Project Procure 2 Pay transparency

How great it would be for all decision makers and project sponsors, if every money spent of the project capex can be precisely identified in what is constructed.

While we have a strong focus on project execution and monitoring of time and cost, it is important to also keep track of your spend and have a transparency in what you spend on the project.

Traceability in any project is key to a successful functioning of a project governance structure. This transparency also allows us to monitor and control spend vigilantly and minimizes chances of leaks. It also allows us to learn how we can save on spend to avoid not necessary spends.

To create a transparent process, right from budgeting & designing, to payment for invoicing, of what is constructed, lets break up the complete journey into the following seven key steps and understand what is a right way to do.

1. Budgeting & Design to BOQ :

A. When a budget for a project is finalized, it is always possible to design the project to the budget. This will keep the designs stable throughout the development stages, as design is apt for execution and within budget without cutting corners.

B. With a right fit and elaborately developed detailed design, the execution needs right quantities of various items and services. A good design will give a precise and detailed BoQ. A good BoQ clearly mentions the correlation between the item and the design, in terms of quantity, specifications, location and preferred make (physical identifier).

2. BOQ to PR :

A right BOQ with all details of quantity, specifications and location with make, must be passed to procurement for purchase requisition generation. A good PR creation practice should not accept vague or incomplete BoQ, which is open to any interpretation with deviations of any degree.

3. PR to PO :

A comprehensive PR facilitates a rightly detailed PO. While the PR talks about the requisition. PO should capture the adequate KPIs to ensure, right order is received and executed to the expectations. Hence, a good PO should cover the performance KPIs of the purchase. Additionally, before a PO is raised a cross verification with existing available stocks in project inventory should be verified to prevent duplicate or extra purchases.

4. PO to Material Receipt:

When we have the right KPIs of the purchase mentioned upfront, it is easier to measure the receipt of purchase for factors such as specs, quality, quantity. A correctly and properly filled goods receipt note (GRN) is a good practice.

5. Material Receipt to Stocking before issue for use :

Once we have the right material received, good governance recommends that, we know how much stocks we have for the project use and how much came extra or how much can be saved. Good project material management will also need matching material requisition with the original PR for which the material has been procured. Additionally, if the items or material received is tagged or coded [Barcode/RFID/ QR codes] with the project WBS and location, it will allow better knowledge, on what has gone where. This may also be used in future for maintenance to track use and maintainability aspects of these items.

6. Use in execution :

This is the most critical part of transparency, because once material has been accounted for as received, in matters of supply, payments to the invoice is more or less done as the material is completely out of the supplier's responsibility. However, with the payment to invoice clear to proceed, how do we govern this step ensuring transparency?

We track the issue and use of the material in compliance with the PR and KPIs of execution. A properly filled material issue note (MIN) helps. This will tell us how the right material in the right quantity has been used at the right location with the right performance output. All the steps of execution should be documented and ratified by the right people, responsible to ensure right practices are followed with right intent.

7. Execution consumption to invoicing :

When we have a full trail of tracking and transparency to execution, this step becomes a easy matter. As use has to be rightly certified by the right people. Invoicing now becomes, a thoroughly verified and purely commercial aspect.

Many times, we keep our focus on prices, taxes, design value add or making extra-optimal design or procuring lowest cost items, but these matters will not give the best project result.

Instead, if we focus on transparency, we get the best with the most transparent and optimal cost. In every step from requirement in design through a BOQ to execution, any vagueness or inadequate documentation, can allow chances for discrepancies to creep in. These gaps allow, problems such as material pilferage, over purchase, cost over-run, project delays and ill-informed decision-making. Inadequate P2P transparency can create a doubtful spend anywhere between 10-30% of the project cost, which also can be termed as a over-run. An cost over-run of 30% which is not even visible is critical matter to control.

Procure 2 Pay transparency is a vital part of the PMO which governs the project.