REDESIGNING PROCUREMENT FOLLOW-UP

The procurement follow-up was redesigned to utilise the new opportunities enabled by the redesigned procurement flow. The redesigned procurement flow gathered all the necessary information of procurement plans and actual events for follow-up. The procurement follow-up comprises two controlling procedures: schedule follow-up and workload follow-up. It was an important idea to combine the procurement follow-up with the procurement flow. The combined processes eliminated quite a lot of data transfer between procurement and reporting tools. The integrated procurement follow-up proved to be even more beneficial, because it made it possible to automate the procurement follow-up. It used the recorded procurement events directly; no action was needed or allowed in the controlling and reporting of purchasing events.

The scheduled follow-up tries to answer the question "When". It observes the activities and compares the planned timing with the actual events. The focus is on the timing of the procurement actions, not the hours or days needed to accomplish the tasks. The workload follow-up is another controlling process. It monitors follow-up items (normally inquiries) and the cumulative working hours used to purchase the item. The follow-up of the workload concentrates on estimating "How much work remains".

Pöyry Oyj as a project management consultant was not very interested to use workload-based follow-up calculations in controlling the projects. The general idea was that if the normal working hours are not enough for the project tasks, there are plenty of hours before the next morning. I claim that motivated and committed project professionals made tight schedules possible. Later, when I started to work with ERP systems, I began to understand the importance of the workload calculations. Sometimes the personnel resources were so scarce that a single delay in a project schedule inevitably caused a delay in the whole ERP project.

Figure 63 presents the typical progress of the purchase in which the progress is measured in working hours. The progress is estimated as a percentage, which is calculated by comparing the realised and estimated total working hours known at the reporting moment. The figure also shows the procurement stages and procurement events used as milestones in the scheduling. Finally, the figure presents the most common estimation problems which normally cause reductions in the progress estimates.

Figure 63. Progress of the Purchasing Process Progress [%]

100 90

Contract Signed by Supplier

20

Time [Date]

Inquiry Preparation

Inquiry Issued Tender Deadline

Tendering Comparison of Tenders Negotiations

70 60 50 80

40 30

10

Tenders Compared Progress Estimation Problems:

- original work amount estimate - limits of work: extent and depth - changes in the work force - changes in the environment

Schedule Follow-Up

Schedules are intended to direct and influence the performance of the described activities. The schedules must remain sensitive to the actual progress of works and to difficulties encountered on a project site. All major procurement items with an influence on the project implementation are included in the procurement schedules to avoid congestion. Minor purchasing activities, although plentiful, will follow suite during the project implementation, and need only simple schedules. In order to be an effective tool for management, schedules must be followed up closely and regularly.

If any deviations are noticed, they should be discussed for possible rectifying measures.

The schedule follow-up pursues the progress of the procurement and compares the schedules with the actual events. The schedules can be created manually, or more likely, imported from a specialised scheduling program. The schedule can be rearranged and modified in the procurement application. The changes in the procurement schedule and the realised working hours can be transferred back to the original scheduling program. This way the scheduling software can be used to report the progress of the procurement.

Workload Follow-Up

The main idea of the workload follow-up is very simple: procurement advances, if somebody works, i.e. reports working hours towards the procurement tasks. The workload follow-up is important from two separate reasons. First, it warns of overload of the personnel, because it shows if tasks take longer than anticipated. Second, workload calculations can be used to estimate the progress of currently active, but unfinished tasks. The workload follow-up was achieved by integrating the procurement flow, scheduling and working hour reporting. The integrated procurement flow has all necessary information for workload follow-up: procurement schedule, planned workloads, actual procurement events and actual working hours.

There are three elementary assumptions had to be made in order to develop reliable workload follow-up. The fundamental elements of the procurement status calculations comprised: (1) an appropriate measure for the procurement status, (2) meaningful milestones for the purchasing process, and (3) a calculation method. I had to solve for these three design questions, remembering the over-all target to automate the estimation of the procurement progress.

The measure for the procurement status was a difficult question. I considered using the earned value, but neglected the idea due to the salary - work amount disparity. Finally, I decided that working hours would describe the progress of the procurement best. The EVA might have been an appropriate measure, if procurement had been an outsourced function. However, Pöyry Oyj does not recommend such outsourcing, because it weakens the project management. The company states that managing and controlling procurement inevitably means managing and controlling the project.

Milestones should be unambiguous, exact and discrete events in the procurement flow. Suitable milestones should detect the progress of the purchase without exceptions and recognised in scheduling. They were all dates forming the chain of the procurement events: inquiry issued, tender deadline, comparison and contract signing by the supplier. The latest event (milestone) achieved in the chain points out how far the procurement has advanced in the purchase of the item.

The calculation method was created to provide the best possible picture of the procurement status using the available information. The invented calculation method is three-phased, hierarchical estimation process which chains the estimates hierarchically from bottom to top. The method calculates values of current status, remaining work and total work on task, inquiry and project

levels. The method begins with task level estimations of the progress, summing up the task level estimates on inquiry level, and finally summing up the inquiry level estimates on project level. The estimation is automatic, but the users have a possibility to change the system-calculated estimate on the tasks level. The calculation method is illustrated in Figure 64.

Figure 64. Workload-Based Progress Calculations

Before the calculations, the basic data of the procurement flow has to be organised. Each follow-up item has to be recorded with the planned working hours per task and linked to the inquiry they refer to. Then, the actual working hours and procurement events are recorded as they appear. The software combines these pieces of information to deliver the estimates.

In the beginning, the progress of each task is calculated. If no working hours are recorded towards a task, the progress value is 0 %. The progress unfinished tasks, i.e. tasks between the milestones, are estimated by comparing the realised and planned hours of the activity. The tasks, which have achieved the matching milestone, are finished, i.e. the progress is 100 %. This is true despite the ratio between the reported and planned hours. If the reported hours of the task that has not achieved its milestone exceed the planned hours, the system will assume this task to be also finished (the progress is 100 %). Additional hours can be reported to any finished task, but its progress remains 100 %. On this level, the users can adjust these system-calculated estimates as they see appropriate.

Next, the progress estimation is made on the inquiry level to determine the status of the item to be purchased. All inquiries, i.e. purchases, are estimated on their tasks. If no working hours are recorded towards any task of the inquiry, the progress value is 0 %. If the milestone indicating contract signing has been achieved, the progress of the purchase is 100%. Unfinished purchases are estimated by summing up the weighted progresses of its tasks.

The estimation is automatic, but the users have a possibility to select the deviation capsulation method, which can be either item or task-based. The item-based estimation principle follows the idea that progress is going to continue as before. The deviation ratio will stay the same in all the future tasks of the item (i.e. inquiry). The idea is readily supported, if all the purchasing tasks are carried out by the same personnel. This implies that their work will continue with the same deviation percentage compared to the planned work. The task-based estimation principle follows the idea that the deviations in the previous stages were mistakes. Therefore, the deviations so far in the workload do not have any effect on the future. The following tasks will be processed according to the procurement plan. For each item, the capsulation method can be selected independently.

User-Revised Progress Percentages Item and Task-Based Inquiry Level Progress Estimates Automated System Calculations Progress Estimates for Inquiry Tasks of Follow-up Items (inquiries)

Procurement Workflow • basic information

- follow-up items (inquiries) - milestone weights • events

- event dates

Working Hour Reporting • basic information - employees - tasks • working hours • translation

- hours matched to tasks User-Recorded Data

Deviation Type Selection Project Level Progress Estimates of Procurement

The overall procurement status is calculated by using the selected capsulation method. When the progress of all items is summed up by their weight, the general project status is reached. The minimum, maximum, task-based capsulation and item-based capsulation values of the procurement status values are calculated to support the evaluation of the accuracy of the project status estimate.

An example of hierarchical calculations is provided in Figure 65.

Figure 65. Example of Hierarchical Procurement Status Estimation

The progress calculations present an estimate only for the progress of the purchasing, not the entire project. E.g. the purchase of an evaporation plant could require 100 hours. This means that the purchasing is assumed to take 100 hours and manufacturing, installation, testing etc. are not included.

They are supervised by either separate schedules or different activities in the same schedule.

In order to automate the progress calculations, scheduling and working hour reporting has to be integrated with the procurement flow. The results can be transferred to the preferred scheduling program, which can report the results graphically and use the values as the starting-point for further progress calculations. An example of graphical procurement follow-up is provided in Figure 66.

Figure 66. Procurement Schedule and Workload

2004 2005

220/350 h = 50.0 % (user adjusted value) 0/200 h = 0.0 %