PROCUREMENT PLANNING

TOPIC 2
 CONTENT
 Introduction
 Inputs to Procurement planning
 Tools and Techniques for procurement
 Outputs to Procurement Planning
Introduction
Procurement Process
 Procurement planning: determining what to procure
and when
 Solicitation planning: documenting product
requirements and identifying potential sources
 Solicitation: obtaining quotations, bids, offers, or
proposals as appropriate
 Source selection: choosing from among potential
vendors
 Contract administration: managing the relationship
with the vendor
 Contract close-out: completion and settlement of the
contract
 Procurement Planning
 Procurement planning is the process of deciding
what to buy, when and from what source.

 During the procurement planning process the

procurement method is assigned and the
expectations for fulfillment of procurement
requirements determined.
 Procurement Planning
 Procurement planning involves identifying which
project needs can be best met by using products or
services outside the organization. It includes
deciding:
• whether to procure
• how to procure
• what to procure
• how much to procure
• when to procure
 Importance of Procurement
planning
 It helps to decide what to buy, when and from what
sources.
 It allows planners to determine if expectations are
realistic.
 Check the expectations of the requesting entities.
 It is an opportunity for all stakeholders involved in
the processes to meet in order to discuss particular
procurement requirements.
 Enable these stakeholders to give relevant inputs on
specific requirements.
 It permits the creation of a procurement strategy that
will be included in the procurement plan.
 Such strategy includes a market survey and
determining the applicable procurement method
 Planners can estimate the time required to complete
the procurement process and award contract for
each requirement.
 It serves to confirm if the requirement can be fulfilled
within the period expected, or required, by the
requesting entity.
 The need for technical expertise to develop technical
specifications and/or scope of work for certain
requirements.

 Planners can assess feasibility of combining or

dividing procurement requirements into different
contract packages.
Procurement Planning Tools and
Techniques
 Expert judgement: Experts, both internal and
external, can provide valuable inputs in procurement
decisions
 Market research: Conduct study and obtain data
 Make-or-buy analysis: General management
technique used to determine whether an
organization should make or perform a particular
product or service inside the organization or buy
from someone else
Planning Inputs and Output
 The inputs to this process are scope statement,
product description (specification in case of
software), market conditions, constraints, and
assumptions
 The outputs are procurement management plan and
statement of work
Procurement Management
Outputs
 PROCUREMENT PLAN
 The Procurement Plan is the product of the
procurement planning process.

 It can be developed for a particular requirement, a

specific project in the public or private sectors.
Procurement Plan Cont’d
 Describes how the procurement processes will be
managed, from developing documentation for
making outside purchases or acquisitions to contract
closure

 Contents varies based on project needs

Procurement Plan cont’d
 The procurement plan includes information:
• What type of contract will be used?
• Evaluation criteria and the responsible person
• The relationship of project group to the procurement
department of the organization.
• Example: Who offers a contract? - project manager or vice
president
• Any standard procurement document to be used
• How multiple providers will be managed?
• How procurement will be coordinated with other project
activities.
Importance of Procurement Plan
 It lists all requirements expected to be procured over
a period of time.
 The procurement schedule is developed from it:
timelines for carrying out each step in the
procurement process up to contract award and the
fulfillment of the requirement.
 Importance cont’d
 It allows for the monitoring of the procuring process:
determine how actual performance compares with
planned activities
 Thus it guide the departments for adjusting the
procurement plan accordingly.
 It enhances the transparency and predictability of the
procurement process.
 Importance cont’d
 It allows for the consolidation of similar requirements
under one contract
 Division of a requirement into several contract
packages for economies of scale
 The procuring entity can determine procurement
requirement e.g. additional staffing or external
assistance.
 Importance cont’d
 Use to identify which project needs can best be met
by using products or services outside the
organization

 If there is no need to buy any products or services

from outside the organization, then there is no need
to perform any of the other procurement
management processes
 Example of Make-or Buy
 Assume you can lease an item you need for a
project for RM150/day. To purchase the item, the
investment cost is RM1,000, and the daily cost
would be another RM50/day.

 How long will it take for the lease cost to be the

same as the purchase cost?

 If you need the item for 12 days, should you lease it

or purchase it?
 Solution
 Set up an equation so the “make” is equal to the “buy”
 In this example, use the following equation. Let d be the
number of days to use the item.
RM150d = RM1,000 + RM50d
 Solve for d as follows:
• Subtract $50d from the right side of the equation to get
RM100d = RM1,000
• Divide both sides of the equation by RM100
d = 10 days
 The lease cost is the same as the purchase cost at 10 days
 If you need the item for 12 days, it would be more economical
to purchase it
 EXERCISE 1
 Assume you can lease an item you need for a
project for RM800/day. To purchase the item, the
cost is RM12,000 plus a daily operational cost of
RM400/day

 How long will it take for the purchase cost to be the

same as the lease cost?
 Contract Statement of Work
(SOW)
 A statement of work is a description of the work
required for the procurement
 It is type of scope statement that describes the work
in sufficient detail for the supplier to understand
whether they are capable of providing the product or
service
 Many contracts, or other mutually binding
agreements, include SOWs
 A good SOW gives bidders a better understanding of
the buyer’s expectations
 Many organizations use templates for SOW
I. Scope of Work: Describe the work to be done in detail. Specify the hardware and
software involved and the exact nature of the work.
II. Location of Work: Describe where the work must be performed. Specify the
location of hardware and software and where the people must perform the work
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.
 Types of Scopes of Work
 Performance
• What the project wants, how accomplished and
project needs defined by seller
 Functional or Detailed
• Defines what end product should be as well as
minimum requirements
 Design
• Defines exactly what is required and how to
accomplish it
 Procurement Documents
 Request for Proposals: Used to solicit proposals from
prospective sellers
• A proposal is a document prepared by a seller when
there are different approaches for meeting buyer needs
 Requests for Quotes: Used to solicit quotes or bids from
prospective suppliers
• A bid, also called a tender or quote (short for quotation),
is a document prepared by sellers providing pricing for
standard items that have been clearly defined by the
buyer
 Request for Quotation (RFQ)
• Price per unit quote
 Source Selection Criteria
 It’s important to prepare some form of evaluation
criteria, preferably before issuing a formal RFP or
RFQ
 Beware of proposals that look good on paper; be
sure to evaluate factors, such as past performance
and management approach
 Can require a technical presentation as part of a
proposal
Thank you