MPM-623: PROJECT LOGISTIC &

PROCUREMENT MANAGEMENT
Dr. Ajit Pal Singh, 0921512436 (M)
 PROJECT PROCUREMENT MANAGEMENT
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 Project Procurement Management includes the processes

required to acquire goods and services from outside the
performing organization.
 For simplicity, goods and services, whether one or many, will
generally be referred to as a “product.”
 Figure 1 provides an overview of the following major processes.
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1. Procurement Planning-determining what to procure and when.

2. Solicitation Planning-documenting product requirements and
identifying potential sources.
3. Solicitation-obtaining quotations, bids, offers, or proposals as
appropriate.
4. Source Selection-choosing from among potential sellers.
5. Contract Administration-managing the relationship with the
seller.
6. Contract Close-out-completion and settlement of the contract,
including resolution of any open items.
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 These processes interact with each other and with the

processes in the other knowledge areas as well.
 Each process may involve effort from one or more individuals
or groups of individuals based on the needs of the project.
 Although the processes are presented here as discrete
elements with well-defined interfaces, in practice they may
overlap and interact in ways not detailed here.
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 Project Procurement Management is discussed from the

perspective of the buyer in the buyer-seller relationship.
 The buyer-seller relationship can exist at many levels on one
project.
 Depending on the application area, the seller may be called a
contractor, a vendor, or a supplier.
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The seller will typically manage their work as a project. In such cases:
 The buyer becomes the customer and is thus a key stakeholder for
the seller.
 The seller’s project management team must be concerned with all the
processes of project management, not just with those of this
knowledge area.
 The terms and conditions of the contract become a key input to many
of the seller’s processes. The contract may actually contain the input
(e.g., major deliverables, key milestones, cost objectives) or it may
limit the project team’s options (e.g., buyer approval of staffing
decisions is often required on design projects).
 Figure: Procurement Planning
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 PROCUREMENT PLANNING
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 Procurement planning is the process of identifying which

project needs can be best met by procuring products or
services outside the project organization.
 It involves consideration of whether to procure, how to procure,
what to procure, how much to procure, and when to procure it.
 When the project obtains products and services from outside
the performing organization, the processes from solicitation
planning through contract close-out would be performed once
for each product or service item.
 The project management team should seek support from
specialists in the disciplines of contracting and procurement
when needed.
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 When the project does not obtain products and services from
outside the performing organization, the processes from solicitation
planning through contract close-out would not be performed.
 This often occurs on research and development projects when the
performing organization is reluctant to share project technology,
and on many smaller, in-house projects when the cost of finding
and managing an external resource may exceed the potential
savings.
 Procurement planning should also include consideration of
potential subcontracts, particularly if the buyer wishes to exercise
some degree of influence or control over subcontracting decisions.
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 Inputs to Procurement Planning
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(1) Scope Statement: The scope statement describes the current

project boundaries.
It provides important information about project needs and
strategies that must be considered during procurement
planning.
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(2) Product Description: The description of the product of the

project provides important information about any technical
issues or concerns that would need to be considered during
procurement planning.
The product description is generally broader than a statement
of work.
A product description describes the ultimate end-product of the
project; a statement of work describes the portion of that
product to be provided by a seller to the project.
However, if the performing organization chooses to procure the
entire product, the distinction between the two terms becomes
moot.
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(3) Procurement Resources: If the performing organization does

not have a formal contracting group, the project team will have
to supply both the resources and the expertise to support
project procurement activities.
(4) Market Conditions: The procurement planning process must
consider what products and services are available in the
marketplace, from whom, and under what terms and conditions.
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(5) Other Planning Outputs: To the extent that other planning

outputs are available, they must be considered during
procurement planning.
Other planning outputs which must often be considered include
preliminary cost and schedule estimates, quality management
plans, cash flow projections, the work breakdown structure,
identified risks, and planned staffing.
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(6) Constraints: Constraints are factors that limit the buyer’s

options. One of the most common constraints for many projects
is funds availability.
(7) Assumptions: Assumptions are factors that, for planning
purposes, will be considered to be true, real, or certain.
 Tools and Techniques for Procurement Planning
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(1) Make-or-Buy Analysis: This is a general management

technique which can be used to determine whether a particular
product can be produced cost-effectively by the performing
organization.
Both sides of the analysis include indirect as well as direct
costs.
For example, the “buy” side of the analysis should include
both the actual out of-pocket cost to purchase the product as
well as the indirect costs of managing the purchasing process.
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 A make-or-buy analysis must also reflect the perspective of the

performing organization as well as the immediate needs of the
project.
 For example, purchasing a capital item (anything from a
construction crane to a personal computer) rather than renting
it is seldom cost effective.
 However, if the performing organization has an ongoing need
for the item, the portion of the purchase cost allocated to the
project may be less than the cost of the rental.
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(2) Expert Judgment: Expert judgment will often be required to

assess the inputs to this process.
Such expertise may be provided by any group or individual with
specialized knowledge or training and is available from many
sources including:
 Other units within the performing organization.

 Consultants.

 Professional and technical associations.

 Industry groups.
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(3) Contract Type Selection: Different types of contracts are

more or less appropriate for different types of purchases.
Contracts generally fall into one of three broad categories:
(a) Fixed Price Or Lump Sum Contracts: This category of
contract involves a fixed total price for a well-defined product.
To the extent that the product is not well-defined, both the
buyer and seller are at risk-the buyer may not receive the
desired product or the seller may need to incur additional costs
in order to provide it.
Fixed price contracts may also include incentives for meeting or
exceeding selected project objectives such as schedule targets.
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(2) Cost Reimbursable Contracts: This category of contract involves

payment (reimbursement) to the seller for its actual costs.
Costs are usually classified as direct costs or indirect costs.
Direct costs are costs incurred for the exclusive benefit of the project
(e.g., salaries of full-time project staff).
Indirect costs, also called overhead costs, are costs allocated to the
project by the performing organization as a cost of doing business
(e.g., salaries of corporate executives).
Indirect costs are usually calculated as a percentage of direct costs.
Cost reimbursable contracts often include incentives for meeting or
exceeding selected project objectives such as schedule targets or
total cost.
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(3) Unit Price Contracts: The seller is paid a preset amount per
unit of service (e.g., ETB 70 per hour for professional services
or ETB 1.08 per cubic yard of earth removed), and the total
value of the contract is a function of the quantities needed to
complete the work.
 Outputs from Procurement Planning
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(1) Procurement Management Plan: The procurement

management plan should describe how the remaining
procurement processes (from solicitation planning through
contract close-out) will be managed.
A procurement management plan may be formal or informal,
highly detailed or broadly framed, based on the needs of the
project. It is a subsidiary element of the overall project plan
described in Project Plan Development.
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For example:
 What types of contracts will be used?

 If independent estimates will be needed as evaluation criteria,

who will prepare them and when?

 If the performing organization has a procurement department,

what actions can the project management team take on its

own?
 If standardized procurement documents are needed, where can

they be found?
 How will multiple providers be managed?
 How will procurement be coordinated with other project aspects

such as scheduling and performance reporting?

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(2) Statement(s) of Work: The statement of work (SOW) describes

the procurement item in sufficient detail to allow prospective
sellers to determine if they are capable of providing the item.
“Sufficient detail” may vary based on the nature of the item, the
needs of the buyer, or the expected contract form.
Some application areas recognize different types of SOW. For
example, in some government jurisdictions, the term SOW is
reserved for a procurement item that is a clearly specified
product or service, and the term Statement of Requirements
(SOR) is used for a procurement item that is presented as a
problem to be solved.
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The statement of work may be revised and refined as it moves

through the procurement process.
For example, a prospective seller may suggest a more efficient
approach or a less costly product than that originally specified.
Each individual procurement item requires a separate statement
of work.
However, multiple products or services may be grouped as one
procurement item with a single SOW.
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The statement of work should be as clear, as complete, and as

concise as possible.
It should include a description of any collateral services
required, such as performance reporting or post-project
operational support for the procured item.
In some application areas, there are specific content and format
requirements for a SOW.