STRATEGIC AND OPERATIONAL

PROCUREMENT PLANNING
LECTURE STREAMS

o Steps in Procurement Strategy Preparation, Setting

Procurement Objectives and Selection of the optimal
procurement strategy
o Annual Procurement Planning
o Cost Estimation techniques
o Procurement planning using Nigerian Public
Procurement Framework
Steps in Procurement Strategy Preparation,
Setting Procurement Objectives and
Selection of the optimal procurement
strategy
Strategy Definition
Strategy: Procurement strategy:
1. A method or plan chosen to The purpose of the Procurement
bring about a desired future, Strategy is to define the optimal
such as achievement of a goal procurement approach to deliver
or solution to a problem; the right procurement result for the
Procuring Entity (PE).
2. The art and science of
planning and marshaling
resources for their most
efficient and effective use.

Without a carefully researched Procurement Strategy, it is impossible to

know whether or not the PE’s procurement activities will meet the 5 R’s
requirements and also be an optimal fit in order to achieve its mandate
and objectives taking into consideration its context and capacity as well as
the market in which it operates.
Steps in Developing a Procurement Strategy
The PE’s or the Project’s Operational Context
( PESTLE Analysis)

Internal PE Capacity/Resource Analysis and Resource PLAN

(SWOT Analysis)

Market Analysis and Procurement Risk Management

(Supply Positioning Model, Supplier Preferencing Tool, Porter’s 5 Forces Analysis and the Risk
Mitigation / Management Plan)

SMART Procurement Objectives linked to procurement portfolio and to the

PE/Project mandate (RAQSCI Model)

Selection of Optimal Strategy Option

 STEP 1
The PE’s Operational Context ( PESTLE Analysis)

• PESTLE analysis of the context in which the PE operates will

provide information that can influence the Procurement Strategy.
• The priority is to identify factors that could impact the
Procurement Strategy (approach to market) both positively and
negatively (at the Political, Economic, Social, Technological, Legal
and Environmental levels), while drawing conclusions from this
information to inform the design of the Procurement Strategy
(PS).
 STEP 2
oPE’s Internal Strengths and Weaknesses and External Threats and
Opportunities (SWOT Analysis) - leads to the development of a
Resource PLAN
• The objective of the PE’s capacity assessment is to identify any
known factors, both enablers and constraints, which may have an
impact on both the delivery of the Portfolio/Project and the
Procurement Strategy being developed.
• It will also help identify any targeted early interventions such as
training, staff reinforcements or enhanced support that the PE may
need now and downstream throughout execution of procurement.
 STEP 3
oMarket Analysis and Risk Management Plan ( Market Analysis
informs development of the Procurement Strategy)
• The PE needs to assess the market from the following perspectives:
1. Supply Positioning Model — Identify the value and criticality of
each contract or category of contracts in its portfolio of
purchases and establish the risks that must be dealt with in
setting the Strategy;
2. Type of competition in the market for key contracts and related
market dynamics using Porter’s 5-Forces analysis tool and
Suppliers’ Preferences tool.
 STEP 3(cont.)
o Procurement Risk Management
• In this part of the Procurement Strategy, the PE analyses and
prioritizes the “risks” identified in Steps 1, 2, and 3 that relate to the
Operational Context, PE capacity assessment and Market Dynamics
which then need to be mitigated through the Procurement Strategy
with respect to each procurement contract in the PE’s portfolio or in
the project.
 STEP 4
oSetting the Procurement Objectives:
• Based upon the Strategic & Market Analysis, Risk Assessment and
Stakeholder Analysis (if needed), outline the key Procurement
Objectives that if achieved will support the achievement of the PE’s
objectives and deliver Value for Money (VFM).
• The Procurement Objectives need to be SMART (Specific, Measurable,
Achievable, Realistic, and Time-bound): inspired by the 5 R’s and
RAQSCI.
 STEP 5
Selection of Optimal Procurement Strategy:
• Here the PE outlines the alternatives/options considered for procuring
each contract and the recommended Procurement Strategy for each
contract in its annual portfolio (or as detailed in the Project
description) including its justification for the selected strategy based
on the analysis of the preceding Steps.
• This Section must be completed for each major contract in the
portfolio/project as well as for Low-Value purchases.
Characteristics of Objectives
The objectives of the Procurement Strategy (PS). The Key Procurement
Objectives should be inspired by the 5 R’s and the RAQSCI Model and
shall be phrased in compliance with the SMART rule, i.e. they should
be:
• Specific,
• Measurable,
• Achievable,
• Relevant and
• Time Bound.
RAQSCI- based Objectives
oThe Procurement Objectives are framed to refer to:
1. Regulatory Requirements
2. Assurance of Supply
3. Quality levels
4. Service levels
5. Cost affordability
6. Innovation and continuous improvement
oIn complex procurement these objectives must be quality-assured by
the key stakeholders, (as a minimum those within the PE and the
stakeholders’ organizations).
 PE’s Procurement Strategy
• The appropriate procurement strategy is developed to cover:
• All the items the Procuring Entity is purchasing;
• level of risk for each item of procurement;
• impact of the procurement item on the PE’s objectives and
mandate;
• Capability of the market to supply and the state of competition
in the market;
• Lessons learnt from previous experience;
• Resources and capacity of the PE; and
• Specific objectives in compliance with governing rules (also
those of donors if applicable).
 Optimal Procurement Strategy
• The aim of the Procurement Strategy is to document:
“How can the Procuring Entity ensure timely delivery of needed
procurement of the right quality and at best VFM without undertaking
un-due risks?”
• The optimal Procurement Strategy is a “fit for purpose”
procurement approach which is tailored for delivering the PE’s
Objectives taking into consideration the individual circumstances,
and business and operating environment of that particular
procurement.
 KEY PARAMETERS OF THE OPTIMAL PROCUREMENT STRATEGY (courtesy
WB PPSD)

Attribute Selected Strategy/Approach Justification

1. Specifications
Conformance/Performance
2. Additional Sustainability Requirements Yes/No

3. Contract Type
A. Traditional
B. Design and Build
C. Design, Build, Operate, Maintain
D. Design and Build-Turnkey or Prime Contractor
E. EPC and EPCM

4. Pricing and Costing Mechanism

A. Lump Sum
B. Performance based contracts
C. Schedule of Rates/Admeasurement
D. Time and Materials
E. Cost Plus
5. Supplier Relationship Adversarial/Collaborative
A. None, Fixed Price
B. Negotiated
C. Percentage
State any special conditions of contract
6. Form of Contract (Terms and Conditions)
A. Request for Proposals (RFP)
B. Request for Bids (RFB)
7. Procurement Method C. Request for Quotations (RFQ)
D. Direct Selection
A. Competitive Dialog
8. Selection Arrangement B. Public Private Partnerships (PPP)
KEY PARAMETERS OF THE OPTIMAL PROCUREMENT STRATEGY-
Cont’d
(courtesy WB PPSD)

Attribute Selected Approach Justification

9. Consultants’ Evaluation Selection
Method
A. Quality Cost Based Selection (QCBS)
B. Fixed Budget Based Selection (FBS)
C. Least Cost Based Selection (LCS)
D. Quality Based Selection (QBS)
E. Consultant's Qualifications Based Selection
(CQS)
F. Direct Selection

10. Evaluation of Costs

A. Adjusted Bid Price
B. Life-Cycle Costs
11. Domestic Preference Yes / No
12. Rated Criteria
List the type of criteria to be used
(mandatory/desired)
VFM optimization through early effort in
Strategy and Planning

Opportunity and Influence in Delivering VfM in the Procurement

Process. Earlier investment of effort pays off.
Annual Procurement Planning
 Procurement Planning
• Procurement planning is defined as follows:
• Process used by PEs to plan contracting or purchasing activity for
a specific period [Annual Procurement Plan]
• Plan for the purchase of a specific requirement
[Contract/Project’s Specific Procurement Plan].
• Procurement officers need to be closely involved with budget
managers and end-user departments in the planning process.
 Annual Procurement Planning
• Annual Procurement planning is a key function in public sector
organizations. Its objective is to provide the Procuring Entity with
continuity of inputs in order to enable it to achieve its service
delivery/mandate objectives.
• It refers to the scheduling of procurement processing activities by
the Procuring Entity in a manner that spreads them out throughout
the annual calendar in order to timely meet end-users’ procurement
needs (as per the Procurement Strategy).
 Why Plan Procurement?

“Failures don’t plan to fail;

they fail to plan.”
- Harvey Mackay

• Planning is a vital part of the procurement activity.

• A Procurement plan is a requirement under the vast majority of
public procurement laws and regulations including in the Nigerian PP
system.
• Ideally, procurement officers, user and budget departments will be
involved in procurement planning at an early stage of the budget
cycle, when departments are identifying their needs for the coming
budget year.
 Advantages of Procurement Planning
• Links are forged between the end-user units, the finance unit, and the procurement
unit as soon as a requirement/need is requisitioned;
• Early disclosure and publication of the Annual Procurement Plan allows advance
preparation time for the bidders and results in more competition to the benefit of
the PE
• It is an indicator of good governance, sound and systematic procurement
management as well as transparency.
• Economies of scale are gained by uniting the requirements of different end-users;
• There are no surprises when requirements manifest themselves in later months;
• Everyone can plan and schedule resources for the coming year more effectively; and
• The procurement plan is linked to the strategic plan of the PE and its Procurement
Strategy.
 Procurement Planning Stages
• During the preparation of the Procurement Strategy the following will have been
achieved:
1. Identifying / prioritizing the needs;
2. Determining the required budget;
3. Formulating the Procurement Strategy and determining the different lots
(packaging);
4. Determining the (annual) procurement plan;
• For each contract/lot:
1. Market engagement;
2. Determining the competition method;
3. Determining the deadlines for starting and the duration of every procurement
activity;
4. Determining the project’s or the specific contract’s procurement plan.
Workflow of Annual Procurement Plan
Preparation
Identifying needs

Prioritizing needs

Budgeting

Checking compliance with

key budget lines

Packaging the different lots

Checking compliance of process

and timeline with Budget Cycle
 Budgeting
o Procurement is an Integral Part of Public Financial Management
• Procurement expenditures are a significant component of public
expenditure and GDP;
• Many public projects involve multi-year expenditures;
• Procurement is also a financial management issue – not just adhering
to legal requirements or obtaining goods and services and
constructing works that meet technical requirements; and
• Inappropriate procurement will adversely impact both strategic
resource allocation and operational efficiency, through inappropriate
purchase and construction and higher than necessary costs. It may
also threaten the national budget through cost over-runs in major
projects.
 Packaging Different Lots
• Proper packaging of procurement is very important to enhance
competition in the market and ensure that quality goods, services,
and works are obtained from suppliers, service providers, and
contractors.
• Products that are of the same category and can be purchased from
one economic operator should be included in a single tender, subject
to social policy or other specific or mandatory requirements for
splitting.
• On the other hand, packaging lots of dissimilar items in the same
tender, makes it difficult for specialized economic operators to
participate in the process. It encourages participation of traders
operating as middlemen (which is to be avoided as much as possible).
 Packaging Different Lots: Best Practice
• It is the responsibility of the officers entrusted with procurement planning to
ensure that the tenders attract maximum competition in all procurements they
carry out; one way of achieving this target is through proper packaging of
procurement lots during Procurement Strategy preparation.
• In order to maximize economy and efficiency in the procurement of goods, works
or services of a broadly similar or related nature, these may be grouped into a
single tender or a number of tenders of a size and type that will likely attract the
highest number of economic operators provided that this is practicable and will
not cause unreasonable delay in the procurement process (market research is
critical here).
• In this respect, procurement planning should ensure fairness in grouping tenders
into lots and allow bidders to bid for lots of their specializations.
A Recurring (iterative) Process

Prioritizing

Identifying
Annual Plan
Needs

Budgeting
Packaging
Process and Timeline Linked to Budget Cycle
• Annual Procurement Planning should follow the Government’s
financial year and “may” be as follows:

1. Month 8: procurement officers work with user department

heads to determine procurement needs and make initial list.

2. Month 9: procurement officers develop the procurement

strategy for the procurement portfolio and put together a draft
procurement plan.

3. Month 10: a final list of procurement requirements and annual

procurement plan is agreed upon as well as specific
procurement plans for major contracts.

4. Month 11: the process of procurement can begin so that by the

commencement of the new Financial Year, some critical
contracts are signed as early as possible or
announced/tendered.
 Process and Timeline Linked to Budget Cycle
• Typically, according to the budget calendar, the Budget Estimates are
submitted to the Ministry of Finance in the last quarter of the
financial year when the Procuring Entities must have a fair view of
their budgetary allocations.
• The mistake that most PE’s commit is that they begin the
procurement process only at commencement of the new budget
financial year. Actually from FY commencement, payments for any
procurement can be done, but the process of procurement can begin
before the financial year starts (e.g. prequalification for major
works/services contracts or launch of tender competition etc.).
 Contents of the Annual Procurement Plan
• Typically, the minimum contents of the Annual Procurement Plan are:

1. A short description of the contract and its duration;

2. The method of procurement;

3. Expected date of publication of the Procurement Notice or the

Notice to Prequalify;

4. Any other disclosure requirement mandated by law.

Typical Template of the Annual Procurement Plan

Procurement Description of the Intended Date of Procurement Method

Reference with link procurement Publication of the to be used
to Budget Code specific procurement
notice
Goods Category
1.
2.
3.
Works Category
1.
2.
3.
Services Category
1.
2.
3.
4.
Cost Estimation techniques
 Cost Estimation Overview
o A cost estimate is the summation of individual cost elements, using established
methods and valid data, to estimate the future costs of a project/contract, based
on what is known today.
(Source: US-GAO)
o Cost Estimate – A prediction of quantities, cost, and/or price of resources required
by the scope of an asset investment option, activity, or project. As a prediction, an
estimate must address risks and uncertainties.
o Estimates are used primarily as inputs for budgeting; cost or value analysis;
decision making in business; asset and project planning; or for project cost and
schedule control processes.
o Cost estimates are determined using experience and calculating and forecasting the
future cost of resources, methods, and management within a scheduled time
frame.
(Source: AACE International)
 Cost Estimate
Ø An accurate cost estimate is critical for deciding whether to take on a
project, for determining a project’s eventual scope, and for ensuring
that projects remain financially feasible and avoid cost overruns.
Ø Cost estimate is used to authorize a project’s budget and manage its
costs. In many countries incorrect cost estimate can lead to the
cancellation of the procurement process if all bid prices exceed the cost
estimate by a defined margin.
Ø It may also be used to prepare a project cost baseline, which is the
milestone-based point of comparison for assessing a project’s actual
cost performance.
 Types and Ranges of Cost for key Project
Components
• Land acquisition including legal fees; (varies depending on project
setting)
• Client’s own organization (project management & other costs) costs
allocated to the project (this obviously varies but can be as much as
5-10% of the overall project budget);
• Site investigation (frequently underrated and under-budgeted
resulting in unnecessary extra costs and time – could be as much as
1% of budget);
• Enabling works (licenses etc.), soil decontamination;
• Insurances (many major clients prefer to insure against the risks and
take out a project insurance policy covering both themselves and the
contractor – may be up to 1% of the budget);
 Types and Ranges of Cost for key Project
Components
• Consultants’ design and supervision fees (on large transportation and
infrastructure projects this can be as much as 15–20% of the budget);
• Construction costs (typically account for between 70% and 80%
of the project sum);
• Value added tax (VAT);
• Contingency and risks (covers for the unknown and may be between
10% and 25%) or if project of long duration the contingency factor
may exceed this %;
• Financing and legal costs (financing costs can be substantial
depending on financing method chosen and typical bank rate – could
be anything between 7% and 20%; lawyers are expensive – anything
up to $ 500 per hour and more).
 Necessity of Cost Estimates
o Cost estimates are necessary for government acquisition programs
for many reasons:
1. to support decisions about funding one program over another

2. to develop annual budget requests

3. to evaluate resource requirements at key decision points

4. to develop performance measurement baselines

5. to increase the probability of a program’s success

 Key Cost Components
Direct costs
• Broadly classified as those directly associated with each work package
of the WBS (a project Work Breakdown Structure –WBS- is composed
of all work packages needed to accomplish the project).
• In project management, direct costs are expenses billed exclusively to
a specific project.
• They can include project team wages, the costs of resources(materials,
labor, equipment, utilities and services etc.) to produce physical
products, and money spent to address any project-specific risks
(contingencies).
 Key Cost Components
Indirect costs
• Cannot be associated with a specific cost center (work package) and
are instead incurred by a number of projects as a whole
simultaneously (or the entire project), sometimes in varying amounts.
• In project management, quality control, security costs, and utilities are
usually classified as indirect costs since they are shared across work
packages or a number of projects and are not directly billable to any
one work package.
 Other Types of Costs
• Software: Non-physical computer resources.
• Hardware: Physical computer resources.
• Facilities: The cost of renting or using specialized equipment, services,
or locations.
• Contingency costs: Costs added to the project budget to address
specific risks.
 Elements of Project Finance
o For most projects, the main elements of finance are:
1. development finance – to pay for the feasibility and initial design
stages;
2. construction finance – to pay the capital expenditure;
3. contingency finance – to allow for cost overruns and delays.
o As Procurement Professionals we are interested primarily in
construction/services costing for the purpose of arriving at the
contract’s estimate
 Who Prepares Cost Estimates?
• Cost estimates are normally prepared by a multidisciplinary team
whose members have functional skills in financial management,
engineering, acquisition and logistics, scheduling, and mathematics,
in addition to communications.
• The Team is led by a Team Leader who is experienced in the subject-
matter of the contract and in cost analysis.
12 Steps for High-Quality Cost Estimation
Process
Determine Conduct Conduct risk and
estimate’s sensitivity uncertainty
purpose analysis analysis

Develop point
estimate and
Develop compare to an
Document the
estimating plan independent estimate
estimate

Present estimate
Define program
Obtain data to management
characteristics
for approval

Determine Identify ground Update the

estimate to reflect
estimating rules and actual costs and
structure assumptions changes
 Major Cost Estimating Techniques
1. Analogous Estimating

2. Bottom-up Estimating

3. Parametric Estimating

Review by Independent Expert can be super-imposed on any of the

above methods.

A combination of above methods is used usually to arrive at the final

cost estimate of the project.
 What Makes a Good Cost Estimate?
• Accuracy – revise estimates as more project details are obtained.
• Confidence Level – indicate the amount of potential variability in any
estimate.
• Credibility – incorporate expert judgment and use set values for
variables.
• Documentation – identify and record assumptions underlying the
estimates.
• Precision – compare and corroborate estimates.
• Reliability – backup with historical cost estimates.
• Risk Detailing – build allowances into cost estimates.
• Uniformity – maintain consistency across projects.
• Validity – rely on established cost literature and indices
• Verification – check that mathematical operations are correct.
 Likely Causes of Inaccurate Cost Estimates
• Lack of experience with similar projects
• Length of the planning horizon and of the project
• Size of human resources
• Not fully understanding the work involved in completing work
packages
• Expecting that resources will work at maximum productivity all the
time
 Likely Causes of Inaccurate Cost Estimates
• Dividing tasks between multiple resources
• Failing to identify risks and to prepare adequate contingency plans
and reserves
• Not updating cost estimates after project scope changes
• Creating hasty, inaccurate estimates because of stakeholder pressure
• Stating estimates as fixed sums, rather than range
• Making a project fit a fixed budget amount
 When And Types of Estimates at Each Phase
of the Project Cycle
1. Feasibility Study: Analogous (if similar projects were undertaken
recently) or parametric
• Accuracy level: -25% to +50%
2. Design Concept: Analogous or parametric
• Accuracy level : 15% to +25%
3. Preliminary Design: Engineering estimate (bottom-up based on
WBS) for completed parts
• Accuracy level: -10% to +15%
4. Detailed Design: Bottom-up and Definitive estimate
• Accuracy level: -5% to +10%
 Four Critical Aspects in Cost Estimation
1. Data
• What data do you need?
• Are the data readily available?
• If the data are not readily available, what are your alternatives?
• Are the organizations you need to collect the data from cooperative & accessible?
• Are non-disclosure agreements required?
2. Expectations
• What is your expectation of the estimate?
• What is the expected outcome or usage of the estimate?
• What is the sponsor’s expectation of the estimate?
• What is the team expectation of the estimate?
• What are the Agency-wide expectations of the estimate outcome and usage?
 Four Critical Aspects in Cost Estimation
3. Resources
• How many people are required to conduct the estimate?
• How many people are available to conduct the estimate?
• What is the budget required to conduct the estimate?
• What is the available budget to conduct the estimate?
3. Schedule
• How long have you been given to complete the estimate?
• How long do you need to complete the estimate, given the available resources and
data?
• Do you have the resources needed to conduct the estimate with the allotted
schedule?
• Do you have the time to collect the required data and analyse the data?
 Analogous Estimation Method
o Analogous Estimation method: also called “top-down” estimating or
“historical costing” method.
• Draws from a purpose-built archive of historical project data, often
specific to an organization.
• Can be quite accurate if used to form estimates for similar projects
and if experts can precisely assess the factors affecting costs.
Strengths, Weaknesses, and Applications of
Analogous Cost Estimation Methodology
Strengths Weaknesses
• Based on actual • Relies on single 1.
historical data In some historical data point
cases • Can be difficult to 2.
• Quick identify appropriate
• Readily understood analog 3.
• Accurate for minor • Requires 4.
deviations from the "normalization" to
analog ensure accuracy 5.
• Relies on 6.
extrapolation and/or
expert judgment for
"adjustment” factors
Applications
Early in the design
process
When less data are
available
Cross-checking
In rough order-of
magnitude estimate
Architectural studies
Long-range planning
 Bottom-up (Analytical) Cost Estimation
Method
• Provides the “most accurate” estimating technique if a complete
Work Breakdown Structure (WBS) is available.
• Also the most versatile estimating technique and you can use it for
many types of projects.
• But it can also be time-consuming, especially in large and complex
projects with numerous work breakdown structure components.
 Strengths, Weaknesses, and Applications of
Bottom-Up Cost Estimation Method
Strengths Weaknesses Applications
• Intuitive • Costly; significant effort (time and money) 1. Production estimating
• Defensible required to create a build-up estimate. 2. Negotiations
• Credibility provided by visibility into each Susceptible to errors of omission/double 3. Mature projects
cost element counting 4. Resource allocation
• Severable; the entire estimate is not • Not readily responsive to "what if"
compromised by the miscalculation of an requirements
individual cost element • New estimates must be "built up" for each
• Provides excellent insight into major cost alternative scenario
contributors (e.g., high dollar items). • Cannot by itself provide "statistical"
• Reusable; easily transferable for use and confidence level
insight into individual project budgets and • Does not provide good insight into cost
performer schedules drivers (i.e., parameters that, when
increased, cause significant increases in cost)
• Relationships/links among cost elements
must be "programmed" by the analyst
 Parametric Cost Estimation Method
• A method of estimating the cost of a project (or part of a project) based on one or
more project-based cost factors. Historical bid data is commonly used to define
parameters related to the cost of a typical transportation facility construction, such
as cost per lane mile, cost per interchange or cost per square foot. Percentages can
also be used to estimate the cost of project elements based on historical cost
information. Parametric methods are often used in early estimating, such as
planning and scoping estimates.
(Source: Washington State Department Of Transport working definition)
• Effective in creating highly accurate estimates using unit costs for projects that
involve similar tasks with high degrees of repeatability.
• Unit costs must be accurate for this method to be effective.
 Strengths, Weaknesses, and Applications of
Parametric Cost Estimation Method
Strengths Weaknesses Applications
• Once developed, Cost Estimating • Often difficult for others to 1. Design-to-cost trade studies (choosing
Relations are an excellent tool to answer understand the statistics associated among feasible alternatives)
many "what if" questions rapidly with the Cost Estimation Relations 2. Long-range planning
• Statistically sound predictors that provide • Must fully describe and document the 3. Architectural/Eng. studies
information about the estimator’s selection of raw data, adjustments to 4. Sensitivity analysis
confidence of their predictive ability data, development of equations, 5. Data-driven risk analysis
• Eliminates reliance on opinion through statistical findings, and conclusions for 6. Software development
the use of actual observations validation and acceptance
• Defensibility rests on logical correlation, • Collecting appropriate data and
thorough and disciplined research, • generating statistically correct data is
defensible data, and scientific method typically difficult, time consuming, and
expensive
• Loses predictive ability/credibility outside
its relevant data range
 Comparison of Methods
Method Strength
Analogous • Requires little data
• Based on actual data
• Reasonably quick
• Good audit trail
Bottom-up • Easily audited
• Sensitive to labor rates
• Tracks vendor quotes
• Time honored
Parametric • Reasonably quick
• Encourages discipline
• Good audit trail
• Objective, little bias
• Cost driver visibility
• Incorporates real-world effects
(funding, technical, and risk)
Weakness Application
• Subjective adjustments 1. When little data is available
• Accuracy depends on similarity of 2. Rough order of magnitude
items estimate
• Difficult to assess effect of design 3. Cross-check
change
• Blind to cost drivers
• Requires detailed design 1. Production estimating
• Slow and laborious 2. Software development
• Cumbersome 3. Negotiations
• Lacks detail 1. Budgetary estimates
• Model investment 2. Design-to-cost trade studies
• Cultural barriers 3. Cross-check
• Need to understand model’s 4. Baseline estimate
behavior 5. Cost goal allocations
 Other Methods of Cost Estimation
• Risk-based – An approach that involves simple or complex risk
modelling based on inferred and probabilistic relationships among cost,
schedule, and events related to the project. Risk-based estimating uses
historical data and/or cost-based estimating techniques and an expert’s
best judgment to develop the project “base cost” (project cost if the
project proceeds as planned).
• Delphi Cost Estimation – an empirical estimation technique based on
expert consensus (done anonymously with the help of a facilitator)
• Vendor/Contractor Bid Analysis - allows estimators to compare their
own estimates with those stated in bids submitted by vendors.
Procurement Planning for major contracts
and projects
Procurement Planning
This session explores procurement planning for:
1. Specific Contracts (one contract); and
2. Procurement Planning for Development/Investment Projects
(several contracts that need to be coordinated to meet project
implementation deadlines).
Procurement Planning for Specific Contracts
Planning of procurement operations follows the preparation and approval of
the Procurement Strategy which defines:
• the procurement method to be used in conducting the competition
• the type of contract to be used
• One or two envelope competition/bid submission method
• whether prequalification or post-qualification will be conducted.
While the procurement planning process for the procurement of Goods
/Non-Consulting services and works follow almost identical steps, the
planning for selection of consulting services may have different competition
steps of the procurement process and typically uses different terminology
but the planning principles and techniques are the same.
Procurement Planning for Specific Contracts
Procurement planning involves estimation of the time and resources
needed to execute each step of the procurement process taking into
consideration the need to meet end-user deadlines for delivery of the
object of procurement.
The end-user’s required delivery deadline is considered to be the most
critical date in the planning process and we need to start working
backwards from that date in order to be able to determine the
appropriate start date for launching the procurement competition in
accordance with the procurement method stipulated in the
Procurement Strategy.
Procurement Planning for Specific Contracts
“Failures don’t plan to fail; they fail to plan.”
(A quote from Harvey Mackay, a businessman and author of bestselling books on business management)

Preparation of the individual contract’s Procurement Plan is critical to ensure timeliness in meeting the end-
user’s delivery deadline. Proper planning takes into consideration some contingency and ensures that no
surprises are met.
In this session when we talk about “procurement planning” we refer only to:
• the definition of the timeline to execute the procurement process; and
• the allocation of human and other resources necessary to implement the procurement plan
successfully

All other assessment and market research tasks have already been dealt with and confirmed in the optimal
Procurement Strategy.
Procurement Planning – Packaging the
requirements
Packaging into separate lots or slice and package approach
Proper packaging of procurement is very important to enhance competition in the
procurement process and ensuring that quality goods and services are obtained
from qualified suppliers and service providers.
• Supplies or services that are of the same category and that can be purchased
from one supplier or service provider should be included in a single tender,
subject to absence of other social or policy mandatory requirements that may
impose splitting like in community development and poverty reduction projects.
• On the other hand packaging lots of dissimilar items in the same tender, makes it
difficult for specialized suppliers or service providers to participate in the process.
It encourages participation of traders operating as middlemen which will increase
the acquisition cost because of the inclusion of an extra actor in the supply chain
with no added-value.
Procurement Planning for Specific Contracts
Packaging the requirements into lots
• It is the responsibility of the officers entrusted with procurement planning to
ensure that the tenders attract maximum competition in all procurement they
carry out and one way of achieving this target is through proper packaging of
procurement lots.

• In order to maximize economy and efficiency in the procurement of goods, works

or services of a broadly similar or related nature; these may be grouped into a
single tender or a number of tenders of a size and type that will be likely to
attract the most suppliers, contractors, service providers provided that this is
practicable and will not cause unreasonable delay in the procurement as
requested by the end-user (slice and package).
• In this respect, procurement planning should ensure fairness in grouping tenders
into lots and allow bidders to bid for lots of their specializations.
Operational Planning: Workflow of the
Procurement Plan for a Project
Definition of project scope and completion time

Identify required civil works, goods and services

Determine implementation
sequence and schedule (technical)

Select equipment packages (Priority for open

tendering)

Choose method of procurement (open, restricted,

other)

Implement procurement as per legislation

 Procurement Planning for Projects
• Procurement plan linked to project implementation schedule:

1. Consulting services

2. Goods and/or works

3. Major contracts

4. Phasing of contracts

5. Critical path
 Procurement Planning for Projects
• Separate

1. Consulting services

2. Works

3. Goods
 Procurement Planning: Packaging
Decide contract packages

• WHAT
(like items, large, small,
values slice and packages)
• HOW
(CB, Limited Bidding, other)
• WHEN
(each step, each package)
• WHO
(to do, to review)
• TIMING
(Preparation,
approvals, delays)
• CONSTRAINTS
(technical, CA staffing,
legal, training, other)
 Procurement Planning: Timing
Determine lead time

• Administrative
• Manufacture
• Delivery
• Construction period
Procurement Planning: Estimation of
Duration/Timing
LEAD TIME
ADM. TIME DELIVERY TIME INSTALLATION

* ADVERTISE * RECEIVE L/C * UNLOAD SHIP

* PREP. BID DOCs * PACKAGE * CLEAR CUSTOM
* APPROVAL * ARRANGE * LOAD TRUCK
* ISSUE B.D. SHIPPING * DELIVER SITE
* EVALUATE BIDS INSURANCE * UNLOAD &
* APPROVAL * DELIVER TO STORE (Protect)
* SIGN CONTRACT PORT * INSTALL
* RECEIVE PERF. * ARRIVE AT * TEST
SECURITY PORT * ACCEPTANCE

WARRANTY PERIOD (12 - 18 MONTHS)

Procurement Planning: Timing (Works)

2-3w 2w 2w 2-3w 2w 1w 2w 1w 4w

1 2 3 4 6 7 8 9 10 11

5
Duration: 18-20 weeks
Legenda:
1. Advertise prequal 5. Pre-bid conf. 8. Letter of acceptance
2. Prequl. Exercise 6. Bid Opening/Evaluation 9. Pre cont. award clarifications
3.Approval Preq. Rep./
Standstill Period 7. Standstill/Approval 10. Contract signed
4. Issue Bid docs 11. Contract effectiveness
 Procurement Planning: Schedule
• Critical dates for each package
• Tabulate / prepare bar chart
• Periodically update
• Use of monitoring system
 Planning: Time Plan, Airport Construction in
Bar-Chart Form
Contracts :

1. Runways CB construction

2. Terminal CB construction

3. Radar and telecom manufacturing

Equipment CB & installation

4. Support equipment delivery &

CB /LB installation

5. Access roads parking lot

LB construction
Procurement Plan in Tabular Form
oThe Procurement Plan can also be prepared as an EXCEL or WORD
table where the leftmost column lists the description of all of the
procurement packages while the horizontal axis lists the various steps
of the procurement process with the respective Planned and Actual
dates. For each procurement package, the responsible procurement
officer will be named in the rightmost column.
oIf the Procurement Plan is prepared using a more advanced planning
software like “Microsoft Project” then the needed resources
(including procurement officers) who will be assigned to each step of
the procurement process can be made visible in both table or bar-
chart forms and the software will calculate the overall needed
resources.
THANK YOU FOR
LISTENING