February 12, 2022

TYPES OF PERFORMANCE RELATED PAY SCHEMES. The following are the forms of performance related pay: – Individual Bonus Group Bonus/Team based pay Profit sharing Executive bonus schemes Competency based pay INDIVIDUAL BONUS SCHEME. This is merit pay or bonuses based on the achievement of individual objectives or targets.  There may be levels of bonuses as follows: – On only just achieved the target. Completely achieved the target Significantly exceeds the target. Advantages. Reward immediately payable for work done. Bonus can constitute both reward and incentive for future performance. Payment not perpetuated as part of base pay, which appeals to many people. It does not interfere with the salary structure. Disadvantages. Difficult to apply for people whose jobs have less tangible results e.g. administrator. Encourages more of individual rather than team effort. It may divert people’s attention from the innovative and developmental aspects of their work. Difficult to establish a fair and consistent relationship between results achieved and the level of the reward. Difficult to discriminate fairly between those on long-term projects (e.g. research) and those with short-term and more visible objectives. GROUP BONUS/ TEAM-BASED PAY SCHEMES. These are bonuses that are related to team objectives or targets.  This scheme provides rewards to teams or groups of employees carrying out similar and related work, which is linked to the performance of the team.  Performance may be measured as: – Satisfactory completion of a project Completion of a stage of the project Achievement of a group target. Team pay is paid in the form of a bonus, which is shared amongst members in proportion to their base rate pay. ADVANTAGES OF TEAM PAY. Team pay can: – Encourage effective team working and cooperative behavior. Clarify team goals and priorities. Enhance flexible working within teams Encourage multi-skilling. Provide an incentive for the team collectively to improve performance. Encourages less effective members of the team to improve to meet team standards. Disadvantages. It only works in cohesive and mature teams. Individuals may resent the fact that their own efforts are not rewarded specifically. Peer pressure which compels individuals to conform to group norms could be undesirable. Developing Group Bonus Schemes. In developing group bonus schemes, the following is necessary. Identify the group to be included in the scheme. Methods defining targets should be clearly understood. Agreement should be reached with groups about their targets. Methods of measuring targets should be defined. Formula for deciding on bonus payment should be defined Consider amount available, how and when it should be paid. Procedure for monitoring the scheme should be defined.

JOB EVALUATION Definitions Job evaluation is the name given to any activity, which sets out to make a systematic comparison between jobs to asses their relative worth, for the purpose of establishing a rational pay structure. Job evaluation is the process of placing jobs in order of their relative worth so that employees may be paid fairly. It is concerned with the demands and conditions of the job, and not the personal qualities of the individual who is occupying the job.  It refers to the methods and practices of ordering jobs or positions with respect to their value or worth to the organization. Job evaluation is a systematic determination of the value of each job in relations to other jobs in the organisation. The process is used for designing a pay structure and not for appraising the performance of employees holding the jobs. The general idea of job evaluation is to enumerate the requirements of a job and the jobs contribution to the organization and then classify it according to its importance. Purpose of Job Evaluation To provide a rational basis for the design and maintenance of an equitable and defensible pay structure To make pay administration easier by reducing the number of separate rates of pay To help in management of the relatives existing between jobs in the organizations To enable consistent decisions to be made on grading and rates of pay To harmonize internal rates of pay with those found in other companies To provide means by which a responsible rate of pay can be fixed for new or changed jobs within the company To protect employees from arbitrary decisions by management To justify wage differentials and hence avoid frequent invocation of grievance procedures To determine and recognize the need to link pay with requirements of the job. It helps to establish the extent to which there is comparable worth between jobs so that equal pay can be provided for work of equal value Uses of Job Evaluation To provide a basis for a simpler, more rational wage structure To provide an agreed on means of classifying new or changed jobs To provide means of comparing jobs and pay rates with those of other organizations To provide basis for employee performance measurements. To reduce pay grievances by reducing their scope and providing an agreed on means of resolving disputes To provide incentives for employees to strive for higher – level pay To provide information for wage negotiations To provide data on job relationships for use in internal and external selection, HR planning, career management and other personnel functions Introducing Job Evaluation A new altered job evaluation system is a change, which must be very carefully introduced by management because it affects the vital subject of pay. The method of evaluation must be clearly explained to employees and their representatives. Prerequisites for Effective Evaluation Well defined system of job analysis, job design, job description and job evaluation provide the basis Participation of a recognized union, where one exists, it is an imperative The system should be simple and easy to understand rather than being too technical and complex Labour market survey to ascertain prevailing wage rates/salary levels. This should be done before the job evaluation The job evaluation exercise should not be viewed as an exercise to cut wages or retrench employees There could be a system of steering, implementation and evaluation committees with due representation to recognized unions Employees and union should be aware about the objectives and implications of job evaluation. Communication is essential here. The first step in a job evaluation program is to gather information on the jobs being evaluated.  Such information is obtained from the current job descriptions.  The job evaluation process then identifies the factor or factors to be used in determining the worth of different jobs to the organization. JOB EVALUATION METHODS Job evaluation methods can be divided broadly into: – Non – analytical methods Analytical methods  The non – analytical methods take whole jobs and rank them. They compare whole jobs that may differentiate them.  Non-analytical methods include; job ranking, paired comparisons, job classification, decision banding and internal benchmarking. The analytical methods break jobs down into their component parts and then compare them factor-by-factor such as the number of subordinates, financial responsibility, qualifications and experience.  They provide a more refined means of measurement than the non-analytical methods. The most widely used analytical methods are the Points Rates Method, Factor Comparison and the Hay –Guide Chart Scheme.

How to create a good survey instrument Most custom surveys start with these basic elements: Job Title: sounds simple, but as you’ll see in a minute, it’s very important. Benchmark Job Duty Features: The most important element. These are the essential job duties that, along with the job title, will guide your survey participants in selecting the position within their company to report. Generally, keep the list short; only three to four maximum. As a rule of thumb, use the duties that take up at least 50 percent of their time. You don’t want to include duties such as planning the annual company picnic (unless it’s an essential duty). Match Strength: For each position, include an indicator that the respondent can use to gauge how close of a match their position is to yours — generally a one to ten scale. If it’s a low match, such as a one or two, you may want to exclude the data. If it’s higher, but not strong (five or six) you can adjust the data in relation to strength of match. Pay Data: As mentioned above, you want to gather enough information to answer your questions, without asking for too much. Not all companies have the same compensation system, so you’ll want to keep your data fields as general as possible. The overriding theme of a good survey is “simple.” If you want good responses, you need to make it very straightforward for the respondent and not overly burdensome. Therefore, don’t send out a survey for 20 positions, ask for eight different pay sources, and ask for it back in a week. Compensation analysts will turn their nose up at you every time. The survey process As it goes with most things, garbage in, garbage out. The root of any good custom survey is a well-designed job description. That sounds logical enough, but it’s surprising how many companies have not done a good job analysis. If you have put together a tight job description, then picking the benchmark features should be easy. Again, you want to make it simple for the HR person on the other end to find the match in their organization. Once you’re ready to send out your survey, there are a few time-honored tips to keep in mind: If your survey is somewhat involved, pretest it on a colleague or coworker. Unclear syntax or directions can be cleaned up before “going live.” Call candidate respondents ahead of time to get their OKs on participating. You may need to play salesperson a little. Be upfront about the details of the survey and what will be expected. Be reasonable — but firm — on response time. Never use phrases such as “at your earliest convenience” or “ASAP,” but state clearly the response date. Keep in mind that certain times of the year are worse than others, particularly in the Fall when budgeting and pay adjustments for many companies are being planned. Have multiple options available for respondents to give you information. Depending on the size of the survey, a simple phone call will do. Some are fine with paper surveys, but many might like to get a spreadsheet and to send it back via e-mail (NOTE: the convenience of spreadsheets sent via e-mail is attractive, but take some time to work out security measures, such as encryption and virus protection, so that respondents are comfortable with receiving and sending pay data). Check in a couple of times with respondents to make sure the survey is understandable and also to remind them of the survey deadline. The other important thing to do, even before you decide you need to survey, is develop a network of survey respondents. Local chapters of human resources organizations, such as SHRM, are good places to start. If it is difficult to find respondents in your local area, look at cities within a reasonable distance from your location and realize that you may need to adjust your data for cost-of-living. If certain individual respondents are hard to come by, then perhaps industry associations will have pay survey data that can be used. Now that you’ve received your data, it’s time to analyze it and match against your data. Allow enough time in your survey process to be able to go back to your respondents to clarify any confusing information that they sent. Then get to work on compiling the information so that you can report back to your respondents with the summary data. You should take no longer than two weeks to finish up your analysis of the survey data and report back to respondents. As with anything done well, organization is key to a successful effort. Whether short or long, you can conduct a successful survey as long as you give yourself and your respondents enough time. Benefits Of A Competitive Reward System Stimulates employee productivity. Conveys a clear message to both good and poor performers. Links reward to contribution. Attracts and retains high quality staff. Encourage enterprise and strategic thinking.

ESTABLISHING COMPETITIVE MARKET RATES Introduction. One of the hardest jobs in managing employees is making sure they’re happy. Although there are many aspects to creating happy employees, a fair and competitive wage is still the number one yardstick in measuring satisfaction. Competitive reward is that remuneration level offered by an organization that compares favorably against other organizations in the same industry for similar jobs of competence.  To ensure that pay levels are competitive, it is necessary to track market rates for the jobs within the business, especially those jobs vulnerable to market pressure. Companies strive to understand the market rates for certain cadres of jobs as this enables them to have effective negotiations with existing and potential employees.  Such information is vital in the attraction and retention of good candidates. Market rates are likely to have an effect on the pay structures developed in an organization.  It is important therefore to know what the market offers before any decision on pay related issues is made. To produce consistently high production levels a company needs to be competitive – information on competitor salary is derived from market surveys or purchasing data from outside consultants. Types of Data gathered in a salary survey Salary surveys are analyses of compensation data. This data may include quantifiable aspects of compensation such as: – Base salaries Increase percentages or amounts Merit increases Salary ranges Starting salary Incentives and bonuses Allowances and benefits Working hours Salary surveys may also include non-quantifiable aspects of compensation such as:- Educational requirements Geographic location Source of hire (internal/external) Working conditions Sources of information market rates One of the principle means is through salary surveys. There are both Private (Also called special or customized surveys) and published surveys. Private surveys are undertaken by individual companies for their own internal use. Published surveys are those made available to users in general and are undertaken by consulting firms. Other sources include; club surveys and through advertisements. No matter the type of survey, the purpose is to provide accurate and representative data on the current range of salaries and wage for the current salaries paid for jobs or levels of responsibility in question. Published Surveys. These collect general information about managerial salaries or cover the pay for specialist, professional, technical or office jobs.  General surveys are usually available across the counter. When using a published survey, it is necessary to check on: – Information provided Size and composition of participants Quality of job matching information Degree to which the information is up to date How well the data is presented. Examples include the published salary surveys form (PWC) Price Waterhouse Coopers, The FKE and Government of Kenya Surveys. Special surveys/Customized surveys/private surveys These are usually conducted for an organization by management consultants.  This costs more but saves a lot of time and trouble.  Furthermore come companies may be willing to respond to an enquiry from a well-reputed consultant. Surveys of this kind yield more precise and accurate and comparable data.  It may however be difficult to get a suitable number of participants to take part – due to fear and bureaucracy. Pros and Cons Customized surveys have several advantages: They can be targeted directly at the companies with the closest match for your position. You can collect current salary data, rather than data that was collected 12 months ago. You can specify exactly the information you want to collect, rather than poring over general salary surveys. They also have some distinct disadvantages: They can be costly to administer in terms of time and money. However, those costs need to be compared to purchasing survey services, which can be expensive also. They can come under more legal scrutiny with regard to pay discrimination (i.e., several companies collude on wage rates, or “price fixing”). Club Surveys These involve exchange of remuneration data between two or more companies who employ similar staff, rather than the product or services.  Clubs may be administered either by the individual companies or by management consultants.  Clubs tend to operate in single industries although some may cover a number of industries.  Many clubs do cover managerial and professional grades. The information exchanged between companies is I n accordance with a standard format and on a regular basis.  The club surveys have all the advantages of special surveys and also saves a lot of time as well as providing regular information. Major advantage; participants in the survey know other participants are and that their data are accurate and relevant –misleading data give a company an edge over the competitor Many organisations rely on the salary levels published in recruitment advertisements.  However, such information may be misleading as one may not get a good match and the quoted salary may not be the same as what is finally paid.  However such data can be used to supplement other more reliable sources. Once you’ve determined the information you want to collect, organizing it in an orderly fashion is not too hard. Some of the most typical pay survey questions ask for the following information: Minimum, midpoint, and maximums of a company’s pay range for the position. Current rate of pay. Number of people in the position (that will help you find the average). Average length of service of a person in the position. Availability and amount of bonus payments

REWARD POLICY GUIDELINES Definitions Reward – a one-time cash or non-cash award for significant outstanding performance. Defined Reward Program – a documented reward program developed, communicated, and implemented in consultation with the Office of Human Resources (OHR) for a particular department.  Defined Reward Programs consist of rewards that range from spontaneous to those that are more formal in nature. Guiding Principles Rewards should be given for significant outstanding performance that advances department goals, and should be tied to a specific accomplishment. Rewards are most effective when they are meaningful to the individual. Care should be taken in communication and distribution of rewards so that they are not viewed as entitlements. Rewards may be designed to reflect the unique nature of the department’s work culture and organizational structure. Rewards should not be substituted for a competitive salary plan. For example, rewards should not be used as a long-term alternative to permanent salary adjustments when these adjustments are appropriate for consistently high performance, significant changes in responsibility, increased value of a position, or internal pay equity. Rewards are not adjustments to base salary, supplemental compensation, or variable pay programs (such as commission). Rewards should not be used as a substitute for supplies, support services, or training. Reward Guidelines These guidelines do not apply to customary work-related expenses such as travel, conference attendance, and memberships in professional organizations. Through the process of consultation and approval of Defined Reward Programs, parameters may be modified to meet individual college or department needs. Departments must consult with the Office of Human Resources, when cash distributions to an entire department are being considered. OHR approve such distributions prior to implementation. Defined Reward Program Consultation Process Departments interested in creating a Defined Reward Program should notify the human resource contact, who will initiate the Defined Reward Program consultation process with the Office of Human Resources. Implementation Guidelines All Defined Reward Programs must be designed in consultation with the Office of Human Resources. The purpose, process, parameters, and expected outcomes of the reward program should be communicated in writing to staff. All expenditures must be consistent with company guidelines. Cash and non-cash awards should be determined in a manner that considers deductions such as taxes, and their effect on the net amount.  Department Responsibilities The Manager concerned will: Design reward programs that reflect company guidelines and department strategic plans. Seek consultation on the development and approval of Defined Reward Programs. Provide written communication about the purpose, process, and expected outcomes of the reward program to department staff. Implement reward programs in a manner that is consistent with the departments written guidelines. Fund reward programs, reflecting the realities of the company and department budget, and establish accountability within each department for use of funds. Office of Human Resources Responsibilities The Office of Human Resources will: Provide guidelines regarding reward program structure and processes. Serve as consultants to departments in developing reward strategies. Approve Defined Reward Programs. Oversee the use of reward programs. Serve as a clearinghouse for best practices. Process payroll taxes for cash and taxable non-cash awards. Payroll Considerations One-time cash rewards are administered through the additional pay panels of the HR System. Cheques are issued during the normal payroll cycle. If a check is needed outside of the normal cycle, a written Request for Off-Cycle Check must be sent to the Office of Human Resources, Payroll Services. All taxable non-cash awards must be reported to the Office of Human Resources through the additional pay panels in the HR System using the Non-Cash Award (NCA) earnings code. The appropriate taxes will be withheld from the individual’s paycheck. Tax Law Compliance Reward and recognition activities must be in compliance with all applicable tax laws. Before issuing awards, offices should work closely with the Office of Human Resources, to insure compliance. Under Kenyan tax laws, all compensation is subject to income tax unless there is a specific exemption. Following are common types of compensation that are exempt from income tax. It is important to properly classify compensation to avoid potential payroll tax liability for the company.

A procurement plan is a document prepared by each procuring entity annually to plan for all procurement requirements necessary to perform the activity plan for the procuring entity. A procurement plan contents include: 1. A detailed breakdown of required goods, works or services. 2. A schedule of the planned delivery, implementation or completion dates for all goods, services or works required. 3. An estimate of the value of each procurement package of goods, works and services. 4. Source of funding. 5. An indication of items or sections of the services or works that can be aggregated for procurement as a single package. 6. Procurement method and justification. 7. Details of any committed or planned procurement expenditure under existing multi-year context. 8. Warehouse requirement. 9. Mode of procuring.(Once or twice or either twice etc) 10.Timelines for critical stages of the delivery or implementation program. 11.Rules applicable to the procurement. (Requirements of the suppliers or contractors to the procurer) Importance of The Procurement Plan. 1. It lists all requirements expected to be procured over a period of time. 2. From it the procurement schedule is developed which establishes the timelines for carrying out each step in the procurement process up to contract award and the fulfillment of the requirement. 3. Procurement plan allows for the consolidation of similar requirements under one contract or division of a requirement into several contract packages for economics of scale. 4. From the number of requirement of the procurement plan the procuring entity can determine beforehand any need for additional staffing including external assistance for the purpose of completing all procurement requirements listed on the procurement plan. 5. Allows for the monitoring of the procurement process to determine how actual the performance compares in the planned activities and thus to allow the pertinent departments and adjust the procurement plan accordingly. 6. Enhances the transparency and predictability of the procurement process.

Profiling will involve analyzing all your procurement packages and putting them into four groups taking into consideration the value of the procurement packages and the degree of difficulty in procuring the packages as shown in (a) above: Procurement Profile details 1. Items in the first category (1) are relatively low cost as individual items. However collectively they may amount to a lot of money. The items are also easy to procure. The procurement of these items will in most cases be done by the procurement unit and contracts awarded by the procurement committee however some of the contracts shall be awarded by the tender committee. The suitable method of procurement will be: – Request for quotations Low value procurement method Open tender where the items are put together and term contracts awarded. 2. Items in the second category (2) will be relatively high in expenditure as individual items. Collectively they shall also relatively high in expenditure. Most equipment bought will fall in this category. The items are however easy to procure and they will in most cases be readily available in the market. The most suitable method of procurement for these items shall be: Open tender Restricted tender Request for proposals (RFP) 3. Items in the third category (3) will be relatively low in expenditure but relatively difficult to procure. The best example of this category are spare parts for equipment an laboratory items which will need to be imported. Some medical items like drugs may also fall in this category. The procurement of these items will require cooperation of the procurements unit and the user department all the way through. The suitable methods of procurement for these items will be: – Open tender Restricted tender Direct procurement Request for quotations 4. Items in t he fourth category will in most cases be of relatively very high expenditure. They will also be difficult to procure and in some cases complex and very high cost. Almost all constructions and capital projects will fall in this category. The procurement of these items will require the attention of the procurement unit, user department, tender evaluation committee, Accounting Officer and top management. The suitable method of procurement for these items will be: – Pre-qualification tender BENEFITS OR ROLE PLANNING IN PROCUREMENT CYCLE 1. Helps decide what to buy when and from what source. 2. Planning allows planners to determine if expectations are realistic particularly the expectations of the requesting entities. 3. Creates an opportunity for all the stakeholders involved in the process to meet in order to discuss particular procurement requirements i.e. the requesting entity, end users procurement department ,vendors, technical experts etc. 4. Planners can estimate the time required to complete the procurement process and award contract for each requirement. 5. Planners can access feasibility of combining or dividing procurement requirements into different contract packages. 6. Permits the creation of procurement strategy for procuring each requirement that will be included in the procurement plan. 7. Need for technical expertise to develop technical specifications or scope of work for certain requirements can be accessed. Procurement plan is the product of the procurement process.

Grouping is to Separate and group together of goods, works, services and consultancies. As a general rule these should not be mixed in procurement except in special cases where they are inseparable. Consider also the cost and the difficulty in procurement of each procurement . Packaging – Packaging means putting your items of procurement together to form Procurement packages. Items packaged together will be bought together either in one tender or one request for quotations. In packaging the items you consider the following: like items large or small items values of the items The Packaging will help you in deciding which procurement method to use for each package.

Knowledge of the scheduling of procurement requirements and of the timeline of each key milestone in the evaluation and selection process (duration of the evaluation process, approval requirements, contract negotiations, etc.) is crucial to effectively package procurement requirements. What is procurement packaging? There are two principal forms of procurement packaging: (i) the grouping (or bulking) of procurement requirements within a procurement category for the purpose of acquiring them under a single contract, and (ii) the division of one requirement into multiple lots, where bidders can submit bids for one, several or all lots (as would be stipulated in the solicitation documents), and where a contract could be awarded for each lot. On the one hand only one contract is awarded; on the other several contracts may be awarded. Another form of packaging is done by grouping several procurement categories when this is considered most practical. An example of such packaging is when there is a requirement for acquiring a particular type of equipment, and where there may also be a requirement for the installation of the equipment, and sometimes training on the use of the equipment once installed. In such cases, it may be most practical to call for bids for the supply, installation and training on the operation and use of the equipment. Although this may seems the most logical arrangement, the equipment, its installation and training could also be procured from three different sources under three different contracts. When to consider procurement packaging? The packaging of procurement requirements should be considered during the requirements determination and procurement planning phases, so that the decision is taken into account during procurement scheduling. What needs to be considered when deciding on packaging procurements? The following needs to be taken into account when considering procurement packaging: If the group of requirements are needed (or can be received) simultaneously, or are there different delivery dates between requirements. Unless the selected supplier can deliver at different intervals, receiving all the goods at one time could result in a potential logistical problem; therefore, under these circumstances it may be preferable not to package the various requirements. The likelihood of local suppliers being able to fulfill the requirement and if the packaging would limit their participation. The availability of several suppliers that can provide a combination of procurement categories as may be required in the case of supply, installation and training. If the procurement unit lacks the capacity to coordinate several suppliers this may create a preference for packaging to reduce the number of suppliers that the procurement unit would have to coordinate. When to avoid procurement packaging? Procurement packaging should be avoided: When the failure of one supplier could have a negative impact on the outcome of a project, given the interdependence of requirements under a project. When it may limit competition or the participation of suppliers in the procurement process. When packaging a requirement into several lots may increase the need for supervision beyond the capacity of the unit responsible for contract administration. When there is no economic or efficiency gains to be derived from the packaging.

Process by which procurement requirements are divided into lots to segregate into smaller packages or packages that requires specific set of qualifications Considerations for Division into Lots The division of a procurement requirement into lots, which could otherwise be procured as a single contract, should be considered when: It is anticipated that the award of several separate contracts may result in the best overall value for the Procuring Entity through enhance competition; The division of a requirement into a package of separate lots is permitted where it is likely to increase the number of responsive bids by enabling the participation of bidders who are able to bid for some, but not all, types of item; or small enterprises that would not be qualified to bid for the complete package as a single contract. This might support economic development policies. The justification should clearly establish the link to such a policy and the impact of the division. A requirement cannot be divided into lots: For the purpose of avoiding procurement thresholds; Where the award of several separate contracts would create problems of compatibility or inter-changeability between items purchased as separate lots; Where the award of several separate contracts would invalidate or otherwise restrict any contractor‘s warranty or liability; Where the award of several separate contracts would increase the costs of servicing, maintenance or similar requirements; Where a procurement requirement is divided into lots of equal packages, especially with the purpose of ensuring greater competition and / or participation of SMEs, no single vendor should be awarded more than one lot as it would otherwise defeat the purpose of the division process. Where a requirement is divided into lots, which may result in separate contracts, the selection of the procurement method may be determined by the estimated value of each individual lot and not necessarily by the total value of all the lots. Where a requirement which could be procured as a single contract is divided into lots with equal packages, the Procuring Entity shall permit bidders to bid for a single lot, any combination of lots or all lots.

Aggregation of supply means: when the aggregated demand is presented in a consolidated way to the market, a single supplier, or fewer suppliers than before, may respond and contract with us – leading to a supply base for our new requirement that is rationalized to a greater extent than . Indeed in many cases this is a likely market response to aggregated demand presented in a consolidated way to the market. Potential advantages of aggregation 1. Better management information through aggregation of demand The aggregation of demand can deliver benefits through better quality management information. As well as providing opportunities for aggregating supply, aggregation of demand can also allow price benchmarking within an organization and with others in the market. Aggregating demand can enable more consistent application of best practice, and can reduce the procurement costs associated with gathering price and market information. It can also create opportunities for learning, through collaboration with other organizations. 2. Greater leverage Aggregation may facilitate improved management of suppliers at a strategic level – for example by enabling buyers to discern patterns and raise issues in a coordinated way at senior level in companies. Aggregating requirements can strengthen departments‘ negotiating position in contracting with their suppliers. The ability to realize these benefits depends on the competence of the buyers and contract managers. 3. Lower prices through reduced production costs Opportunities to achieve economies of scale can be exploited, including enabling smaller organizations to benefit from the same advantageous deals achieved by larger ones if the contract is set up to allow multi access. However, it is important to understand how the potential for economies of scale varies between different markets. 4. Lower transaction costs Aggregation across or within departments can simplify the tendering process leading to reduced procurement costs for buyers and reduced bidding costs for suppliers. Reduced project management and contract management costs can be achieved – as long as project managers, negotiators and contract managers are sufficiently skilled and adequately resourced. Process savings can free up (scarce) front line procurement staff to concentrate on the most strategically important issues. 5. Better management of the market Aggregation of demand can allow capacity constraints in the market to be identified and managed across government. There may be potential to transfer more risk to suppliers – which may result in better certainty around cost and delivery (as long as the right risks are transferred). Aggregation can result in simplified stock management and logistics – placing responsibility with a single supplier. 6. Better management of the supply chain Aggregation (or more specifically bundling) may place the responsibility for managing the supply chain with a prime contractor. In some cases this may result in better supply chain management and better overall value for money. There may be opportunities for exploiting economies of scope through bundling. Economies of scope occur where there are significant costs common to different goods or services in a supply chain (eg the cost of gaining specific technical expertise) – so it makes sense for these to be integrated within the same firm. Potential drawbacks of aggregation 1. Need for highly-skilled procurers and contract managers Procuring and managing very large, complex contracts requires highly skilled procurement, project management and contract management staff. Aggregation and analysis of demand also requires significant expertise. Without people of the right calibre many of the potential benefits of aggregation can be missed. Demands on resources may not be evenly spread between the beneficiaries of the aggregated deals, for example the lead departments on collaborative contracts may require considerable extra resource. However, this drawback can be overcome by sharing the resource burden amongst participating bodies or by considering other incentive structures. Centrally managed and large contracts may not be responsive to local needs of front line staff. Moreover, it may be difficult to extract the necessary information on quality of service. Large and complex contracts can often entail lengthy and costly procurement processes – and complexity increases the potential for delays to procurement timescales. It is possible for the total costs of a consolidated procurement to exceed those that would have been incurred if parts of the total requirement had been procured separately. It can be difficult to develop a specification that addresses the needs of all members of a buying ‗consortium‘. Unless the critical requirements of all members are met, including the less influential ones, better overall value for money in whole life terms may be achieved by contracting separately. 2. Distorting the market and missing out on innovation Aggregation across government could distort markets, by developing a situation where too few suppliers are operating. This may lead to a situation where suppliers can singly or collectively raise prices above competitive levels and harmfully exploit their market power. In most markets there is a point at which it is no longer possible to exploit further economies of scale. Aggregating supply beyond this point would not be advantageous. Very large contracts may pose significant barriers to entry for smaller firms, or those wishing to diversify into the market. A combination of the evolving strength of incumbents, size of contracts and high bid costs can lead to less competitive marketplaces. Smaller companies may be automatically excluded from large contracts for capacity or geographical reasons – despite sometimes being able to offer innovative products or services, specialist or niche offerings and a more responsive service through direct access to decision makers within their organizations. Bundling of large portfolios of products or services, for example on electronic catalogues, can lead to suboptimal prices by restricting the ability of smaller specialist suppliers to compete in the first tier. Although transaction costs may be reduced by bundling, eprocurement techniques could be used to support a more limited bundling that maintains competition. Where aggregation results in fewer, bigger procurements, suppliers that lose out are more likely to be locked out of the public sector marketplace for a prolonged period. Buyers may risk becoming over-reliant on very large suppliers who are not themselves reliant on their

Procurement planning is the process of deciding what to buy, when and from what source. It is the primary function that sets the stage for subsequent procurement activities. Procurement must take a thoroughly professional view of its role in business as a whole and that must include planning. Any procurement begins with the planning decision to make the purchase and this will involve in the first place, deciding whether there is a need for the particular goods or services, ensuring that the purchaser has the legal powers to undertake the transaction, obtaining any relevant approvals within the government hierarchy and arranging the necessary funding. The ultimate goal of procurement planning is coordinated and integrated action to fulfill a need for goods, services or works in a timely manner and at a reasonable cost. Procurement planning is undertaken as part of the program/service planning process. The primary concept of procurement is that planning, scheduling and bulk purchasing result in cost savings, efficient business operation, and increased value for money. The public sector is expected to use procurement planning as an opportunity to evaluate/review the entire procurement process so that sound judgments and good decision making will facilitate the success of the overall project implementation in the procurement of goods, works and services. A mistake in procurement planning has wide implications for local governance, measured from the two indicators of accountability and participation. The ideals of planning suggest that procurement planning can be implemented in an atmosphere of complete harmony. As a function, procurement planning endeavors to answer the questions of what do you want to procure; When to procure it; Where to procure them from; when the resources be available; The methods of procurement to be use; how timely procurement or failure will affect the user of the item(s); The procuring and disposing entity; efficient in the procurement process; and the people to be involved in the procurement. Importance of procurement planning Procurement Planning is important because: 1. It helps to decide what to buy, when and from what sources. 2. It allows planners to determine if expectations are realistic; particularly the expectations of the requesting entities, which usually expect their requirements met on short notice and over a shorter period than the application of the corresponding procurement method allows. 3. It is an opportunity for all stakeholders involved in the processes to meet in order to discuss particular procurement requirements. These stakeholders could be the requesting entity, end users, procurement department, technical experts, and even vendors to give relevant inputs on specific requirements. 4. It permits the creation of a procurement strategy for procuring each requirement that will be included in the procurement plan. Such strategy includes a market survey and determining the applicable procurement method given the requirement and the circumstances. 5. Planners can estimate the time required to complete the procurement process and award contract for each requirement. This is valuable information as it serves to confirm if the requirement can be fulfilled within the period expected, or required, by the requesting entity. 6. The need for technical expertise to develop technical specifications and/or scope of work for certain requirements can be assessed, especially where in-house technical capacity is not available or is non-existent. 7. Planners can assess feasibility of combining or dividing procurement requirements into different contract packages The Benefits of Effective Procurement Planning Effective Procurement Planning is essential for all procuring entities in the implementation of the purchasing objectives for the following reasons: 1. An effective plan saves time and money 2. An effective plan serves as a conduit to achieving entity‘s objectives 3. An effective plan ensures compliance with regulatory policies 4. An effective plan provides a framework to guide procurement officers in the achievement of their tasks and duties. 5. Effective procurement planning enables organization and its staff to work smoothly to achieve the organization‘s goals with the right quality and quantity of inputs in place Consequences of lack of procurement planning Lack of planning leads to: Delay in project implementation Inadequate supplier response Procurement process shortcuts Higher prices of goods, services and works Insufficient lead time Claims of unethical or unfair dealings Delay requisitions to create false emergencies