What is capability?
Competence, capability and capacity are often used interchangeably to describe an individual’s or organisation’s ability to perform tasks or activities effectively.
In the context of managing procurement activity, is increasingly used to describe the combination of an organisation’s expertise, resourcing, systems, policies and processes to execute and manage specific procurement tasks and activities.
Why assess capability?
An assessment of capability ensures procurement activities are supported by the appropriate skills, resources, systems and processes. It can be measured at the organisational, business unit or individual level. The results of your capability assessment, coupled with an understanding of the complexity of your procurement activities, will identify whether or not you should proceed with a procurement activity.
If sufficient expertise is not available, you can take steps to increase procurement capability through training, process/system changes, identifying individuals with specific category expertise and/or increasing internal capability by engaging external expertise.
The VGPB’s states that the head of your organisation (the accountable officer) must ensure that your organisation has an appropriate level of procurement expertise, resources, systems and processes to enable procurement activities to be completed successfully
Your organisation must not carry out procurement where there is an insufficient level of capability.
How often to assess capability?
An assessment of capability at the organisational level forms part of your annual procurement planning process. You may also need to assess capability at the business unit or individual level if:
- you have a multiple or a decentralised procurement function
- there are significantly different levels of procurement capability in the organisation
Assessing a higher level of capability at the business unit or individual level allows these areas of your organisation to carry out more complex procurements than would otherwise be permitted by your organisational capability assessment.
A significant change to your governance structure, organisational design, staffing, training, processes, tools and/or systems, will more than likely require a new capability assessment. A significant change in the external environment in which the organisation operates can also trigger additional capability assessments.
Your internal procurement unit (IPU) or equivalent is responsible for managing, preparing and monitoring your organisation’s capability development plan. The IPU must have appropriate knowledge and experience to review and endorse the assessment.
The capability assessment
The capability assessment structure can be used to assess capability at the organisational, business unit, or individual procurement personnel level. It identifies current procurement capability as well as capability gaps to drive continuous improvement.
Procurement capability is assessed in three core areas of organisational capability:
- governance and organisation—governance and operational structure, policy and functioning of the organisation/business unit/individual personnel
- tools, systems, processes—procurement tools, systems and processes used across the organisation/business unit/individual personnel; and whether certain business units/individuals already carry out significantly more complex procurement activities
- sourcing—managing and monitoring performance of suppliers, sourcing strategies and procurement activities
Each of these core areas of capability are made up of capability criteria. These criteria indicate the key capabilities that an organisation/business unit/individual personnel should possess in order to carry out the organisation’s procurement activities.
Complexity assessment framework
The figure shows a branching structure. Complexity assessment framework comprises:
- Governance and organisation
- Tools, systems and processes
Governance and organisation comprise:
- Procurement policy
- Procurement strategy
- Decision making process probity / requirements
- Risk management framework
- Roles and responsibility
- Delegation of authority
- Compliance monitoring and reporting
- Senior management buy-in
- Procurement knowledge (specialised personnel)
- Procurement awareness (all personnel)
- Cross functional skills and collaboration
- Recruiting, staffing, training
Tools, systems and processes comprise:
- Technology and tools
- Procurement tools and to aid consistency in approach
- Data management and storage
- Systems supporting procurement
- Procurement processes
- Procurement planning process
- Documentation of process
- Contract development
- Complaint management system
- Contract management
- Contract management framework
- Supplier and stakeholder management (contracts)
- Supplier performance requirements
- Cost reduction and services improvement opportunities
- Category management
- Category management plans
- Supplier and stakeholder management (categories)
- Spend aggregation opportunities
- Data analysis
- Innovation and demand efficiency initiatives
- Performance management
- Monitoring and management of procurement performances
- External benchmarking / gap analysis
Capability assessment process
There are four key steps to assessing capability, and an optional fifth action:
- Is a capability assessment required?
- Determine appropriate level for capability assessment
- Manage the preparation of a capability assessment
- Does organisation have required capability?
- Capability build actions
Step 1: Is a capability assessment required?
The head of your organisation (or delegate) decides whether the organisation needs a capability assessment. If required, proceed to Step 2. If not required, it is important to document your reasons.
Step 2: Determine appropriate level for capability assessment
The head of your organisation (or delegate) determines what level of assessment is required, i.e. organisational, business unit, or individual procurement personnel level. As a minimum, you would expect to complete an organisation level assessment every year to cover all areas involved in procurement.
When deciding the appropriate level for the capability assessment, consider:
- the structure of the procurement function in the organisation, i.e. is it centralised or decentralised;
- whether some business units/individual personnel are likely to have significantly higher procurement capability than the overall organisation; and
- whether certain business units/individuals already carry out significantly more complex procurement activities.
If your organisation has multiple or decentralised procurement functions, you might find a higher level of capability in individual business units or procurement personnel than is available at the organisation level. In this instance, it is worth doing a separate assessment for those business units/individuals to allow them to do more complex procurement.
Once you know the appropriate level for your capability assessment, proceed to Step 3: Perform a capability assessment.
Step 3: Perform a capability assessment
Use the Capability assessment tool and template to help with your capability assessment.
The capability assessment tool and template is a two part document. The tool contains the performance standards used to complete the template. Together they help you assess the maximum level of procurement complexity that your organisation can take on.
When the capability assessment is complete, proceed to Step 4: Does the organisation have the required capability?
Step 4: Does the organisation have the required capability?
Where an organisation/business unit/individual procurement personnel is identified as having sufficient capability to carry out an identified procurement activity, the organisation /business unit/individual procurement personnel would continue through to the next stage of procurement planning.
Note: The capability assessment tool focuses on current capability. It does not take into account planned enhancement of capability. A further assessment can be prepared once the added capability has been implemented and is operational.
Where the assessment indicates insufficient capability in relation to the complexity of procurement activity, proceed to Step 5: Capability build actions.
Step 5: Capability build actions (optional)
Your organisation can develop internal capability and/or increase capability from external sources. Consider action in one or both of the following areas:
- Training: Identify the capabilities that require development and establish appropriate training program(s) to close the capability gaps. Ensure the successful completion of the identified training needs.
- Process/system changes: Identify the governance, organisational design, collaboration, training, processes, tools and system which may be improved in order to close the identified capability gaps. These opportunities for improvement should relate to those identified in your organisation’s procurement strategy.
- Engaging external procurement contractors: Identify opportunities to increase the procurement expertise of the organisation with external expertise and ensure capability gaps are adequately filled.
Accountability, responsibility, inputs, timing and processes for capability assessment process
The accountability, responsibility, inputs and timing for the capability assessment process are summarised in the following table.
Using this guide
- Governance policy
- Complexity and capability assessment policy
- Market analysis and review policy
- Market approach policy
- Contract management and disclosure policy
Tools and support
Use the capability assessment tool and template contains the performance standards used to assess capability.
This VGPB VPS capability framework provides a starting point for managers to articulate the capabilities needed in procurement roles, and align them with the capabilities required more broadly across the Victorian Public Sector:
Reviewed 26 November 2019