Key Concepts in Procurement

Explore the essential concepts from Chapter 13 of PMP Exam Prep 2023, 11th Edition, covering procurement management in detail.

This process involves determining what to procure, when, and how. Key activities include:

  • Make-or-Buy Analysis: Deciding whether to produce in-house or outsource based on cost, expertise, and capacity. For example, a software project may buy a pre-built module to save time.
  • Procurement Management Plan: Outlines procurement strategies, contract types, and evaluation criteria.
  • Procurement Strategy: Defines delivery methods (e.g., turnkey, phased) and contract types (e.g., fixed-price, cost-plus).
  • Procurement Documentation: Includes statements of work (SOW), requests for proposals (RFPs), and source selection criteria.
  • Agile Considerations: In agile projects, procurement may involve short-term vendor contracts for specific iterations or sprints.

This process focuses on obtaining seller responses, selecting vendors, and awarding contracts. Key activities include:

  • Bidder Conferences: Meetings to clarify procurement requirements with potential vendors, ensuring fairness.
  • Proposal Evaluation: Using source selection criteria (e.g., technical capability, cost, past performance) to assess bids.
  • Contract Negotiation: Finalizing terms, including scope, price, and deliverables.
  • Tools and Techniques: Includes advertising, expert judgment, and weighted scoring models.
  • Agile/Hybrid Approach: Agile projects may use time-and-materials contracts for flexibility, with frequent vendor check-ins.

This process ensures vendor performance meets contractual requirements. Key activities include:

  • Performance Reviews: Monitoring vendor deliverables against the contract terms.
  • Procurement Audits: Structured reviews to identify lessons learned and improve future procurements.
  • Contract Change Control: Managing changes to scope, schedule, or cost via formal change requests.
  • Payments and Claims Administration: Ensuring payments align with milestones and resolving disputes.
  • Agile Considerations: Agile projects monitor vendor deliverables iteratively, often using sprint reviews.

Understanding contract types is crucial for procurement management. Common types include:

  • Fixed-Price (FP): Set price for defined scope, e.g., Firm Fixed Price (FFP), Fixed Price Incentive Fee (FPIF). High risk for seller.
  • Cost-Reimbursable (CR): Buyer reimburses costs plus a fee, e.g., Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF). High risk for buyer.
  • Time-and-Materials (T&M): Payment based on time and materials used, suitable for agile or undefined scopes.
  • Hybrid Contracts: Combine elements of FP and CR for flexibility in adaptive environments.
  • Risk Allocation: Each contract type allocates risk differently between buyer and seller, impacting project planning.

Key tools and techniques for procurement management include:

  • Market Research: Analyzing market conditions to identify capable vendors.
  • Expert Judgment: Leveraging experienced professionals to guide procurement decisions.
  • Source Selection Criteria: Weighted criteria (e.g., cost, quality, experience) to evaluate bids.
  • Procurement Audits: Reviewing processes to ensure compliance and identify improvements.
  • Agile Tools: In agile, vendor collaboration may use Kanban boards or backlog prioritization for deliverables.

Agile and hybrid environments adapt procurement processes for flexibility:

  • Iterative Procurement: Contracts may cover specific sprints or deliverables, with frequent vendor reviews.
  • Collaborative Contracts: Emphasize partnership over rigid terms, using T&M or incentivized contracts.
  • Vendor Integration: Vendors may join agile teams, participating in daily stand-ups or sprint planning.
  • Rita’s Agile Process Chart: A tool from the book to visualize agile procurement workflows, aligning with ECO requirements.