In PRINCE2 7, the Commercial Management Approach is a management product created primarily during the Initiating a Project process to define how the commercial relationship between the customer and the supplier will be managed. This document acknowledges the critical role of supply chains and procu…In PRINCE2 7, the Commercial Management Approach is a management product created primarily during the Initiating a Project process to define how the commercial relationship between the customer and the supplier will be managed. This document acknowledges the critical role of supply chains and procurement in modern project delivery, serving as a bridge between legal contracts and day-to-day project management.
The approach outlines the procurement strategy, including the rationale for 'make or buy' decisions, supplier selection criteria, and the specific contract models (e.g., fixed price, time and materials, or agile contracts) to be employed. It establishes the mechanisms for contract management, detailing how supplier performance will be monitored against the project’s requirements, how payments will be triggered, and the protocols for handling contract variations or commercial disputes.
Within the context of the Organizing practice, the Commercial Management Approach ensures that the project management team structure aligns with commercial obligations. It clarifies the roles and responsibilities regarding supplier interaction, ensuring that the interface between the internal project team and external vendors is governed effectively. Furthermore, it defines the allocation of risk between the customer and the supplier, ensuring that the project's Business Case remains viable under the agreed terms.
By integrating these commercial parameters into the Project Initiation Documentation (PID), the approach mitigates risks associated with scope creep, budget overruns, and relationship breakdowns. It provides the Project Board with the assurance that the project can secure necessary resources at the appropriate quality and cost, ensuring that commercial agreements actively facilitate, rather than hinder, the successful delivery of the project's products.
Commercial Management Approach
Definition and Context The Commercial Management Approach is a management product in PRINCE2 7 (within the Organizing practice) that defines the strategies, standards, and processes for managing the commercial aspects of a project. It is typically created during the Initiating a Project process and forms part of the Project Initiation Documentation (PID). It specifically details how the project will secure and manage the goods and services required from external suppliers (or internal service providers acting as suppliers).
Why is it Important? Projects often rely on third-party suppliers to deliver specialized products or resources. Without a structured commercial approach, projects face significant risks regarding cost overruns, poor quality deliverables, legal disputes, and supply chain failure. This approach ensures: 1. Value for Money: It establishes mechanisms to ensure the project pays a fair price for the required quality. 2. Risk Management: It defines how commercial risks (e.g., supplier insolvency, ambiguous requirements) are handled. 3. Clarity: It sets clear boundaries for the customer-supplier relationship, defining roles, responsibilities, and communication channels.
How it Works The Project Manager (often with support from procurement specialists) prepares this document. It covers several key areas:
- Sourcing Strategy: How suppliers will be identified and selected (e.g., competitive tendering, sole sourcing, using existing framework agreements). - Contracting Approach: The type of contract to be used (e.g., fixed price, time and materials, risk-sharing/target cost). - Contract Management: How the contract will be monitored, how performance will be measured (KPIs), and how payments will be authorized. - Closure: The procedure for closing the contract, handling warranties, and handing over assets.
Exam Tips: Answering Questions on Commercial Management Approach When facing Prince2 Practitioner exam questions regarding this topic, apply the following strategies:
1. Identify the 'Who' (Roles): Questions often ask who is responsible for creating or approving this approach. While the Project Manager is responsible for its creation (often delegating detailed drafting to Team Managers or procurement experts), the Project Board must approve it. Specifically, ensure the approach aligns with the Corporate/Programme procurement standards if they exist.
2. Tailoring is Key: If the scenario describes a simple, internal project, a complex Commercial Management Approach is unnecessary. If the scenario involves high-value external procurement, the approach must be robust. Look for answers that match the scale and complexity of the scenario. Answering that a 'full tender process is required' for a small, low-risk purchase is usually incorrect.
3. Link to Business Case: Always choose answers that link the commercial approach back to the Business Case. The choice of contract affects risk allocation. For example, a Fixed Price contract transfers risk to the supplier (potentially increasing cost), while a Time and Materials contract keeps risk with the client. The exam tests if you can select the right approach for the specific project risk appetite.
4. Differentiate from the Project Plan: The Project Plan shows when things happen; the Commercial Management Approach defines how the procurement and supplier relationship works. If a question asks about the method of selecting a supplier or the rules for engagement, it refers to the Commercial Management Approach, not the Plan.