Procurement Management Knowledge Area for PMP

When the Project Buys from Outside

Procurement management covers the processes necessary to purchase or acquire products, services, or results from outside the project team. Not every project involves procurement, but the PMP exam assumes you understand the full procurement lifecycle. Questions often involve contract types, make-or-buy decisions, and the responsibilities of buyers and sellers.

The Three Procurement Processes

Plan Procurement Management

Determines whether to acquire goods or services externally, identifies what to procure and when, and determines the approach. Key activities include:

Make-or-buy analysis: Evaluates whether work should be performed internally or outsourced based on cost, capability, capacity, and risk considerations.
Selecting contract types: Choosing the appropriate contract structure based on the level of risk the buyer is willing to accept.
Preparing procurement documents: Creating the Request for Proposal (RFP), Request for Quotation (RFQ), or Request for Information (RFI).

Outputs include the procurement management plan, procurement strategy, procurement statement of work, bid documents, and source selection criteria.

Conduct Procurements

Obtains seller responses, selects a seller, and awards a contract. This executing process involves evaluating proposals against source selection criteria and negotiating terms. Common selection methods include:

Weighting system: Assigns numerical weights to evaluation criteria
Independent estimates: Buyer prepares their own cost estimate to benchmark proposals
Screening system: Establishes minimum requirements that sellers must meet
Proposal evaluation techniques: Systematic review of seller proposals

Control Procurements

Manages procurement relationships, monitors contract performance, makes changes and corrections as appropriate, and closes out contracts. Activities include performance reviews, inspections, audits, and claims administration.

Contract Types: The Most Tested Topic

Understanding contract types and their risk distribution is crucial for the PMP exam:

Fixed-Price Contracts

Firm Fixed Price (FFP): Price is set and does not change regardless of seller costs. Maximum risk on the seller.
Fixed Price Incentive Fee (FPIF): Fixed price with an incentive for meeting or exceeding performance targets.
Fixed Price with Economic Price Adjustment (FP-EPA): Allows for predefined adjustments due to economic conditions (inflation, commodity price changes).

Cost-Reimbursable Contracts

Cost Plus Fixed Fee (CPFF): Seller is reimbursed for costs plus a fixed fee. Fee does not change.
Cost Plus Incentive Fee (CPIF): Seller is reimbursed for costs plus an incentive fee based on meeting defined objectives.
Cost Plus Award Fee (CPAF): Seller is reimbursed for costs plus an award fee based on buyer satisfaction. Fee is determined subjectively.

Time and Materials (T&M)

A hybrid contract type. The buyer pays a fixed rate per hour or unit, but the total cost is not fixed because the total quantity is not predetermined. Carries risk for the buyer because costs can escalate.

Risk Distribution Spectrum

The key principle for the exam: risk shifts from buyer to seller as contracts move from cost-reimbursable to fixed-price.

Highest buyer risk: Cost Plus Award Fee (buyer pays all costs plus subjective fee)
Moderate risk: Time and Materials (buyer pays actual rates but quantity is uncertain)
Highest seller risk: Firm Fixed Price (seller absorbs all cost overruns)

Procurement Documentation

Know the differences between procurement documents:

RFI (Request for Information): Gathering general information from potential sellers
RFQ (Request for Quotation): Requesting a price quote for well-defined requirements
RFP (Request for Proposal): Requesting a detailed proposal for complex requirements
IFB (Invitation for Bid): Requesting a competitive bid, typically for government contracts

Practice procurement scenarios with our exam preparation tools and review contract comparisons on our cheat sheets.