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Managing Procurements
How To Create A Procurement Management Plan In 8 Easy Steps

If you’re not using a procurement management plan and working in tandem with the procurement team, you're missing a key step in managing risk on your project and staying on budget and on schedule. 

The procurement management plan sets the boundaries for the entire procurement process, and covers risk management, vendor management, and even the types of contracts you're going to use. 

It's probably not much of an exaggeration to say that how you set up and stick to your project procurement management process affects every step of the project, from the initial planning to the final delivery.

Learning what a plan like this is and what makes for a good one is a crucial skill for project managers in every industry. While project managers are often not the ones managing the procurements directly, not being aware of the process and the plan can have a significant impact on your project.

This article goes over the high points of building a good procurement management process, and what to look for while you're doing it for the first time. 

I’ll cover:

What Is a Procurement Management Plan?

A procurement management plan is the framework that lets you lay out in advance all the acquisition and operating needs for a project. It's usually handled directly by the procurement manager for the project, but the project lead really should be included in its creation from day one. 

It should be comprehensive and cover procurement from the initial project planning stages to final delivery and final contract closure. Say you're the lucky person who has the task of planning out a new project. It can be a new product line, changes to a department's workflow, or an expansion into a new market. You develop a plan really early on, while you're still defining your project scope and budget. 

Starting with a solid procurement plan from the first helps get all 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.

What Is Procurement Management?

Procurement management is the process of defining what additional resources or materials you will need for your project (beyond the in-house resources), and then managing those resources or materials in order to complete the project deliverables. 

Sometimes referred to as the source-to-settle process, the procurement process tells you what your procurement needs are before you talk to your vendors, and it defines whether you can accomplish the project with the resources available to it, or whether you need to procure those additional resources. 

Procurement management also deals with contracts and vendor approvals, so it includes all stages of the contract approval process, including evaluation, bidding, and drafting of formal contracts. At later stages, it outlines performance metrics which will determine how you’ll evaluate your vendor’s performance.

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Why Is a Plan Important?

You come up with a procurement management plan for a couple of reasons. First, it helps your project stay within its budget, by providing an idea of how much the vendors and resources you procure will cost in advance, and keeps you focused on ensuring work by vendors can be completed within the project schedule

Second, it's a form of early project documentation all the stakeholders can refer to so that they are aware of what’s being procured (preventing surprises on their end). A good plan guides procurement activities from the very first, setting realistic expectations for and limits on all the project procurement activities that happen afterward.

What to Include in a Procurement Management Plan

If you're not careful, your plan can drift just like any other part of the procurement process. Don't get it confused with a statement of work, request for proposal (RFP), or cost determination statements. 

A functional procurement plan should have these nine components:

  • Roles and responsibilities of project team members (including skills and capabilities they don’t have, so you can identify gaps)
  • Scheduling for the project, especially for deliverables and other milestones
  • Vendor management processes and guidelines
  • Cost estimates
  • A short list of prequalified vendors
  • A risk management plan
  • Legal nitpicking
  • Payment plans and budget issues
  • Assumptions and the likely constraints you're working with

These elements belong in the first draft of any procurement documentation you're working with, and they should have friendly looking checkmarks next to them by the time you wrap up the project. Here's the details of each in a convenient table:

Procurement componentWhat this coversWho needs to be involved
Roles and responsibilitiesWho is on the team and what they're going to be doing. Lay out clear boundaries 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 where you’ll need to procure someone that does have that skill or capability. 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.
SchedulingEverything relating to the project frame. This is hours worked, meeting schedules, project signposts, and delivery dates for each stage in the life cycle of the project.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. 
Vendor managementSomebody 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 set out selection criteria, as well as how you’ll communicate and work with vendors.Project management and upper managers. You can even form a working group with representatives from the vendors, though you're going to want to have a separate channel for your team apart from the vendor access point.
Cost estimatesThis one is easy. Add up what the procurement should cost, then add 15% because it's always more expensive than that. 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.
Prequalified vendorsYou've probably worked with some vendors before on other projects. If they gave you a positive experience, they can be shortlisted here. For example, if you already have a web design firm you've worked with before, they can be the first name on your procurement list for now.You can interface directly with vendors you trust. Bigger projects should have a single point of contact (the procurement manager) for all or most of the vendors, which simplifies sourcing and procurement documentation while everyone is busy on other parts of the project. 
Risk managementDevelop plans for what to do when a vendor can't deliver, or when 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, his responsibility falls on the project manager, who should work with the procurement manager to develop Plan Bs (or Cs, or Ds, etc.).
LegalNow 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, lawyers, and maybe a few more lawyers while you're at it. Get them to put their opinions in writing for you.
BudgetBudget is what you actually pay, unlike cost estimates, which is what you think you're going to pay. Use estimates here in the planning phase, but keep it updated 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 your accountants here is obvious, but the leads need to know why they're under or over budget limits.
Assumptions and constraintsDo 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.

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 plan.

1. Identify Project Roles and Responsibilities

Who's on your team, and what are they good at? Starting with the human resources available to you is a good first step, since it defines a lot of your later assumptions and constraints. Lay out in writing what each member's role is going to be, and give them as clear a chain of command as you can. 

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 enough UX designer in house. Make a note of this ahead of the second step below. 

The more specific you are at this stage, the better job you're doing to make sure you get the right procurements required by the project and the deliverables. 

2. Identify Skills and Other Needs That Have to Be Procured

You're probably not going to start the project with 100% of the people you need to bring the project home successfully. When you have your initial list of 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 & 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, but above all be definite. Even if a date you set for the phase-1 delivery is a month out of step, the delay will still be less destructive if you know how long it was supposed to take. 

In tandem, you’ll need a procurement schedule that sets out start and end dates for the procurement, how many days or hours they’ll be putting in, and exactly when and when they won’t be working.

Setting a clear schedule not only helps you see obstacles that could derail your plans well ahead of time, it works later on as an analytical tool for determining how good your planning was this time. 

4. Set Performance Standards for Vendors

Vendors are like kids in the park. If you're not watching them, they'll wander off and chase the ducks around the pond. Develop rock-steady criteria for assessing and adjusting your vendors, and communicate those clearly to every one of them. 

Having your calendar finished does a world of good at this stage, since it gives vendors a picture of how serious your deadlines are. Lay out the expected process for deliveries, and decide what good performance looks like in advance so you can adequately manage your vendors. 

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. Conduct Risk Assessment

An honest project 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 what to do about them (steps for mitigation), record your findings, and carry it all forward through the life of the project. 

This last step is important. Keep track of your risk documentation throughout the project span, and revisit the assessment periodically to update your expectations. This process of updating your risk predictions helps keep the whole project in good trim and prevent mission drift and loss of focus. 

7. Get Contracts Approved

The procurement process requires contracts, and contracts need some kind of process of approval 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 you switch business partners, reevaluate your contract process and develop a picture of how well that process is working.

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 all it takes is a single delay to deliver a blow to your whole project. 

Don't just wing it here. 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 aren't due to factors outside of the vendors' control.

Related Listen: How To Build Long-Term Loyalty With Virtual Contractors

Procurement Management Software

A good procurement management software setup can take your outline and turn it into real-world orders your vendors can process. Look into SaaS and cloud-based systems with updated safety and functionality updates. 

Ideally, your software should have all the components available to fill out during the planning phase, an engine that can develop the necessary purchase orders for you automatically, and a reporting function that produces simple outputs you can read at a glance. The very best will generate financial statements and other documents you can pass over to accounting or legal for their own inputs as part of the process.

Get Stuff Done and Stay Smart About Project Management

Good procurement management is more of a process than an accomplishment. It takes some effort to get going, and you have to stay on top of the latest developments if you're going to get the most out of the system you're using. 

The Digital Project Manager helps keep you up to speed on those developments, so you don't miss a trick when you're planning out your next project. Sign up for access to our newsletter, and stay in the loop like a pro.

By Galen Low

I am a digital project management nerd, a cultivator of highly collaborative teams, and an impulsive sharer of knowledge. For the past decade, I've been shaping and delivering human-centered digital transformation initiatives in government, healthcare, transit, and retail. I'm also the co-founder of The Digital Project Manager and host of The DPM Podcast.

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