Procurement management involves acquiring goods and services from external sources. The process includes:
Plan Procurement — Determine what to buy, when, and how
Conduct Procurements — Solicit bids, evaluate proposals, award contracts
Control Procurements — Manage relationships, monitor performance, process changes
Close Procurements — Verify deliverables, settle claims, archive records
Procurement Documents
RFP (Request for Proposal) — Request detailed solution proposals from vendors
RFQ (Request for Quotation) — Request price quotes for well-defined items
RFI (Request for Information) — Gather information about vendor capabilities
IFB (Invitation for Bid) — Used for sealed bidding processes
PO (Purchase Order) — Simple procurement document for standard items
Contract Types
Type
Risk
Description
Fixed-Price (FP)
Seller bears cost risk
Single price for all work; buyer knows cost upfront
Cost-Reimbursable
Buyer bears cost risk
Actual costs + fee; flexible for uncertain scope
Time & Materials (T&M)
Shared risk
Pay for time + materials; hybrid of FP and cost
Fixed Price Incentive Fee (FPIF)
Shared
Target cost with sharing formula for over/under runs
Cost Plus Fixed Fee (CPFF)
Buyer
Costs + fixed fee regardless of performance
Cost Plus Incentive Fee (CPIF)
Buyer
Costs + fee with incentive for performance targets
Make-or-Buy Analysis
Decision process to determine whether to produce a product internally or purchase it externally. Factors include cost, capacity, expertise, intellectual property, and strategic alignment. The break-even point helps quantify the decision.
Practice Task: You need a custom software module for your project. Perform a make-or-buy analysis considering development cost ($50,000 internal vs. $30,000 vendor), time (3 months vs. 1 month), and long-term maintenance. Draft an RFP outline with 5 key sections. Choose the appropriate contract type and justify your choice.