For the PMP® Exam using PMBOK® Guide 5 Edition

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For the PMP® Exam using PMBOK® Guide 5th Edition

© Khaled El-Nakib, MSc, PMP, PMI-RMP 2015

PMI®, PMP®, PMBOK® Guide are registered trade marks of Project Management Institute, Inc.

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Contacts

• Name: Khaled El-Nakib, MSc, PMP, PMI-RMP

• URL: http://www.khaledelnakib.com

• E-mail: [email protected]

• LinkedIn: https://eg.linkedin.com/pub/khaled-el-nakib-msc-pmp-pmi-rmp/16/471/6a8


Project Procurement Management

• Project Procurement Management includes all the processes to purchase or acquire the products, services, or results needed from out side the project team.

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Procurement management processesProcurement management processesProcurement management processesProcurement management processes

Close Procurements

Control Procurements

Conduct Procurements

Plan Procurements


Plan Procurements

Plan Procurements is the process of documenting project Procurement decisions, specifying the approach, and identifying potential sellers

It involves determining whether to acquire outside support and, if so what to acquire, how to acquire it, how much is needed, and when to acquire.

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Inputs

1. Project Management Plan

2. Requirements Documentation

3. Risk Register

4. Activity Resource Requirements

5. Project Schedule

6. Activity Cost Estimate

7. Stakeholders Register


IN-8: Enterprise Environmental factors

• Market place conditions

• Human resources availability

• Existing expertise

• Suppliers past performance

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IN-9: Organizational process assets

• Procurement-related policies, procedures, guidelines• Specific goods from specific vendor

• Procure all goods/services from a single source.

• Procure all goods/services from multiple sources.• Procure only a small portion of the goods/services.

• Procure none of the goods/services

• Approval levels

• Sellers criteria

• Lessons learned

• Pre-qualified sellers


Contract Types

• A contract is a compulsory agreement between two or more parties and is used to acquire products or services from outside the organization

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Contract Types (continued)

• Firm fixed-price or lump-sum contract (FFP)

• Fixed-price-incentive-fee contracts (FPIF)

• Fixed-price economic price adjustment (FPEPA)

• Cost-plus-fixed-fee contract (CPFF)

• Cost-plus-percentage-fee contract (CPPF)

• Cost-plus-incentive-fee contracts (CPIF)

• Cost-plus award fee (CPAF)

• Time and materials (T&M)



• Firm fixed-price or lump-sum contract (FFP)

• Example:• Contract to deliver 65 PC’s , 4 Servers , 17 Printers as per configuration

listed in contract appendix #2

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• Fixed-price-incentive-fee contracts (FPIF)

Example• Building a hotel with Target cost $20,000,000

• Committed delivery date 22/01/2020

• To make use of high season, and to avoid the risk delay due to importing equipments during the Christmas leave, or importing equipments before December and rent a suitable warehouse and spend additional cost for storing equipments, buyer offers incentive $100,000 for every month early the project is finished



• Fixed-price economic price adjustment (FPEPA)

Example:• Contract to supply Raw materials for 30 months.

• Unit Price shall be revised every 6 months, and adjustments may take place according to market conditions

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• Cost-plus-fixed-fee contract (CPFF)

Example:• Supplier reimburses the actual cost spent on achieving the final

result and will be paid 10,000 EGP as profit or fee



• Cost-plus-percentage-fee contract (CPPF)

Example:• Supplier reimburses the actual cost spent on achieving the final

result and will be paid 5% of actual cost as profit or fee.

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• Cost-plus-incentive-fee contracts (CPIF)• Target cost or estimated cost

• Target or expected profit

• Profit ceiling and profit floor

• Price ceiling or ceiling price

• Maximum and minimum fees

• The sharing arrangement or formula



• Cost-plus award fee (CPAF)

Example:• Supplier reimburses the actual cost in addition to Fees, where the

majority of the fees is determined by the buyer.

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Risk Allocation


TT-1: Make or Buy Analysis

• The main decision you’re trying to get to in make-or-buy analysis is whether it’s more cost effective to buy the products and services or more cost effective for the organization to produce the goods and services needed for the project

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Lease (Rent) or Buy

• Leases are usually longer term than renting.

• Consider the following example. • A company is willing to rent you a piece of equipment at a cost of $100

per day. You can Buy the equipment for$5000 plus $60 per day running cost. What is the breakeven point, in days, where buying and renting are the same?

100D = 5000 + 60D

100D – 60D = 5000

D = 5000/40 = 125


TT-2: Expert Judgment

• Purchase Expert judgment can be used to develop or modify the criteria that will be used to evaluate the offers or proposals made by the seller

• Legal Expert judgment can assist in procurement terms and conditions

• Technical Expert judgment is required for technical aspects of the product, service , or result

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TT-3: Market research

• Market research includes examination of industry and specific vendor capabilities


TT-4: Meetings

• Project team may attend project meetings to develop the Procurements management plan.

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Out-1: Procurement Management Plan

• It describes how procurement processes will be managed. It can include:

• Type of contracts to be used• Who will prepare independent estimations• Procurement action allowed for the project team to take• Coordinating procurement with other project aspect• Related constraints and assumptions• Managing lead times• Handling make or buy decisions• Identify performance bond and insurance contracts• Identify pre-qualified sellers• Metrics used to manage contracts and evaluate sellers


Out-2: Procurement statement of work (SOW)

• A Procurement statement of work (SOW) contains the details of the procurement item in Clear, Complete, and Conciseterms. It includes the following elements:

• The project objectives

• A description of the work of the project and any post project operational support needed

• Concise specifications of the product or services required

• The project schedule, time period of services, and work location

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Out-3: Procurement Documents

• Procurement documents should clearly state the description of the work requested, they should include the contract SOW, and they should explain how sellers should format and submit their responses

• Examples• Request for Information (RFI)• Invitation for Bid (IFB)

• Request for Proposal (RFP)

• Request for Quotation (RFQ)

• Tender Notice

• Invitation for Negotiation


Out-4: Source Selection Criteria

• Selection criteria are developed and used to rate or score proposals. For example:

• Understanding of needs

• Overall or life-cycle cost

• Technical capability• Management approach

• Technical approach

• Financial capability

• Production capacity

• References

• Demonstration

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Out-5: Make-or-Buy Decisions

• The make-or-buy decision is a document that outlines the decisions made during the process regarding which goods and or services will be produced by the organization and which will be purchased.


Out-6: Change Requests

• Requested changes might come about as a result of the Plan Procurements.

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Out-7: Project Documents Updates

• Requirements documentation

• Required traceability matrix

• Risk register


Conduct Procurements

• Conduct Procurements obtains response, such as bids and proposal, from prospective sellers on how project requirements can be met, selecting sellers, and awarding a contract.

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Inputs

1. Procurement management plan

2. Procurement documents

3. Source selection criteria

4. Seller proposals

5. Project documents

6. Make-or-buy decisions

7. Procurement statement of work

8. Organizational Process Assets


TT-1: Bidder conference

• Equivalent names: contractor conference, vendor conference, pre-bid conference

• Purpose: to insure that all sellers have common and clear understanding of technical and contract requirements.

• Questions and answers are sent to all sellers as procurement documents Addenda.

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TT-2: Proposal Evaluation Techniques

• All techniques use some form of expert judgment and evaluation criteria—whether it’s objective or subjective criteria.


TT-3: Independent Estimates

• Sometimes referred to as “should-cost” estimate. Significant differences means:

• Inadequate statement of work

• Seller misunderstand statement of work

• Seller failed to response fully to statement of work

• Market place changed

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TT-4: Expert Judgment

• Include experts from all areas of the organization when evaluating proposals and selecting vendors. Don’t forget your legal and financial experts, marketing, sales, engineering, and so on


TT-5: Advertising

• Advertising is letting potential vendors know that an RFP is available. The company’s Internet site, professional journals, or newspapers are examples of where advertising might appear.

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TT-6: Analytical Techniques

• Analyzing past performance data

• Forecasting expected changes

• Estimating procurement monitor and control effort


TT-7: Procurement Negotiation

• Subjects include but not limited to:• Responsibilities and authorities

• Applicable terms and laws

• Contract financing

• Technical solution

• Overall schedule

• Terms of payments

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Out-1: Selected Sellers

• The sellers selected are those sellers who have been judged to be in a competitive range based upon the outcome of the proposal or bid evaluation.


Out-2: Agreement

• The Agreement should clearly address the elements of the SOW, schedule baseline, performance reporting, pricing and payment terms, acceptance criteria, roles and responsibilities, penalties, change request handling, warranty periods, dispute resolution procedures

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Related Terms

• Letter of intent (LOI)

• Memorandum of understanding (MOU)

• Non-disclosure agreement

• Breach/Default

• Dispute resolution procedures

• Retainage

• Force majeure


Out-3: Resource Calendars

• The quantity and availability of the resources and those dates on which each specific resource can be active or idle are documented

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Common outputs

• Change Requests

• Project Management Plan (Updates)

• Project Documents (updates)• Risk register

• RTM



• Control Procurements is the process of managing procurement relationships, monitoring contract performance, and making changes and corrections to contract as appropriate.

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• Integrated processes• Direct and mange project Work

• Control quality

• Perform integrated Change control

• Control risks


Inputs

1. Project management plan

2. Procurement documents

3. Agreements

4. Approved change requests

5. Work performance reports

6. Work performance data

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TT-1: Contract change control system

• A contract change control system defines the process by which the contract can be modified


TT-2: Procurement performance review

• It is structured review of the seller’s progress to deliver project scope and quality, within cost and on schedule, as compared to the contract.

• The objective is to identify performance success and failure, progress with respect to SOW, and contract non-compliance.

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TT-3: Inspections and Audits

• The objective is to identify any weakness in the seller’s processes or deliverables


TT-4: Performance reporting

• Performance reporting provide the management with information about how effectively the seller is achieving the contractual objectives

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TT-5: Payment systems

• Payment system includes appropriate reviews and approvals by the project management team and payments are made in accordance with the terms of the contract


TT-6: Claims administration

• If the two parties do not resolve a claim in accordance with the terms of contract, it may have to be handled in accordance with dispute resolution procedures established in the contract

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TT-7: Records management system

• A record management system is part of PMIS used by the project manager to manage contract documentation and records.


Out-1: Work Performance Information

• Work performance information includes reporting compliance/non-compliance which provides a mechanism to deliverables expected and received from vendors

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Out-2: Change Requests

• Change requests can include directions by the buyer, or actions by the seller, that is considered as a constructive change to the contract


Out-3: Project Management Plan (Updates)

• Procurement management plan

• Schedule baseline

• Cost baseline

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Out-4: Projects Documents Updates

• Procurement documentation

• Financial documents

• Payment records


Out-5: Organizational Process Assets (Updates)

• Correspondences

• Payment schedule

• Seller performance evaluation documentation

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Close Procurements

The Close Procurements process supports the close project or phase process since it involves verification that all work and deliverables are acceptable. It also involves administrative activities such as updating records to reflect final results, and archiving information for future use.


Inputs

• Project Management Plan

• Procurement documents

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TT-1: Procurement Audit

• Procurement audits are concerned with reviewing the procurement process, starting with the Plan Purchases and Acquisitions process all the way through Contract Administration

• Procurement audits are reviews of procurement processes to determine whether they are meeting the right needs and are being performed correctly and according to standards


TT-2: Negotiated Settlements

• Settlements for all outstanding issues, claims, or disputes should be achieved primarily through negotiation.

• Alternative Dispute Resolution (ADR) includes mediation, or arbitration.

• When all else fail, litigation in courts is the final option

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TT-3: Records Management System

• A record management system is part of PMIS used by the project manager to manage contract documentation and records


Out-1: Closed Procurements

• The buyer, usually through its authorized contract administrator, provides the seller with formal written notice that the contract has been completed.

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Out-2: Organizational Process Assets (Updates)

• Procurement File

• Deliverable acceptance

• Lessons learned documentation


Question & AnswersQuestion & Answers

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