Have you ever gone shopping for a new computer or camera and became overwhelmed by the options? Now, just imagine that same challenge multiplied by 1,000 – that’s what many project managers have to face each day when it comes to procurement.
Fortunately, you’re not alone. You can use the best practices that generations of project managers have developed to buy efficiently and ethically.
As you work through your project planning, you will quickly identify resources, skills and products you need. At first, you may find that some of these resources are available inside your organization – you might be able to borrow a spare laptop computer for the project. Other resources – like an event space to launch the new product – may not be available internally. That’s where procurement comes to play. Your ability to define requirements, evaluate bids, and solve problems will directly impact your project success.
Buying the PMBOK Way: a Sneak Peak inside the World of Contracts
As a reference guide, the PMBOK Guide has a wealth of information for project managers planning purchases. For example, the Guide covers the most popular contract types (e.g. firm fixed price) and their implications for the project. Did you know that many vendors dislike fixed price contracts because they bear the risk of uncertainty? In contrast, time and materials contracts shift much of the risk of uncertainty to the buyer. If procurement represents a major portion of your project, seek out the advice of an experienced buyer and a lawyer so you can avoid common mistakes.
Important Note: What happens if you cross the line in procurement? You may face fines, a damaged reputation and years behind bars. For more on the risks you face in procurement, read The Top 10 Procurement Fraud Cases of 2016.
Successful procurement starts with avoiding damaging mistakes. To avoid embarrassing failures, fines and other mistakes, take note of these common problems. A few wrong steps in your procurement strategy and you will quickly blow your entire project budget. On the other hand, a well-selected vendor has the ability to accelerate your project’s success.
Did you know that most governments around the world have complex restrictions on procurements and contracts? There’s a good reason for that restriction. In many countries, corrupt officials have abused their authority to earn personal profits and enrich their friends. Accepting a bribe is only the most obvious failure to keep in mind when it comes to procurement. Your organization may forbid you from accepting restaurant meals and gifts of any kind when you are going through contract negotiations with a vendor.
Resource: Read “How to Buy Well: A Short Guide to Ethical Procurement” for additional guidance on project procurement ethics.
Delivering your project on time is a top priority: everyone understands that point. Unfortunately, the drive to hit your schedule sometimes leads to bad procurement decisions. For example, you may take a preferred vendor list, pick a vendor and move on. That approach means you may miss out on creative technology and ideas from other vendors.
To prevent yourself from “buying on habit,” use the tools and techniques form the PMBOK Guide to direct your efforts. First, start by writing up a description of what you want for the project in general. Second, establish selection criteria that you will use to measure vendor proposals (e.g. quality, industry experience, local facilities, price and so forth). With those resources in mind, you stand a better chance of making the right purchase, rather than easy purchase.
Example: The City of Seattle is considering adding a social responsibility selection criterion for financial services providers. Properly evaluating a potential vendor on this criterion will take training and may have implications for project procurements.
Price exerts a special impact on our psychology including how we make decisions on projects. Unlike quality or reputation, a price is easy to understand quickly. It’s also easy to make comparisons between offers based on price. If you give too much weight to price in your procurement decisions, you’re likely to cause other project problems. If you pay a low price, you may end up with a host of problems. For example, you may not be able to pick up the phone and get fast help from the vendor. You may have to spend a lot of time and money in training the vendor’s staff in what you want to be done. In fact, the money you saved with a low purchase price may more than wiped out by quality and schedule problems.
Resource: “How to Stop Customers from Fixating on Price“ in the Harvard Business Review explains how customers are missing the big picture by focusing excessively on price.
In certain commodity markets, you may think one vendor is no different from another. A project manager leading an office tower construction project may view carpets in that way. When you think about your procurement as interchangeable widgets, you are in danger of falling into the transactional mindset.
With the transactional mindset approach, you may be motivated to “get the best deal for the today.” Before you know it, you may be using a rough or abusive style in negotiations. Vendors may give in today to win the business but they will remember your behavior. Balance your short term needs to get a good deal with your long term interests in having positive working relationships with vendors.
Resource: To move away from the transactional philosophy, read “5 Tips to Move From Transactional to Meaningful Customer Relationships.”
Take The Next Step
Depending on the state of your project management career, you may not have much experience with procurement. Here are two action steps you can take to improve your procurement capabilities right now: