Choosing the Right Type of Contract so that it Aligns with Risk Tolerance and Constraints
Introduction
In today's blog post, we are going to talk about Project Procurement Management. With many projects that occur, it is important for companies to have a contract with external vendors to be able to fulfill the resources to complete the project. With being able to build and slowly maintain the relationships with contractors, many project procurement managers are able to complete their tasks better and at a much faster rate. It is also very important to choose the right type of contract from the risks and constraints that occur in the project. Now that I gave some background information, I will first delve into What is Project Procurement Management and ways on being able to pick the best type of plan when it comes to risk tolerance.
What is Project Procurement Management?
Swathee Chad
Project Procurement Management is the relationship that is established between Project Procurement manager and also the contractor for the Project Procurement Manager to be able to have the external resources to complete the project. They usually end up buying or renting many of the resources in order to complete the tasks for the project. With that, the Project Procurement Manager usually sees if the contractor that they are doing business with will suit their project by looking at the contractors negotiation policies and also seeing what types of business they usually cater to. With that, they end up selecting the contractor that best fits their needs when it comes to the delivering of external resources for the project. Project Procurement Management is a very important procedure to be in place, and it is also used in many industries from Information Technology, Engineering, Construction, and others. With now defining what project Procurement management is, I will now go into detail with the process and briefly talk about the benefits of Project Procurement Management.
Process In Project Procurement Management
Swathee Chad
Planning- The first step of the Procurement Management process is the planning step. This is the step that the businesses take to help be able to determine what resources are needed for the project to be completed and also how to keep the project within the budget. The criteria that is used for the planning is the resources obviously and also other items like the delivery date, important milestones in the project, and also that criteria that is determined for creating partnerships. Usually this stuff is documented for being able to handle the delivery of the project.
Conducting- After the planning step is the conducting step. This is the step when the project Procurement Manager makes a decision and chooses the contractor on who to negotiate with based on which contractor fits best with the needs of the project. They also have the ability to pay for the resources that are needed to accomplish the tasks of the project.
Controlling- Next is the controlling step. This step is pretty much the steps that are taken to enforce the contract and also to see if the products that are being used in the project are functioning as necessary. Tasks that are done in this step are being able to evaluate the status updates and also contract agreements.
Closing- The final step in this process is the closing step, which is pretty much the closing of the contract. This is the step that reviews the work that is completed based on the contract and also sees if the contract needs to be renewed. This also includes the step of being able to sign saying that you are not part of the contract anymore which means there are no more responsibilities.
Now that we talked about what Project Procurement Management is and the steps to be done, we can now talk about The three different types of contracts that are established and how well they align with risk tolerance and cost constraints.
Three Different types of Contracts
Fixed Price Contracts- This is the type of contract that happens when the seller and buyer come to an agreement on that project and it is fixed from the beginning to the end of the project. No matter how much the project builds up, the seller will have to acquire all of the costs. It is best used for when the scope is defined.
Joe Clancey
Cost Reimbursable Contracts- This type of contract occurs when the project scope is not well defined and has a high probability of acquiring a lot of costs. In this model, the buyer has to pay for the whole project starting from the initial price by the seller to being able to increase the amount of work in the project.
Time Contracts- This contract type of contract occurs when the seller gets paid by the hour put into the project by the buyer.
Kykrio lusov
Based on the three types of contracts that we have discussed, when the project has significant cost constraints, it's best to use a Fixed Price Contract, because this will help the project not exceed their budget and Time Contracts are the best for risk tolerance when it comes to creating a risk management plan.
As shown, Project Procurement Management is a very important task in Project Management with being able to reach out to external stakeholders for getting the extra resources to complete the tasks in the project and also creating a contract with them. With that, time contracts are important for being able to reduce the risks of the project using a risk management plan and also Fixed Price Contracts are good for lower budget projects with lowering the amount of costs involved. Being able to properly follow the steps in project procurement is important for being able to negotiate a contract with external resources, the type of contract and also the day when the contract ends.
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