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Procurement Planning

5 minutes 5 Questions

Procurement Planning is the initial step in the project procurement process. It involves identifying which project needs can best be met by procuring goods or services outside the organization. This process involves consideration of whether to procure, how to procure, what to procure, how much to procure and when. The Procurement Management Plan, a part of the overall Project Management Plan, includes criteria for the type of contract to be used, risk management details, and whether independent estimates will be used as evaluation criteria.

Procurement Planning: A Comprehensive Guide and Exam Tips

What is Procurement Planning: Procurement Planning is a crucial part of Project Procurement Management. It involves identifying and deciding on what project needs can be best met by procuring products or services outside the organization.

Importance of Procurement Planning: Proper procurement planning helps avoid delays, cost overruns, and disputes with vendors. It allows projects to complete within the given time and budget constraints, and ensures effective risk management.

How it works: Procurement Planning process involves: identifying which project needs can be outsourced, documenting product requirements and identifying potential sellers, creating procurement management plans, and conducting procurement risk assessments. Finally, this plan is followed by solicitation planning and execution.

Exam Tips: Answering Questions on Procurement Planning: Remember, understanding the organization’s purchasing policies, types of contracts, and supplier market conditions is crucial. Being able to explain the benefits and challenges of procurement planning, its process, and how it contributes to overall project management, are typical exam areas.

Additional Tips: Draw on real-life examples where possible to illustrate your points. Practice using sample exam questions and understanding the correct answers. Finally, make sure you understand all the terminology related to procurement planning as used in the Project Management Body of Knowledge (PMBOK).

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CAPM - Project Procurement Management Example Questions

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Question 1

You are responsible for a project that requires a specific limited resource. Recently, a new vendor who offers this resource at a significantly lower cost has entered the market. However, working with a new vendor could introduce unforeseen risks into your project. How should you approach this situation as a project manager?

Correct Answer: Conduct a thorough risk analysis of working with the new vendor before making a decision.

As a project manager, one has the responsibility of managing risks and optimizing cost-effectiveness. Here, the best approach would be to conduct a risk analysis of working with the new vendor before making any decision. This would provide an understanding of the potential advantages and disadvantages, thus enabling an informed judgement. The other options have inherent risks. Immediately switching to the new vendor without any evaluation might save some costs, but it also poses a risk if the vendor fails to deliver. Ignoring the new vendor may invite missed opportunities for cost reduction and potential improvements. Requesting the current vendor to match the new vendor's pricing may not work and even if it does, it could strain the relationship between you and the current vendor.

Question 2

As a project manager, you are conducting make-or-buy analysis during procurement planning. Which of the following factors is least likely to influence your decision?

Correct Answer: The procurement department's workload

In make-or-buy analysis, the primary factors influencing the decision are cost comparison, availability of required expertise within the organization, and intellectual property considerations. These factors directly affect the feasibility and benefits of producing in-house versus purchasing externally. The procurement department's workload is less likely to influence this decision, as it is not a key factor in determining whether to make or buy a product or service.

Question 3

During procurement planning, you realize that a critical component for your project is only available from one supplier. What should be your primary concern?

Correct Answer: Risk of supplier dependency

The best answer is 'Risk of supplier dependency'. In procurement planning, when a critical component is available from only one supplier, the primary concern should be the risk associated with depending on a single source. This situation creates several potential issues:

1. Supply chain vulnerability: If the sole supplier faces production issues, goes out of business, or can't meet demand, the entire project could be at risk.

2. Lack of alternatives: With no other suppliers, the project has no backup options if problems arise with the current supplier.

3. Reduced bargaining power: The supplier may have more leverage in negotiations, potentially leading to higher costs or less favorable terms.

4. Quality concerns: If the sole supplier's quality deteriorates, the project has limited recourse.

While the other options are valid concerns, they are secondary to the overarching risk of supplier dependency:

Potential for cost overruns: This is a possible consequence of dependency, but not the primary concern.

Difficulty in negotiating favorable contract terms: This is also a result of the dependency, not the core issue.

Limited options for quality control measures: While this can be a problem, it's not as critical as the overall dependency risk.

In project management, identifying and mitigating risks is crucial. The risk of depending on a single supplier for a critical component is a significant threat to project success and should be the primary focus when facing this situation.

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