Source: Image of treasure map, Public Domain, http://bit.ly/1hDhuNo; lego blocks, Public Domain, http://bit.ly/1dCbeyt; shopping basket, Public Domain, http://bit.ly/1cUoD3I; thinking silhouette, Public Domain http://bit.ly/19X2szy; logs, Public Domain, http://bit.ly/1dCicDz; dollar sign, Public Domain, Sparkol VideoScribe Internal Image.
Hi, I'm Jeff. And in this lesson, we'll cover the methods used to procure resources. While developing the project plan, the project manager might find resources that aren't available within the organization. In that case, the project manager will need to obtain those resources, and this is known as procurement.
Let's learn more about this process. When a project manager discovers that their project needs resources that are unavailable, the first decision that must be made is whether the project should build or buy those resources. Building the resource means that the project must commit the time and effort necessary to complete the resource. It will almost certainly increase the length of the schedule.
How ever, the advantage to building the resource is that the deliverable can usually be customized to the projects needs. Before deciding to build the resource, the project manager must determine if their organization even has the expertise needed to complete the resource successfully. If the expertise is available, the project manager must then investigate if the personnel are available in the right time frame to complete the work. In many ways, managing the development of the resource is often a small project in and of itself.
Buying the resource can seem simpler. The resource will usually be available immediately, so the schedule is not impacted in the short term. However, the disadvantage to buying a resource is that it might be difficult to modify the product based on the projects requirements. And if the time and expense to modify the resource becomes extensive, it can sometimes be more costly to buy a resource.
If the resource is a person, then the only decision might be to obtain the necessary expertise from outside the organization, such as through contractors or vendors. When the project finally decides to buy a resource, the procurement process should be used. Procurement is a method of contracting with a vendor or supplier.
And while there are many types of contracts, there are two that are often used during procurement-- fixed bid, or time and materials. Fixed bid contracts occur when the vendor provides a single dollar quote for the cost of the resource. The advantage of this method is that the costs are known immediately so they can be worked into the project budget. Time and materials contracts are sometimes the only choice if the resource requires greater customization, though.
For this type of contract, the vendor bills the project for the cost of the materials, and their actual time spent creating the resource, plus an additional markup usually a percentage of the total cost. Depending on the resource needed, the contract might be for time only, when only person resources are needed, or materials only. The risk with a time and materials contract is that the cost is variable-- so the exact cost will not be known to the project at the time the budget is being prepared. A project manager must closely monitor the work to avoid potential negative impacts to the budget. And those are the methods used to procure a resource.
Nicely done. In this lesson, you learned how a project decides whether to build or buy a resource. And you learned how to procure a resource when the project decided to buy. Thanks for listening. And have a great day.
The process of acquiring goods and services needed for a project.