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weights in procurement plan

2 replies [Last post]
sharjeel faiz
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Why do we use weights to calculate procurement progress?

Say, the tender assigns percentages to each stage. E.g., inquiries, 10%; TBE, 20%; PO, 30%; approvals, 20%; inspection, 20%; dispatch, 10%.

I take a simple example

Suppose there are three items to order and PO cost is as follows.Pipes, 1000$; pump, 4000$; and pressure vessel, 5000$.Total project cost equals the sum of the individual cost i.e., 1000+4000+5000=10,000$. Unit weight for any item equals PO cost divided by total project cost.Pipe unit weight = 1000/10000=0.1.Pump unit weight = 4000/10000=0.4.Vessel unit weight = 5000/10000 = 0.5 If pipes, pump and vessel is 100% complete, pipe progress =100% x 0.1 x 10000 = 1000pump progress = 100% x 0.4 x 10000 =4000vessel progress = 100% x 0.5 x 10000 = 5000Total 1000+4000+5000=10000. I get the same answer if I do not use weights. E.g. If I am 100% complete, I can claim 1000$ from owner. I hope I am clear. I am not a planner, just interested.

Replies

sharjeel faiz
User offline. Last seen 3 weeks 3 days ago. Offline
Joined: 2 Apr 2015
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Yes. Thank you. Very nice.

Rodel Marasigan
User offline. Last seen 54 min 2 sec ago. Offline
Joined: 25 Oct 2006
Posts: 1624

Hi Sharjeel,

We used weight to calculate progress not only on procurement progress. We called it Rules of Credit or production steps. If the rules of credit were approved by the client, it helps the contractors financial cash flow and allow to claim progress partially. Let's use procurement as per your example. (note: this is only to explain the theory and not assuming the rules of credit is correct)

As per example:

1) Pipes = 1000
2) Pump = 4000
3) Pressure vessel = 5000

Total = 10,000

Using the rules of credit mention above:
Let say the Pipes delivery is 3 months, Pumps delivery is 6 months and Pressure Vessel delivery is 8 months

If the procurement items is being paid only by the client after deliveries then the contractor won’t get paid until the said items is delivered. Using Rules of Credit (weighting) approved and agreed by the client, the contractor can partially bill the client even the items are not yet delivered.

Ex: if the Pipes has been enquired to suppliers and has been substantiated by the contractor to the client, then the contractor is entitled to claim 10%. This will be the same to other items and or other rules of credit that had been completed and substantiated.

Because the contractor already spend cost paying the procurement person to expedite the PO, using rules of credit, the contractor can cover the cost expended by claiming partially to the PO even the items was not yet delivered.

I hope my explanation is clear.