Project Procurement

Management
Module 3: Classify Procurements
Project Procurement Framework
Procurement Procurements
1. Classify procurement: Make
or Buy
• One could easily separate a project into two distinct parts:
• Make: portion which will be done with your own company
employees
• Authorized by the project manager with use of non-legal
documents typically called work authorizations or budgets
• Directly controlled by company
• Buy: portion which will be sent outside of your company for
performance
• Governed strictly by the legal document the buyer has
issued called the contract, or subcontract, or purchase
order
• No direct control by company
2. Classify Buy Items by Complexity
 1. Major (high risk) complexity procurements,
the purchase of something which does not
exist, tailored to the project's unique
specification. These would be considered
critical sub-projects.
2. Minor (low risk) complexity procurements,
Definition: will often represent large monetary values,
but the commodities exist and will conform
Procurement 3.
to the sellers existing product specification.
Routine buys of COTS (Commercial Off-The
Categories 4.
Shelf) commodities or purchased services.
Special procurements: done under corporate
teaming arrangements.
5. Special procurements: to other segments of
the project's company, typically called
interdivisional work.
 • They often require the creation of something new by a
seller, something that doesn't already exist.
(1) Major • Require that the project specify precisely what it needs,
typically taking the form of specifications, drawings, and
(high-risk) often includes a comprehensive statement of work.
• Typical characteristics for purchased items in this category
Complexity might be:
• a new product or a system,
Procurements • a major new component,
• a major structural element,
to the Buyer's • a design to a performance requirement

Specification • Will experience a phenomena typically called "scope creep"

• High risks to the overall project, and often, significant senior
management and even customer oversight.
 (1) Major • The architectural design of a new commercial
center.
(high-risk) • The construction of a new production factory.
Complexity • The outsourcing of information technology
services.
Procurements • The creation of a new software package.
to the Buyer's • The development of a new computer.

Specification - • The development of a new airplane.

• The development of a new radar system, or any
Examples critical project component.
 • These procurements are for items which exist in
(2) Minor some form with a given seller, and are defined by
the seller's own product specification. They are
(low-risk) commercially available from the seller, either in the
seller's inventory or sometimes assembled after an
Complexity order is received.

Procurements • May have a long lead-time delivery requirement due

to scarce critical components.
to the Sellers • These items will often carry a high monetary value,
sometimes exceeding the major complexity buys.
Product • These items will normally carry a lower risk, as long
Specification as they arrive in time to support the project master
schedule
 (2) Minor
(low-risk) • The purchase of existing automobiles, buses,
Complexity transportation vehicles or perhaps aircraft.
• The purchase of an existing radar system, or
Procurements large electrical generators.

to the Sellers • The purchase of existing, but high value

software.
Product • The purchase of existing computers, and other
developed, but high value components.
Specification -
Examples
 • Commercially available as "off-the-shelf" articles, or
routine services
(3) Routine • These commodities will often have interchangeable

buys of (substitute) components.

• Examples
Commercial- • Purchased labor, which will brought in plant and
supervised by the project's staff.
Off-The-Shelf • Purchased services, or testing, of a routine nature.
• Raw materials: nuts, bolts, fasteners, sheet metal,
(COTS) items paints, solvents, etc.
• Pencils, paper, office supplies.
or purchased • Existing computers, printers, scanners, etc.

services • Packaged commercial software.

• Outsourced complete but routine services, for
example, cafeteria, accounting, security, etc.
 (4) Special • These are project procurements which are executed
strictly in accordance with an overriding corporate legal
Procurements: contract typically called a teaming agreement or alliance
or arrangement, etc. Here, the executives of one

performed
company and another company (or companies) agree to
combine their assets, facilities, people, shared risks, etc.,
and go after a new segment of work, typically in the form
under of some new project.

strategic • Procurements under Teaming Agreements will typically

cover Category (1) or (2) buys as defined above, but
could also include Category (3) items bought under a
company long-term relationship.

teaming • Such arrangements can divide the new project by

creating a "prime contractor-subcontractor" relationship,
whereby the designated prime company will receive the
agreements contract.
 (5) Special • The significance of interdivisional work, sometimes also
Procurements: called intracompany work, is that such procurements
should be the easiest arrangement to manage
to other • Interdivisional work are the procurements made within a
single company by one operating unit (the project) with
components of another operating unit (the performing organization).

the project's • Sometimes, the most compelling justification for

interdivisional work is simply the "availability" of a

company, company workforce, or facilities, Project manager may

have little say in the matter and senior executives insist
on the project work being kept within the company, even
interdivisional when a better price or better product might be available
from an outside supplier.
work
 (5) Special
Procurements: to • The development of some new component or
other product.
components of • The manufacture of parts.
the project's • The procurement of parts for the project.
• Design and testing services.
company,
• Purchased labor.
interdivisional
work - Examples
 Q&A
Khalid.ahmadkhan@riphah.edu.pk