
00:24:00 - take the winners, let's say the top three,
00:24:04 - take the top three vendors, put them on a shortlist, and put
00:24:07 - them into a cook-off.
00:24:09 - What kind of evaluation are you going to use for the vendor shortlist?
00:24:13 - You may then have detailed vendor presentations. You may ask
00:24:17 - them to come in and run a conference room pilot or to give you
00:24:20 - the software for an evaluation period of two weeks or three weeks
00:24:23 - or whatever the appropriate time frame is going to be. But we
00:24:26 - are going to take the results of that evaluation criteria, declare
00:24:31 - the winner or winners, and follow again an appropriately predetermined
00:24:36 - process to take that shortlist of winners down to the selected
00:24:44 - vendor. With a vendor selected, the next step may be the determination
00:24:51 - of the contract type or maybe again, depending on the procurement
00:24:54 - policies of your organization, the contract type may have been
00:24:58 - determined much earlier as part of the purchase planning process.
00:25:03 - How do we want to buy these products, services? Do we want a
00:25:08 - fixed price? Do we want the vendor to say, "Here are the requirements.
00:25:13 - To deliver these requirements, it's going to cost you $10,000?"
00:25:17 - This is that turnkey-type approach. We have a full, firm, fixed
00:25:21 - price proposal, and based on their understanding of the requirements,
00:25:27 - they are going to deliver you functional solutions at a fixed
00:25:31 - price. Do we want to get into a cost plus? The vendor will give
00:25:36 - us their cost,
00:25:39 - and again, we need to have a process for determining what the
00:25:42 - true fair vendor costs are going to be, plus an agreed
00:25:47 - profit margin.
00:25:52 - Are we wanting to get into a per diem? For every unit of laptops,
00:25:58 - it's going to cost me $3,000,
00:26:01 - or for every hour of a programmer services,
00:26:06 - it's going to cost me $100 an hour.
00:26:10 - Different contract types will have different value for your project.
00:26:14 - If you're purchasing a complex piece of software, it may be in
00:26:20 - your project's best interest to get into a fixed price situation
00:26:24 - where that complex software, again, it's almost like that risk
00:26:27 - avoidance strategy. It's very complex. I'm going to create a
00:26:32 - fixed price contract and I'm going to transfer all of those project
00:26:37 - risks to my vendor. Or do I need control?
00:26:42 - I want to have absolute ability to influence
00:26:47 - the developers that are going to work on my project, so I'm going
00:26:51 - to simply take them on an hourly purchase basis, and I will provide
00:26:55 - the direction and the oversight for their services. Determining
00:26:59 - the type of contract again is going to vary by what it is you
00:27:04 - need to purchase and what the characteristics of your project
00:27:07 - are going to be, and on any one given project, it's not out of
00:27:11 - the question that you would have all of these. You would be purchasing
00:27:15 - some complex pieces on a fixed price. You may have a preferred
00:27:19 - supplier relationship, and again, on a laptop,
00:27:22 - your preferred vendor says my cost price for my laptops is going
00:27:27 - to vary based on the worldwide cost for memory cards, for CPUs,
00:27:33 - for disk drives. I'm going to give you a good deal over three
00:27:38 - years, but I have to protect myself, so I will guarantee you
00:27:42 - that I will charge you true actual cost plus an agreed profit
00:27:47 - margin, and therefore, we will all benefit if the cost of technology
00:27:52 - goes down, and I will not be penalized and go to business if
00:27:56 - the cost of technology goes up, and programming services that
00:28:00 - you want to have absolute control over, you may do on a per diem
00:28:04 - basis. So it's not out of the question on any one single project,
00:28:08 - you'll have all of these various contract types. And I don't
00:28:12 - want you to also go away thinking that there are only three contract
00:28:15 - types fixed price, cost plus, or per diem. These are the three
00:28:18 - general types. But as many marketing people there are in our
00:28:22 - vendors' communities, we are going to have that many variations
00:28:26 - or permutations on contract types. This is a fixed price with
00:28:30 - an escape clause. This is a fixed price with a benefit or a predelivery
00:28:37 - bonus. Or this is a fixed price with a late delivery penalty.
00:28:41 - Or this is a cost plus to maximum or this is per diem to maximum.
00:28:45 - You are going to get many permutations of these,
00:28:49 - as many as there are going to be creative salespeople in our
00:28:52 - vendors' organizations. Again, work with your purchasing department,
00:28:57 - understand your project requirements, and try to select the contract
00:29:01 - type that's going to best satisfy your projects requirements. And
00:29:05 - the final item we need to explore in this Nugget is statement
00:29:08 - of work, or probably more appropriately put, the contract
00:29:12 - statement of work. We already discussed we need to have a very
00:29:16 - detailed list of requirements,
00:29:19 - extract from our project scope statement the scope that we are
00:29:22 - going to procure and take that forward. We need to take that
00:29:26 - scope, but we also need to have time expectations. Vendor, you
00:29:31 - need to deliver this in six months. Vendor, you are going to
00:29:34 - deliver this to me for $50,000.
00:29:37 - Vendor, this is your quality. These are my expectations of the
00:29:41 - quality that you're going to deliver to me. You tell me what
00:29:45 - your quality process is. Vendor, tell me what your human resource
00:29:49 - policies are going to be. Am I able to define preferred resources
00:29:54 - that are going to work on my project, or am I going to take whoever
00:29:57 - you assign to my project? What is your risk strategy? What is
00:30:02 - your procurement strategy? Maybe you have to bring in third party
00:30:05 - suppliers to help you. You're literally going through every component
00:30:09 - of a project management plan and put into your contract statement
00:30:13 - of work addressing every consideration that we've already addressed
00:30:17 - in terms of project planning for our project. We should also
00:30:21 - be addressing with our vendors as part of a contract statement
00:30:25 - of work focused on every planning aspect. Literally, we're going
00:30:29 - to develop a project plan within a project plan. This is my project
00:30:34 - plan. This is the project's project plan. And within that, I'm
00:30:39 - going to have my contractor/vendor
00:30:44 - project plan. Don't just assume because "Oh, this is a firm fixed
00:30:50 - price turnkey solution; I can turn a blind eye to it." I believe
00:30:55 - we need to have as much ability to influence, to work with, to
00:30:59 - understand our vendor solutions day in, day out, whether it is
00:31:03 - a firm fixed price turnkey or whether it is a per diem programming
00:31:07 - services. The more ability we have to work with our vendors,
00:31:12 - the more successful our ultimate project is going to be. This
00:31:16 - Nugget was focused on procurement. The main focus of this Nugget
00:31:20 - was on procurement planning, the first three components, but
00:31:24 - we also discussed that once the procurement plan and execution
00:31:30 - is done, i.e. we have selected our vendors, we also need to have
00:31:34 - appropriate attention paid to contract administration, working
00:31:37 - with our vendors day in, day out on our project, and appropriate
00:31:42 - attention to contract closeout to pay our vendors and to put
00:31:45 - processes in place to ensure our vendors are around to support
00:31:50 - the warranty in any ongoing support requirements that our project
00:31:54 - is going to have. But our main focus is on procurement planning.
00:31:58 - Do we make
00:32:00 - or do we buy? Do we have the skills, the resources, the knowledge,
00:32:05 - the ability in our organization to make it, or do we need to
00:32:09 - buy it? What do we make the make-or-buy decision on? Everything
00:32:14 - in the WBS. Every task, every work package that's identified
00:32:20 - in the WBS, every part, equipment, supply that's necessary for
00:32:26 - that WBS to be completed, we as project managers need to make
00:32:30 - a make-or-buy decision where we use our own organizational resources
00:32:35 - or we would purchase. Once we do the make-or-buy decision, everything
00:32:40 - that is a buy, we will then get into a planning process. We will
00:32:46 - determine how we are going to buy it. We are going to determine
00:32:50 - whether we need to go with a formal RFP or whether we
00:32:54 - are going to go to the street and do a commodity purchase. If
00:32:58 - it's a formal RFP, we need to list
00:33:02 - focused, detailed,
00:33:07 - complete, how many more words can I use that say the same thing,
00:33:12 - requirements. We need to clearly articulate what it is we want
00:33:19 - to buy. We need to clearly articulate how we are going to make
00:33:22 - our purchase decision.
00:33:27 - And one of my favorite methods is a simple, and maybe I'm overstating
00:33:32 - or understating, a simple evaluation matrix where we list all
00:33:36 - of our requirements and all of our evaluation criteria. We give
00:33:40 - them our relative weights of importance. We receive the vendors'
00:33:43 - responses, and we simply evaluate them point by point by painful
00:33:47 - point through that list of 100, 200 different requirements, and
00:33:52 - using the simple math, determine who our preferred vendor is
00:33:56 - going to be. We do our vendor selection. We get into the contract
00:34:00 - process and what type of contract are we going to use. Is this
00:34:03 - a fixed price contract? Is this a per diem or various flavors
00:34:08 - in between fixed price and per diem? And we are going to create
00:34:12 - a contract statement of work,
00:34:16 - contract sal, and to me, a contract sal is really nothing more
00:34:21 - than a project plan.
00:34:25 - Within the project plan, the project plan of what my vendors
00:34:30 - are going to supply to me, we start work and then again we roll
00:34:34 - into contract administration and eventually contract closeout.
00:34:39 - This concludes our Nugget on procurement plan development.
00:34:43 - I hope this module has been informative for you, and thank you
00:34:46 - very much for viewing.

Transition and Project Management Plan

Human Resource Management

Project Governance

Project Tracking

Project Change Management

Project Risk Management

Project Quality Management

Project Delivery Management

Earned Value Management

Project Communication Management

Project Closure

Please help us improve by sharing your feedback on training courses and videos. For customer service questions, please contact our support team. The views expressed in comments reflect those of the author and not of CBT Nuggets. We reserve the right to remove comments that do not adhere to our community standards.

comments powered by Disqus

Course Features

Speed Control

Play videos at a faster or slower pace.


Pick up where you left off watching a video.


Jot down information to refer back to at a later time.

Closed Captions

Follow what the trainers are saying with ease.

Premium Features

Transcender® Practice Exams

These practice tests help you review your knowledge and prepare you for exams.

Offline Training

Our mobile apps offer the ability to download videos and train anytime, anywhere offline.

Accountability Coaching

Develop and maintain a study plan with assistance from coaches.
Steve Caseley

Steve Caseley

CBT Nuggets Trainer


Area Of Expertise:
Project Management, MS Project, Development Methodologies, Agile Development

Stay Connected

Get the latest updates on the subjects you choose.

  © 2015 CBT Nuggets. All rights reserved. Licensing Agreement | Billing Agreement | Privacy Policy | RSS