Projct Procurement Management

Project Scope Management

Project Procurement Management

1Section Overview and ObjectivesThe following is what you can expect to learn within the Project Procurement Management section:What is involved with planning procurementWhat is the Procurement Management PlanWhat are the 3 types of Procurement ContractsWhat is involved in conducting procurementWhat is involved with controlling procurementWhat is involved with closing procurementPTA formula and use

212.0 Project Procurement ManagementIncludes the processes necessary to purchase or acquire products, services, or results needed from outside the project team.Processes:12.1 Plan Procurement Management12.2 Conduct Procurements12.3 Control Procurements12.4 Close Procurements

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk312.1.3.1 Procurement Management Plan Concepts Describes how a project team will acquire goods and services from outside the performing organizationDescribes how the procurement processes will be managed from developing procurement documents through contract closureIncludes guidance for:Types of contracts to be usedRisk management issuesWhether independent estimates will be used and whether they are needed as evaluation criteriaActions that the project team can take unilaterallyStandardized procurement documents, if neededManaging multiple suppliersCoordinating procurement with other project aspectsAny constraints and assumptions that could affect planned procurementHandling the long lead times to purchase certain items from sellers and coordinating extra time needed to procure these items with development of the project scheduleHandling the make-or-buy decisions and linking them into the Estimate Activity Resources and Develop Schedule processesSetting the scheduled dates in each contract deliverables and coordinating with the schedule development and control processesIdentifying requirements to be provided to the sellers on developing and maintaining a WBSEstablishing the form and format to be used for the procurement/contract SOWIdentifying prequalified sellers, if any, to be usedProcurement metrics to be used to manage contracts and evaluate sellers

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk4Planning Process Group

512.1 Plan Procurement Management .Process of documenting project procurement decisions, specifying the approach, and identifying potential sellers.Key benefit: determines whether to acquire outside support and if so, what to acquire, how to acquire it, how much is needed, and when to acquire it.InputsTools & TechniquesOutputsMake-or-buy analysisExpert judgmentMarket researchMeetingsProcurement management planProcurement statement of workProcurement documentsSource selection criteriaMake-or-buy analysisChange requestsProject documents updatesProject management planRequirements documentationRisk registerActivity resource requirementsProject scheduleActivity cost estimatesStakeholder registerEnterprise environmental factorsOrganizational process assets

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk612.1.1.9 Types of Procurement Contracts

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRiskWhat is a Contract?

A contract is a legally binding detailed formal document that refers to an entire agreement between 2 or more parties.All terms & conditions of a contract must be metAnything not mentioned in the contract is not legally binding to anyone

7As project manager, we deal with a lot of contractual relationships when planning procurement. The most popular contract types are thefixed-price contract, which defines a fixed total price for a project; thecost reimbursable contract, which reimburses the seller with legitimate cost incurred during the cost of the project (this is largely used when the scope of a project cannot be determined at the start of the project);. and thetime and material contract (T&M), which is a combination of the fixed-price contract and the cost reimbursable contract. It is often used for special arrangements in a fixed-cost project such as hiring expatriates, staff augmentation, or part of the contract for which the quantity cannot be defined as of the time of award.

12.1.1.9 Types of Procurement Contracts

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRiskWhen are the different contracts used?

Purchase Order (PO): Usually used for commoditiesFirm Fixed-price (FFP)/Lump sum: Only when there is a detailed scope of workFixed-price-incentive fee (FPIF): Used to accelerate the buyer's needFixed-price Economic Price Adjustment (FPEPA): Used to compensate for economic changes from year to yearTime and Materials (T&M): Usually for temp staffCost-plus-fixed-fee (CPFF): Buyer lacks details cover's costs plus a defined feeCost-plus-incentive-fee(CPIF): Buyer lacks details but covers costs and give incentive to finish more quicklyCost-plus-Award fee (CPAF): Cover costs but major fee is only awarded upon buyer acceptanceCost-plus-percentage of Cost (CPPC)/ Cost+fee (CPF): Covers costs plus a percentage of costs as a fee


12.1.1.9 Types of Procurement ContractsTypes of Contracts:

Fixed-Price contracts (Lump Sum): Well defined scope / product, fixed total price, risk is on the sellerFirm Fixed Price Contracts (FFP) Fixed Price Incentive Fee Contracts (FPIF)Fixed Price with Economic Price Adjustment Contracts (FP-EPA)

look out for:Bait and Switch(replace with cheaper materials)Excessive change requests

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk


12.1.1.9 Types of Procurement ContractsCost-Reimbursable Contracts:

Scope is not exactly defined. price is open based on the final costs the product will incur, risk is on the buyer

Cost Plus Fixed Fee Contracts (CPFF)Cost Plus Incentive Fee Contracts (CPIF)Cost Plus Award Fee Contracts (CPAF)

Audit all invoices, look out for additional charges, tie payment to milestones, make sure people with the required skill sets are doing the job

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk10As project manager, we deal with a lot of contractual relationships when planning procurement. The most popular contract types are thefixed-price contract, which defines a fixed total price for a project; thecost reimbursable contract, which reimburses the seller with legitimate cost incurred during the cost of the project (this is largely used when the scope of a project cannot be determined at the start of the project);. and thetime and material contract (T&M), which is a combination of the fixed-price contract and the cost reimbursable contract. It is often used for special arrangements in a fixed-cost project such as hiring expatriates, staff augmentation, or part of the contract for which the quantity cannot be defined as of the time of award.

12.1.1.9 Types of Procurement ContractsTime and Material Contracts (T&M):Cost is charged to identified tasks of an ongoing activity, ex research, risk is on the buyer. Seller has no incentive to control costsEnsure hours are not paddedFollow the milestone dates

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk11As project manager, we deal with a lot of contractual relationships when planning procurement. The most popular contract types are thefixed-price contract, which defines a fixed total price for a project; thecost reimbursable contract, which reimburses the seller with legitimate cost incurred during the cost of the project (this is largely used when the scope of a project cannot be determined at the start of the project);. and thetime and material contract (T&M), which is a combination of the fixed-price contract and the cost reimbursable contract. It is often used for special arrangements in a fixed-cost project such as hiring expatriates, staff augmentation, or part of the contract for which the quantity cannot be defined as of the time of award.


Time

Quality




Time

Quality



12.1.3.1 Procurement Plan / Contract conceptsProcurement Statement of Work (SOW) is a legal document subject to legal reviews, legal advise should be sought throughout the whole procurement processSellers are external to the project teamNeed to go through all 4 processes foreach and everyprocurementContract elements:offer(seller offer buyer),acceptance(buyer criteria),capacity(physical/financial capabilities),consideration(seller receive),legal purpose(must be legal under law)Best if contract is signed after PM is assignedPM needs to understand terms and conditions, identify risks, include procurement time in schedule and involve in negotiationsCentralizedcontractingvs decentralized contracting

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1412.1.3.1 Procurement Plan conceptsSole source aka "no-bid contract, means that there is only one person or company that can provide the contractual services needed, so any attempt to obtain bids would only result in that person or company bidding on it.

Legal reasons for sole source contracts in the USA include:only one firm has a product that will meet the projects needs or only one firm can do the work;the existence of an unusual and compelling urgency;for purposes of industrial mobilization or expert services;an international agreement;sole source is authorized or required by law, e.g., socio-economic programs;national security andthe public interest

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1512.1.3.1 Procurement Plan conceptsSingle source (preferred)Choosing a specific company and bypassing the competition refers to single sourcing. Different suppliers and distributors typically produce and sell similar merchandise. This is advantageous to companies that purchase supplies because they can choose among various companies. However, after a thorough analysis of possible suppliers, company heads, managers or owners may choose to sign with a single company and pass up the opportunity to work with other suppliers. This decision could be based on price or the quality of products. Benefits: Single-source contracts are useful because they provide business owners with an alternative. Business owners may initially select a supplier or distributor, then choose a new vendor due to inadequacies. Single-source contracts allow business owners to move from vendor to vendor if they're unhappy with the results. Additionally, single sources are typically open to negotiations. These vendors need business and they are often willing to accommodate business owners and modify contract terms in order to stay a step ahead of their competition

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1612.1.3.1 Procurement Plan conceptsOligopoly (very few sellers) A market form in which a market or industry is dominated by a small number of sellers; can result from various forms of collusion which reduce competition and lead to higher prices for consumers. With few sellers, each oligopolist is likely to be aware of the actions of the others. According togame theory, the decisions of one firm therefore influence and are influenced by the decisions of other firms.Strategic planningby oligopolists needs to take into account the likely responses of the other market participants.

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1712.1.3.1 Procurement Plan conceptsProcurement categories: major complexity (high risk), minor complexity (low risk, expensive), routine purchase (Commercial Off the Shelf Products COTS), goods and services (to perform part of our product)A contract is not required to be written, it can be verbal or handshake,for internal projects,formal contract is bestProcurement applies to actors (as a service)Immaterial breach is minor breachContractchange control systemis defined in the procurement management plan butnot in the contract

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1812.1.3.1 Procurement Plan conceptsContract Negotiations and TacticsFait Accompli not negotiable termsDeadline deadline for deliverablesGood Guy/ Bad Guy one friendly, one aggressiveMissing Man decision maker is missingLimited Authority not given authorityFair and Reasonable what is fair?Unreasonable making unreasonable demandsDelay especially in critical momentsAttack force compliance

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk1912.1.3.1 Procurement Plan conceptsIn the recent past, there have been many questions coming from a relatively unknown term Point of Total Assumption (PTA) on the PMP Exam. Surprisingly, the Point of Total Assumption does not even appear in the PMBOK Guide, Fifth Edition. Yet, questions using the Fixed Price Incentive Fee (FPIF) contract type often refer to this term. To understand the PTA, you must first have a good understanding of the Fixed Price Incentive Fee Contract. In this contract, the buyer agrees to pay a fixed price, and a maximum price for cost overruns. This is called the Most Pessimistic View of Costs because it represents the highest point beyond which costs are not expected to rise, given reasonable issues.Beyond this point, if the cost rises, it will most likely be because of mis-management at the Sellers end, thus, the seller has to bear all the extra costs beyond this point. If, however, the seller finishes work at lower cost, there is an incentive, and this maximizes the Sellers gains.

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk2012.1.3.1 Procurement Plan conceptsPTA = ((Ceiling Price Target Price) / Buyers Share Ratio) + Target CostExample: Target Cost: 1,000,000 Target Profit for Seller: 100,000 Target Price: 1,100,000 (Target Cost + Profit for Seller) Ceiling Price: 1,300,000 ( the maximum the buyer will pay) Share Ratio: 80% buyer20% seller for over-runs, 50%50% for under-runs.

PTA = ((1,300,000 1,100,000)/ 0.80) + 1,000,000 = 1,250,000.

Beyond the Point of Total Assumption, the sellers profitability decreases, and their initiative and interest to complete the project may diminish too. Therefore, the PTA is also a risk trigger. As this point is reached, the project risk increases, and more attention is needed to complete the project at the earliest, with as little cost deviation as possible.

http://www.slideshare.net/wnaggar/pmp-formulas-31779803

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk2112.1.3.1 Procurement Plan conceptsPTA = ((Ceiling Price Target Price) / Buyers Share Ratio) + Target CostExample:

Target Cost: 60,000Target profit: 6000Target Price: 63,000Celing Price: 65,000Share Ratio: 70% Buyer and 30% sellerPTA = (( 65000 - 63000 ) / 0.7 ) + 60000 = 62857

http://pmzilla.com/point-total-assumption-pmp

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk22Executing Process Group

2312.2 Conduct Procurements .Process of obtaining seller responses, selecting a seller, and awarding a contract.Key benefit: provides alignment of internal and external stakeholder expectations through established agreements.InputsTools & TechniquesOutputsBidder conferenceProposal evaluation techniquesIndependent estimatesExpert judgmentAdvertisingAnalytical techniquesProcurement negotiationsSelected sellersAgreementsResource calendarsChange requestsProject management plan updatesProject documents updatesProcurement management planProcurement documentSource selection criteriaSeller proposalsProject documentsMake-or-buy decisionsProcurement statement of workOrganizational process assets

Time

Quality


24What is Involved in Conducting ProcurementsRequest responses from sellers and evaluating those responses Establish a short list of qualified sellers based on preliminary proposalsConduct a more detailed evaluation based on a more specific and comprehensive requirements document requested from the sellers on the short listWeighing system:Select a single seller that will be asked to sign a standard contractEstablish a negotiating sequence by ranking all proposals by the weighted evaluation scores assigned to each proposal

Time

Quality


25Monitoring and Controlling Process Group

2612.3 Control Procurements .Process of managing procurement relationships, monitoring contract performance, and making changes an corrections as appropriate. Key benefit: ensures that both the sellers and buyers performance meets procurement requirements according to the terms of the legal agreement.InputsTools & TechniquesOutputsContract change control systemProcurement performance reviewsInspections and auditsPerformance reportingPayment systemsClaims administrationRecords management systemWork performance informationChange requestsProject management plan updatesProject documents updatesOrganizational process assets updatesProject management planProcurement documentsAgreementsApproved change requestsWork performance reportsWork performance data

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk27What is Involved in Controlling ProcurementsDirect and Manage Project WorkControl QualityPerform Integrated Change ControlControl Risks

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk28What is Involved in Controlling ProcurementsPerformed by both seller and buyerManage procurement relationships, monitor contract performance, make change and correctionsProcurement administrator may beexternalto the project teamMay identify early signs and capture details for pre-mature termination of contractClaims administration process deals with changes/disputes, disputes isbest to be settled throughnegotiation > ADRMay need Alternative Dispute Resolution (ADR) by 3rd parties in case disputes cannot be settledContract Change Control System: for handling change requests (define who has the authority to approve changes (usuallynot the PM, but may be assigned the authority))Work performance data includes: the cost incurred and the invoice needs to be paidOPA may include the sellers performance

Time

Quality

StakeholderIntegrationscopeCostHRCommProcureRisk29Closing Process Group

3012.4 Close Procurements .Process of completing each project procurement. Key benefit: documents agreements and related documentation for future reference.InputsTools & TechniquesOutputsProcurement auditsProcurement negotiationsRecords management systemClosed procurementsOrganizational process assets updatesProject management planProcurement documents

Time

Quality


3112.4 Close Procurements All work is completed, deliverables accepted, claims settled OR terminated by either party at completion / termination of contractprior to administrative closure of Close Project or Phaseunresolved claims may be left for litigationafterclosuresettlement of claims/invoices, audit, archive, lessons learnedThe contract is complete when all the specifications are satisfied, no matter if the customer is satisfied with the product or notProcurement Auditis the structured review of the procurement process from Plan Procurement Management through Control Procurements,is used to capture lessons learned from the procurement exerciseOnce a procurement is cancelled, thenext process will be the close procurements

32Section SummaryIn this Project Procurement Management section, you learned each of the following:What is involved with planning procurementWhat is the Procurement Management PlanWhat are the 3 types of Procurement ContractsWhat is involved in conducting procurementWhat is involved with controlling procurementWhat is involved with closing procurement

33

Documents

Projct Procurement Management