How To Create A Procurement Management Plan In 8 Easy Steps
You may be thinking—procurement? I don’t see how that applies to my role as a project manager. Spoiler alert: it does.
That’s because failure to use a procurement management plan and work in tandem with the procurement team introduces unnecessary project risks. For example, when I led an international development project, our ability to source and manage contractors and critical pieces of equipment had a material impact on both our project budget and our timeline.
Therefore, while project managers are often not managing procurements directly, it’s useful to understand the process so that you can make sure it’s working effectively throughout the project life cycle.
This article reviews the high points of building a solid project procurement management process and explains what to look for when you’re doing it for the first time.
What Is A Procurement Management Plan?
A procurement management plan is the framework that lets you lay out in advance the acquisition and operating needs for a project.
It sets the boundaries for the entire procurement process, including risk management, vendor management, and even the types of contracts you’re going to use. It also covers procurement activities throughout the project life cycle, from initial project planning stages to final delivery and contract closure.
Starting with a solid procurement plan from the jump helps get the other project team members on the same page and lays out what you need from vendors to ensure you can complete the project deliverables that are laid out in the project management plan.
Typically, a dedicated procurement manager leads procurement activities for a project, but the project manager should also participate in designing the procurement process given its impacts on project budget and timeline.
What is Procurement Management?
Procurement management is the process of defining what additional resources or materials you will need for your project (beyond in-house resources) and then managing those resources or materials to complete project deliverables.
Since procurement management deals with external vendors, it deals with vendor contracts. Procurement management includes the various stages of the contract approval process, such as evaluation, bidding, and drafting of formal contracts.
At later stages, it outlines performance metrics that determine how you’ll evaluate vendor performance.
What is a Procurement Contract?
A procurement contract is an agreement between your organization and an outside vendor to deliver goods or services required for project completion.
The contract establishes a legally binding relationship so that both parties receive what was agreed upon in terms of quality, cost, and timeline.
Procurement Strategy vs. Procurement Plan
While a procurement plan lists the tactical steps that you’ll follow to obtain project goods or services from a third party, a procurement strategy sets the vision for how you’ll engage with suppliers to provide project goods and services.
A procurement strategy includes vendor selection guidelines that help you achieve your business goals. Elements of a procurement strategy might include:
- Sourcing from a particular type of supplier, such as a small business
- Sourcing only from countries in which your organization has a license to operate
- Choosing to source certain services from third parties as a means of reducing cost or due to a lack of in-house expertise
Why Is A Procurement Plan Important?
You develop a procurement management plan for a couple of reasons.
First, it helps your project stay within budget by providing an idea of how much the vendors and resources you procure will cost. It also helps you ensure that vendors can complete their work within the constraints of the project schedule.
Second, stakeholders can refer to the procurement management plan early in the project planning phase to understand what’s being procured (preventing surprises on their end). A good plan sets realistic expectations for project procurement activities.
What To Include: 10 Components of A Procurement Management Plan
Don’t confuse the procurement management plan with a statement of work, request for proposal (RFP), or cost determination statements.
A functional procurement plan should include these 10 components:
- Required skill sets to develop project deliverables mapped against roles and responsibilities of project team members (including skills and capabilities they don’t have, so you can identify gaps)
- Requirements for any materials and equipment that you need to procure
- Scheduling for the project, especially for project deliverables and other milestones
- Cost estimates
- Assumptions and constraints
- Vendor management processes and guidelines, including decision criteria and roles and responsibilities of project team members
- A short list of prequalified vendors
- A risk management plan
- Legal nitpicking
- Payment plans and budget issues
Here are the details of each element in a table:
| Procurement Component | What This Covers | Who Needs to be Involved |
|---|---|---|
| Project requirements mapped against roles and responsibilities | Required skill sets to execute project deliverables mapped against your selected project team members and what they’re going to be doing. Lay out clear responsibilities for each person, play to their strengths, and delineate expectations up front, ideally with a hint about your methods for judging performance. Make sure to include skills and capabilities you’re missing, so you can identify the gaps. | Ideally the whole team should be involved with this, but you can keep it to team leads for a big project. Consult with upper management early and often in case you need to add someone to the team. |
| Requirements for any materials and equipment | Specifications for any supplies or equipment needed for project deliverables. | The project manager should consult with subject matter experts and, depending on the price point, obtain approval from senior leadership. |
| Scheduling | Everything relating to the project timeframe. This is hours worked, meeting schedules, project milestones, and delivery dates for each stage. | This may be something you do yourself on a small project, though you and the procurement manager should keep each other in the loop about both the project and procurement schedules. |
| Cost estimates | This one is easy. Add up what the procurement should cost, then add at least 10% contingency. Work in some guidelines for the expense approval process, so you’re not stuck later on trying to cobble together an accountable process on the fly. | Yourself and accounting. Talk to team leads to figure out what they think they need, pad what they tell you, and bring that to management for approval. Be ready with a Plan B estimate if you’re told the estimates are too high. |
| Assumptions and constraints | Do your best here to outline the best, worst, and most likely assumptions about how things will go. Develop an idea of your project’s constraints, and plan around them. | Start with upper management for your constraints, then work on your own to develop the most likely assumptions. If anyone on the team has specific expertise, such as a graphic artist with experience in web design, consult with them too. |
| Vendor management | Somebody needs to translate project requirements into concrete orders for deliveries. You’re going to be signing different contracts in various formats with your vendors, and this is a good place to draft the templates you’ll need. You also need to establish selection criteria, guidelines for how you’ll communicate with vendors, and who on your team is authorized to do what. | Project management and upper managers. You can even form a working group with vendor representatives, but be mindful that you’ll need to have separate internal vs. external communication channels. |
| Prequalified vendors | You’ve probably worked with some of these vendors previously on other projects. If working with them was a positive experience, shortlist them here. | You can interface directly with vendors you trust. Bigger projects should have a single point of contact (the procurement manager) for the vendors, which simplifies sourcing and procurement documentation while everyone is busy on other parts of the project. |
| Risk management | Develop plans for what to do if a vendor can’t deliver or if a supply chain issue threatens to shut you down for a month. Build out backup plans and alternative processes to manage these risks. | You might have an experienced risk manager to do this work for you. If you're not that lucky, this responsibility falls on the project manager, who should work with the procurement manager to develop Plan Bs (or Cs, or Ds, etc.) |
| Legal | Now is the time to resolve legal issues in advance. This can include relatively minor details, like which contract type is needed, or some of the more esoteric elements of jurisdiction and contract management. | Lawyers! They are your first lines of defense to protect the organization from potential issues. |
| Budget | Cost estimates represent what you think you’re going to pay before signing a contract. Once completed, your procurement contracts become your procurement budget that you pay out to vendors according to a set schedule. Use cost estimates in the planning phase, but update with actuals as you spend the available resources and get hard numbers from the vendors themselves. | Team leads and accounting need to be involved in the budget. Input from accountants is obvious, but the leads need to justify why they’re under or over budget limits. |
How To Create A Procurement Plan
Now that you know what you're doing, it helps to know how to do it. Here are the eight steps to follow when you’re settling in to draft your procurement plan.
1. Review project requirements and map against available resources
What skills do you need to execute your project? Review the project requirements based on the project scope and chat with subject matter experts and your project management colleagues to assess what is needed to deliver this project successfully.
Then, once you’ve mapped out the requirements, vet them against who’s on your team and their capabilities. Note gaps and skills or capabilities you’re missing. Say you’re working on a website project for a clinic that requires a complex scheduling or appointment booking system, but you don’t have a senior UX designer in house. Make a note of this ahead of the second step below.
Don’t forget to include requirements for any materials or supplies you’ll need.
The more specific you are at this stage, the better job you’ll be at sourcing based on project and deliverable needs.
2. Identify skills and other needs that have to be procured
You’re probably not going to start a project with 100% of the people you need to bring the project home successfully. Once you’ve developed your initial list of team member roles and responsibilities, there are bound to be gaps.
Work with HR to identify people available to you who can plug those gaps and bring them onboard. If, for example, you need someone who can code in Python, that’s a specific skill somebody in the company should have. If not, you may have to find a freelancer who works at a reasonable hourly rate.
Spotting these gaps during the planning stage saves a world of trouble later on.
3. Create a schedule for the project and procurement
A plan without a schedule is daydreaming, so get out the calendar and mark it up. Be as realistic about milestones as you can. Don’t forget to take into account weekends and holidays. For example, is it realistic to assume that no one on your team will take summer vacation?
In tandem, you’ll need a procurement schedule that sets out start and end dates for the procurement and how many days or hours are required.
Setting a clear schedule helps you spot potential obstacles ahead of time. Be sure to preserve your baseline schedule as an input into future project planning efforts.
4. Set performance standards for vendors
Develop impartial criteria for assessing vendor performance and communicate these standards directly to the vendor to avoid surprises on either side.
Having your calendar finished does a world of good at this stage, since it gives vendors an idea of how serious your deadlines are. You should also lay out the expected process for deliveries (hint: having a consistent process across vendors helps you stay organized internally.)
5. Determine contract categories and costs
This is a thorny legal issue, and there’s no substitute for expert help when drafting contracts. Does your procurement require written contracts, or does your state uphold a verbal agreement? Are you going to need a service contract, a purchase agreement, or a copyright release? Ask the legal team and run with their advice.
6. Assess risks
An honest risk assessment is an important tool for planning out your project. At this stage, it’s important to:
- identify likely hazards associated with the procurement that can put you off track
- assess in advance how much damage can be done
- evaluate how likely each potential issue will be and potential steps for mitigation
- document your findings
- review and update the risk assessment throughout the project life cycle to prevent mission drift and loss of focus.
7. Approve contracts
The procurement process requires contracts, and contracts need a functioning approval process to make sure everything is above board and running smoothly.
Develop the process for contract approval in advance, and track the process closely for as long as your project is running. Every time you add a new vendor or switch business partners, reevaluate your contract process and make adjustments, as needed, to remove obstacles.
8. Manage the vendors
If this is your first project that involves procurement, you might feel it’s not necessary to micromanage your vendors. This hands-off approach may work for most of them, especially the vendors you’ve partnered with in the past, but it only takes a single delay to deliver a blow to your whole project.
Don’t wing it.
Develop a plan for how to communicate your procurement needs to vendors and track their ability to accomplish outlined objectives. Build in a range of measures that can gently nudge the vendors back onto a productive track, which may include cost sanctions for overruns and delays that are within the vendors’ span of control.
Related Listen: How To Build Long-Term Loyalty With Virtual Contractors
Procurement Management Software
A good procurement management software setup can streamline vendor engagement, saving you tons of time and effort on manual processes. Look into software as a service (SaaS) and cloud-based systems with updated safety and functionality updates.
Ideally, your software should include:
- A way to specify requirements during the planning phase
- An engine to generate purchase orders automatically
- A reporting function that produces simple outputs you can read at a glance
- A way to generate financial statements and other documents you can pass over to accounting or legal for their own inputs as part of the process
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