Procurement and Budgeting: Where they meet

Each year most organizations, like CITAM, go through a budgeting process; basically for expenses and procurement; be it general or project procurement, opex or capex. The importance of procurement, therefore, in organizations stems in part from its integral role as one of the key vehicles of the budget execution process. Consequently, budget execution is affected by procurement and unless procurement has been planned adequately, with realistic time and cost considerations taken into account for the allotment of budget, the budget execution will be greatly hampered. To sum it up, even the best intended and most competent budgets are brought to naught, in the presence of a disconnect between the budgeting process and the budget implementation process otherwise known as procurement plans.

budgetingOn the other hand, in the context of substantial short-comings in effective planning for procurement transactions -big or small, even the best in class purchasing function is destined for disaster; poor quality, high procurement costs, failure to comply with policy provisions, delays in servicing procurement requests etc. No doubt, in the absence of a procurement plan the best-in- class purchaser become the worst purchaser presentFor which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?” (Luke 14:28). To avert this, therefore, many best in class organizations result to procurement planning since procurement planning directly links the procurement function to both the budget preparation and execution process (PPOA,2009).

The concept of procurement planning is a simple one, that through advanced procurement planning an organization can not only effectively meet its procurement requirement(s) more efficiently, but also can achieve significant cost savings. For, recent studies on procurement saving strategies have proved that, volume leverage contributes 0 – 6% , price normalization 0 – 4%, contract compliance 0 – 6% with procurement planning contributing up to 25% of the total procurement savings in an organization (ISM,2013).

Procurement plans in a nutshell answers the critical questions, to both the user(s) and purchaser(s): What is needed? When it is needed? What is the total-cost involved? Which is the funding source? Who does what-when? What procurement method is to be applied? A basic step by step approach, then, to developing a procurement plan may entail:

(a) Establish a procurement planning team

(b) Conduct procurement needs analysis

(c) Drafting the list of your procurement needs – in line with your key objectives

(d) Analysis of reference total prices/costs estimates

(e) List of procurement needs adjustment to fit budget provisions

(f) Define the critical procurement KPI’s – cost, quality and time (g) Implement the plan – adjusting where necessary

(h) Monitor and Evaluate Progress. For, in a modern world-class purchasing function, a procurement plan is not only a tool to control purchasing activities, but, also a measure of purchasing performance, thus, the critical significance of the last step.

According to IAPWG – UN (2006) effective procurement planning enables an organization and its staff to work smoothly to achieve the organization’s goals with the right quality and quantity of inputs in place; ineffective procurement planning may result in failure to achieve those goals, putting in jeopardy the procurement principles and objectives causing damage to the performance and credibility of the organization, and staffs alike. As we budget, therefore, let us all remember the most critical step in cutting down the largest tree-trunk in the thickest forest is to first take time in sharpening the axe; sit down first.

Written by:

Omasso So,

Ag. Procurement Manager,

CITAM