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Procurement Planning

Procurement Planning

The Project Procurement Planning Process

According to Guth (2018), project procurement planning includes identifying the project needs that can be best met by purchasing services or products outside the organization. It includes considering whether to purchase, what to purchase, how to purchase, when to purchase, and how much to purchase. One of the steps involved in the project procurement planning process is forecasting. This step involves linking the procurement strategy with the business strategy and project objectives. The second step is developing a procurement work plan. This step includes defining the items that should be purchased, defining the process for purchasing the items, and scheduling the timeframe for delivering the items. The third step is establishing the procurement plan. This plan includes supply estimates, project schedule, roles and responsibilities of those involved in the procurement process, vendor control strategies, risk management, pre-qualified vendors, payments, and legal jurisdiction.

The Most Valuable Output of the Plan Procurement Process

The plan procurement process yields various outputs that affect the procurement process. According to Bräkling & Oidtmann (2012), the main outputs include contracts, procurement constraints and assumptions, roles and responsibilities and the limits of decision-making authority on purchases, procurement milestones for every purchase, and the strategy for dealing with long lead times. The most valuable output of the procurement process plan is the contract between the organization and the vendor. A contract is important in the procurement process because it creates a mutually binding agreement that obligates a supplier to offer specified items. A contract defines the entire procurement process based on the terms set by the project team and the supplier based on quality, timeliness, and delivery plans. A contract is also the most valuable output because the procurement process cannot begin before the supplier and project team or organization form an agreement and sign a contract to formalize their agreement.

Contract Types: The Buyer, the Seller, and Risks for Each Contract Type

According to March (2017), the main contract types in procurement are cost-reimbursable, fixed price, and time and materials contracts. Fixed-price contracts are contracts where two parties state the services and goods one party will offer and determine the price the other party is willing to pay. In this type of contract, the seller has the most risk. Cost-reimbursable contracts include paying the supplier or vendor for the actual cost of an item. The contract includes a clause allowing the vendor to claim a profit over the cost of an item. Buyers have the most risk because they have to buy the item even though the vendor adds additional costs. For instance, the vendor may adjust the total cost that the buyer should meet to pay delivery fees. Time and materials contracts include reimbursing vendors for materials bought and a per-hour or per-day rate for the time spent preparing the materials. The customer has the most risk in this type of contract because there is no time limit on how long the product will take to be ready or how much it will cost.

Methods for Mitigating Risks

The risks for each type of contract are hard to avoid, thus the need to establish mitigation measures. The risk in fixed-price contracts can be mitigated by adding a margin to the price set by the vendor before it is included in the procurement proposal. The risk in cost-reimbursable contracts can be mitigated by managing and tracking costs to identify when there is a cost increase surpassing the project budget. The project owner may create instant reports to review the project status and forecast costs that may arise within the project. The risk in time and materials contracts can be mitigated by conducting detailed due diligence to understand the likelihood of unforeseen changes, challenges, and project demands.

A Project Monitoring Process to Track Procurement Orders for the Project

Need recognition entails determining the items that need to be purchased and the timeline within which they should be purchased. Purchase requisition includes documents raised by internal users or customers seeking the help of the procurement team to meet an existing need. Requisition initiates the official procurement process because the requisition has to be cross-checked and approved for the availability of the project budget. The solicitation process includes forwarding several requests for a quotation to vendors to receive and compare bids to select the best vendor. After the solicitation process, the procurement team collaborates with the assessment board to evaluate and review quotations from suppliers to select the most suitable one. The selected supplier then delivers the required items within the required timeline. The disputes and invoices step includes receiving invoices from suppliers, paying them, and addressing any payment disputes. Record keeping entails storing all relevant documents used in the procurement process, such as delivery notes, sales receipts, and sales agreements.

Applicable Source Selection Criterion

A source selection criterion is used in selecting a supplier based on specific attributes, such as the cost of supplies, risk sharing, production capacity, and the type of business. Life-cycle cost would be a good source selection criterion for any project because it focuses on minimizing project costs. According to Guth (2018), life-cycle cost includes selecting the seller with the lowest total cost of ownership. In project management, the life-cycle cost criterion estimates the overall cost of the alternatives the project team has to complete the project. However, project managers need to determine the alternatives’ economic impact and quantify the impacts. The main costs considered in the life-cycle-cost analysis are disposal, preventative maintenance, initial, operating, and service costs.

Ethical Concerns

One of the ethical concerns that should be considered when identifying source selection criteria is illegal sourcing. This ethical concern arises when suppliers provide items produced immorally or illegally, whether due to the materials in use or the working conditions in which production happens. The second ethical concern is coercion. In some instances, the project team may be threatened to accept a specific supplier. Another ethical concern is bribery which is among the common ethical concerns in procurement. Suppliers may bribe the project team to get their proposals accepted in most instances. The procurement team also needs to consider traffic of influence as a major ethical concern. The traffic of influence occurs when the exchange of a contract award is done in preferential treatment or favor by another party or an organization.

The Role of Risk Management in the Procurement Planning Process

Dionne (2013) defined risk management as a process designed by an organization’s management personnel and implemented in a strategic environment and different departments. It aims to identify probable events that may affect the organization and manage risk to offer a reasonable guarantee of achieving the organization’s objectives. The main role of risk management in the procurement process is to prevent disruptions in the supply chain by ensuring that the project team is prepared for any unexpected supply changes and challenges encountered when acquiring supplies. Risk management also helps identify the most effective mitigation strategies based on anticipated risks. Risk management also plays a vital role in vendor selection by helping the procurement planning team identify the main risks of doing business with a certain vendor and the impact of the risks on the project.

References

Bräkling, E., & Oidtmann, K. (2012). Procurement-planning: Erfolgspotenziale eröffnen. Power in Procurement, 31-202. https://doi.org/10.1007/978-3-8349-6981-1_3

Dionne, G. (2013). Risk management: History, definition, and critique. Risk Management and Insurance Review, 16(2), 147-166. https://doi.org/10.1111/rmir.12016

Guth, S. (2018). Project procurement management: A guide to structured procurements. Independently Published.

March, C. (2017). Procurement methods and types of contracts. Construction Management, 124-133. https://doi.org/10.4324/9781315528175-11

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Question 


Write a 1,050- to 1,400-word paper in which you do the following:
Describe the project procurement planning process.

Procurement Planning

Procurement Planning

Identify the most valuable output of the plan procurement process and explain why you believe it is most valuable.
Explain the various contract types and describe who—buyer or seller—has the most risk for each contract type.
Explain the methods that can be used to mitigate risks for each contract type.
Develop a project monitoring process to track procurement orders for the project.
Describe a source selection criterion that would be applicable to any project.
Analyze the ethical concerns that should be considered when identifying source selection criteria.
Explain the role of risk management in the procurement planning process.

Format your paper consistent with APA guidelines.

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