Discussions on Project Procurement

During the procurement execution stage of a project, the project manager must determine whether to make or buy a product. The project manager must also assist in the selection of vendors to supply products/components necessary to complete the project. What criteria should be analyzed before reaching the make or buy decision?

Kerzner provides a list of considerations in his Special Topics chapter in his project management text, Project Management: A Systems Approach, starting with cost. Cost can be a consideration if the vendor is able to complete the work more cost effectively. However, other factors might hold more weight than cost. For example, in my recent LA project we outsourced the audio/visual. The primary reason wasn’t cost—it cost about twice as much to outsource it than it would have cost to do it ourselves. In this case we outsourced because the capabilities of what we wanted in the new showroom were beyond our internal capabilities, which is the seond on Kerzner’s list--added expertise.

I like that Kerzner also lists minimization of company risks. When we outsourced the audio/visual we negotiated a fixed price contract. As a result, the cost risk to our company was mitigated. Some might argue that you pay more in fixed price contracts. That might be the case, but our concern was locking in the budget and ensuring we were able to meet scope, not getting the least expensive price.

The last item Kerzner mentions is focusing on essential items. We refer to this internally as our core competency. If we need to accomplish something that isn’t directly related to our core competency, we will put more emphasis on outsourcing. If we don’t need to use up our valuable internal resources and can hand it off to an external resource, we are very open to that.

How does your organization select its sources?

My company has a large number of preferred vendors that we use for work all over the world. We are very loyal to our vendors. So we will continue to work with the same vendors year after year, assuming they are meeting our needs. However, if we have a need that isn’t met by an existing supplier, we will seek a new partnership.

Depending on the size and scope of the work to outsource, we typically go through an RFP process. We define our requirements, work with a number of sources to find qualified bidders, maybe initially issue a RFQ to help narrow the field, hold bidders conferences, etc. We will try to narrow to two or three bidders to negotiate the final pricing and contract.

What are some differences between contracting and outsourcing?

We use the terms interchangeably. However, some view contracting as bring in outside resources to temporarily offset an internal labor shortage. For example, if I need a couple of additional people to help with a Windows 7 deployment, I might contract those “bodies” from a temp agency. We manage the work and the temp agency provides the bodies. In contrast, outsourcing is assigning the work to another company. Continuing with the Windows 7 example, we might hire an external company to perform the upgrade for us.