project procurement management pmbok 5

Connoisseur Solutions

Project Procurement Management

pankaj sharma, Mobile - 9810996356

Pankaj Sharma - Mobile No -919810996356



Processes necessary to purchase or acquire products, services or results needed from outside the project team.




Procurement Management Processes

Process Process Group

Plan Procurements

Planning

Conduct Procurements

Executing

Control Procurements

Monitoring and Controlling

Close Procurements

Closing




Plan Procurements

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




Plan Procurements

Inputs Tools and Techniques Outputs

Project management plan

Requirements documentation

Teaming agreements

Risk Register

Project Schedule

Activity cost estimates

Stakeholder register

Enterprise Environmental Factors

Organizational Process Assets

Make or buy analysis

Expert Judgment

Market research

Meetings

Procurement management plan

Procurement statements of work

Make or buy decisions

Procurement documents

Source selection criteria

Change requests

Project document updates




Plan Procurements - Inputs

Project Management Plan - describes the need, justification, requirements, and current boundaries for the project. It consists of Scope statement, WBS and WBS dictionary.

Requirements documentation include Important information about project requirements that is considered during planning for procurements. Risk Register include risk-related information such as identified risk, risk owners and risk responses Activity resource requirements state the type and quantities of resources needed for project activities Project Schedule provides information on project timelines and milestones Activity cost estimates are used to evaluate the price quoted in the bids or proposals received from potential sellers Stakeholder Register describes the details on the participants and their interest in the project




Plan Procurements - Inputs

Enterprise Environmental Factors includes condition of marketplace, what product and service are available in the market, who is the seller and what are his terms and condition

Organizational Process Assets includes policies and procedures , standards ,guidelines, performance measurement criteria, defect management procedures, change control procedures and historical information. Some organizations may define certain constraint on procurement decisions. This also include the various types of contractual agreements used by the organization, All legal contractual relationships generally fall into one of two broad families: either fixed – price or

cost reimbursable. Also, there is a third hybrid type commonly in use called the time and materials contract.

The next slides describes the different contract types in details




Plan Procurements -Tools and Techniques

Time & Material – T & M The seller is paid for the amount of time it takes to accomplish the work and he is also reimbursed for the materials used for the project

Firm Fixed Price - FFP The seller is paid a fixed price for an agreed upon unit of work done by him

Fixed Price Incentive Fee – FPIF The seller is paid a fixed price plus an incentive amount for achieving pre-agreed project metrics

Fixed Price with Economic Price Adjustment Contracts – FP-EPA

The seller is paid a fixed price. The contract is reviewed at pre-defined intervals in the project for adjustments to the contract price based on certain parameters

Types of Contract





Cost Plus Fixed Fee – CPFF The contractor is reimbursed its cost plus an additional fixed fee. Not desirable from the buyer’s point of view

Cost Plus Incentive Fee - CPIF Seller is reimbursed for an agreed upon performance cost along with a pre-established fee plus an incentive bonus. In this case, the buyer and seller share the uncertainty to a certain degree

Cost Plus Award Fee Seller is reimbursed for an agreed upon performance cost plus all legitimate cost

Types of Contract





Make or buy analysis helps project management team to decide whether it is beneficial (in terms of cost and quality) to procure a product or service or it can be produced within the organization.

Market Research includes examination of industry and specific vendor capabilities. Procurement teams may leverage information gained at conferences , online reviews and a variety of sources to identify market capabilities.

Meetings , by collaborating with potential bidders , the organization purchasing the material or service may benefit while supplier can influence a mutually beneficial approach or product.



Connoisseur Solutions Plan Procurements - Outputs

Procurement management plan describes how the procurement process will be managed from planning procurement to close procurement. It contains detail on

1. Types of Contracts to be used

2. Risk management issues

3. Whether independent estimates will be used and whether they are needed as evaluation criteria

4. Standardized procurement documents, if needed

5. Process of managing multiple providers (sellers)

6. Coordination with other project aspects

7. Any constraints and assumptions that could affect planned procurements

8. Handling the long lead times to purchase certain items from sellers and coordinating the extra time needed to procure these items with the development of the project schedule

9. Handling make – or – buy decision and linking them to the Estimate Activity Resources and Develop schedule process.




Procurement statements of work defines the products, services , or result to be procured in details so that the seller can be sure that he can provide appropriate products , services, or results. It is developed from the project scope baseline and defines only that portion of the project scope that needs to be procured and stated in the contract.

Procurement documents define the buyer’s requirements and facilitate complete and correct response from the prospective sellers in the form of a proposal, which aids in the selection of the seller(s). The most commonly used procurement documents are RFP (Request for Proposal), IFB (Invitation for Bid and RFI (Request for Information




Source selection criteria are the set of guidelines on the basis of which a particular seller is selected from among the proposals received. Some of the source selection criteria are seller’s understanding of need , overall- life-cycle cost, technical capability, Risk, past performance of the seller, Financial capacity, Warranty etc

Make –or - Buy Decisions, A make-or- buy analysis results in a decision of whether particular work can best be accomplished by the project team or needs to be purchased from outside sources.

Change requests may be there during this process due to updates in the project plan or its subsidiary plan and other components. These changes are reviewed and approved through the integrated change control process.

Project Documents Updates that may be updated include requirement documentation, requirements traceability matrix and risk register.




Practicing Key Concepts

Exercise 1: Make or Buy Analysis

You’ve been contracted by a construction company to manage their contracting.

They have a choice of either buying an excavator or renting it. To buy it, the

company would have to pay $105,000, but owning it will require approximately

$10,000 in maintenance costs per year. The price to rent the excavator is $5000 per

month, with a one-time service charge of $2000. What’s the minimum number of

months the company needs to use the excavator in order for it to make sense to

buy it rather than rent?

1. 8 months

2. 16 months

3. 21 months

4. 25 months




Exercise 2: Plan Procurements

Which document are we referring below?

1. A type of procurement document used to request proposals from

prospective sellers of products or services.

2. A type of procurement document used to request price

quotations from prospective sellers of common or standard

products or services.




Exercise 2: Plan Procurements

Which document are we referring below?

1. A type of procurement document used to request proposals from

prospective sellers of products or services.

RFP

2. A type of procurement document used to request price

quotations from prospective sellers of common or standard

products or services.

RFQ




Conduct Procurement

Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract




Conduct Procurement


Project Management Plan


Source selection criteria

Seller proposals

Project documents

Make or buy decisions

Teaming agreements

Organizational Process Assets

Bidder conferences

Proposal evaluation techniques

Independent estimates

Expert Judgment

Advertising

Analytical Techniques

Procurement negotiation

Selected sellers

Agreements

Resource calendars

Change requests

Project management plan updates





Project Management Plan contains procurement management plan and this describes how the procurement process will be managed from preparing procurement documentation through close procurements

Procurement Documents as explained earlier provide an audit trail for contracts and other agreements

Source Selection criteria are set of guidelines, either subjective or objective, that are used by the performing organization to select a particular contract/ vendor (seller) from among the proposals received.

Seller proposals are responses to the procurement document package that will be used for selection of the sellers by the organization’s evaluation body

Conduct Procurement - Inputs




Project documents that are important inputs to this process include risk register and risk related contract decisions.

Make- or -buy decisions as explained earlier is based on the outcome of Make –or-buy- Analysis. The factors that influence the decision making include , core competencies of the organization, value delivered, risk associated with meeting the need in a cost=effective manner and internal capability as compared to the vendor community.

Procurement Statement of Work provides suppliers with a clearly stated set of goals , requirements, and outcomes from which they can provide a quantifiable response. The statement of work include

Specifications

Quantity desired

Quality levels

Performance data, period of performance, work location and other requirements





Organizational Process Assets that can influence this process include listings of prospective and previously qualified sellers and information on relevant past experience with sellers, prior agreements





Conduct Procurement – Tools and Techniques

Bidder conferences are meetings wherein the prospective supplier (sellers) are called in to ensure that all the supplier have a clear understanding of the work defined in the procurement documents.

Proposal evaluation techniques are used to evaluate the proposals by giving a rating score to each proposal

Independent estimates are sometimes prepared by the procuring organization using internal expert in estimation or an outside professional estimator

Expert Judgment includes a team of experienced and skilled experts for evaluation of proposals under various areas of expertise as mentioned in the procurement documents and contract




Conduct Procurement – Tools and Techniques

Advertising is used by the performing organization to invite the potential sellers to be

Contracted

Analytical Techniques, procurements involve defining a need in such as way

that vendors can bring value through offerings. To ensure that the need can be and is

met, analytical techniques can help organizations identify the readiness of a vendor to

provide the desired end state. By examining past performance information, teams may

identify areas that may have more risk and that need to be monitored closely to

ensure success of the project

Procurement negotiations between the buyers and the potential sellers are

performed with the goal of reaching mutual agreement on the contractual terms and

conditions. The goal is to reach a win-win scenario between the buyer and seller.




Conduct Procurements– Outputs

Selected Sellers are those who have met the evaluation criteria and negotiated a draft contract with the buyer, which will become the actual contract when the contract is awarded

Agreement is a formal document governing the relationship between the buyer and the seller. The contract describes the work to be performed and perhaps the way in which the work will be performed. An important to include with the contract is how disputes will be resolved. Depending upon the application area, an agreement can also be called an understanding , a contract, a subcontract, or a purchase order. Regardless of the document complexity , a contract is a mutually binding legal agreement that obligates the seller to provide the specific products, services, or results and obligates the buyer to compensate the seller. The major component of agreement are:





Major components of an agreement

Statement of work or deliverables

Schedule baselines

Performance reporting

Period of performance

Roles and responsibilities

Seller’s place of performance

Pricing

Payment Terms

Place of delivery

Inspection and acceptance criteria

Warranty

Product Support

Limitation of liability

Fees and retainer





Major components of an agreement

Penalties

Incentives

Insurance and performance bonds

Subordinate subcontractor approvals

Change request handling and

Termination clause and alternative dispute resolution (ADR) mechanism. The ADR method can be decided in advance as a part of the procurement award.





Resource Calendar state the availability and the quantity of contracted resource and the project period (dates) during which the resources are active or idle

Change Requests to the project management pan, its subsidiary plans and other components are processed for review and disposition through the Perform Integrated Change Control process.

Project Management Plan Updates, the elements of the project management plan that may be updated include Cost baseline, Scope baseline, Schedule baseline, Communication management plan, and Procurement management plan.

Project Document Updates, the project documents that may be updated include, requirement documentation, requirement traceability documentation, risk register and stakeholder register.





Selected Sellers are those who have met the evaluation criteria and negotiated a draft contract with the buyer, which will become the actual contract when the contract is awarded

Procurement Contract Award is a formal document governing the relationship between the buyer and the seller. The contract describes the work to be performed and perhaps the way in which the work will be performed. An important to include with the contract is how disputes will be resolved.

Resource Calendar state the availability and the quantity of contracted resource and the project period (dates) during which the resources are active or idle

Change Requests As discussed earlie

Project Management Plan Updates As discussed earlier

Project Document Updates As discussed earlier




Control Procurements

Managing procurement relationships, monitoring contract performance and

making changes and corrections as needed.




Control Procurement




Agreement

Approved change requests

Work Performance reports

Work performance Data

Contract change control system

Procurement performance reviews

Inspections and audits

Performance reporting

Payment system

Claims administration

Records management system

•

Work performance information

Change requests

Project management plan updates


Organizational process assets update




Project Management Plan describes how the procurement process will be managed from developing procurement documentation through contract closure.

Procurement documents contain complete supporting records for administration of the procurement processes; this includes procurement contract awards and the statement of work

Agreements As Explained earlier Agreements are understanding between parties, including understanding of the duties of each parties.

Approved change requests include modifications to the terms and condition of the contract including the procurement statement of work, pricing and the description of the products , services or results.

Control Procurement - Inputs




Work Performance Reports – is a seller performance related documentation that include

Technical documentation. Sellers- developed technical documentation and other deliverable information are provided in accordance with the terms of the contract.

Work performance information. The seller’s performance reports indicate which deliverables have been completed and which have not.

Work Performance Data includes information on a regular basis of the performance and status of the seller’s project work activities. It includes information such as which deliverables have been completed and which have not, whether the quality standards defined for the project are being adhered to and the payment is being made for the costs that have been stated in the contract.

Control Procurement - Inputs




Control Procurement – Tools and Techniques

Contract change control system is a component of integrated change control system and it describes the process of updating the contract

Procurement performance reviews are periodic reviews initiated by the buyer to measure the project’s progress against the plan

Inspections and audits are done by the buyer and supported by the seller to identify any non-compliance to the project’s process or deliverables.

Performance reporting provides information to management about how effectively the seller is achieving his contractual objective.

Payment system helps to ensure that invoices and payments match up and that the right amount is being invoiced for the right deliverables at the right time.




Control Procurement – Tools and Techniques

Claims administration are basically disagreements (about scope or change request). It is preferred that the claims should be resolved by the parties involved as per the dispute resolution procedure . If not resolved by the parties involved, then the disputes are resolved by the process of Arbitration whereby a third neutral party is given the task of getting the dispute resolved.

Records management system is a part of the project management information systems (PMIS). In addition to the documentation, it also consists of processes, control functions, and automated tools. This system should index various documents for their easy retrieval and archival.

pankaj sharma, Mobile -

9810996356



Control Procurement – Outputs

Work Performance Information provides a basis for identification of current or potential problems to support later claims or new procurements. By reporting on the performance of a vendor, the organization increases the knowledge of the performance of the procurement , which supports improved forecasting , risk management and decision making. Performance reports also assist in the event there is a dispute with the vendor.

Change requests, changes to the project management plan, its subsidiary plans, and other components , such as the cost baseline, schedule baseline, and procurement management plan may result from the control procurement process.

Project management plan updates includes update to the procurement management plan ,schedule baseline and cost baseline

pankaj sharma, Mobile -

9810996356



Control Procurement – Outputs

Project Documents Updates include updates to procurement documentation, it include the procurement contract with all supporting schedules, requested unapproved contract changes , and approved change requests. It also includes any seller developed technical documentation and other work performance information such as deliverable s, seller performance reports and warranties, financial documents including invoices and payment records, and the result of contract – related inspections.

Organizational process assets updates that will be updated as a result of this process includes documentation related to seller’s unsatisfactory performance, request for contract changes or clarifications, payments made by the buyer to the seller and also the documents related to seller’s performance.




Revising Tools and Techniques

Exercise : Control Procurements

1. ___________________ involves process to change the

procurement contract. It can involve the approvals, paperwork

and the dispute resolution mechanism required for the change

control.

2. ______________ system refers to how the payments are made to

the seller.




Revising Tools and Techniques

Answer to Exercise : Control Procurements

1. Contract Change Control System involves process to change the

procurement contract. It can involve the approvals, paperwork

and the dispute resolution mechanism required for the change

control.

2. Payment system refers to how the payments are made to the

seller.




Close procurements

Process of completing each project procurement. It involves administrative activities

such as updating the project records with results and archiving the information for

future use and finalizing open claims in accordance with the terms and conditions

stated in the contract document

Close Procurement process closes the procurement applicable to that phase of the

project




Close procurements



Procurement documentation

Procurement audits

Procurement Negotiations

Records management system

Closed procurements

Organizational process assets updates




Close procurements- Inputs

Project Management Plan Discussed Earlier

Procurement documentation includes information on contract schedule, scope, quality and cost performance along with all contract change documentation, payment records and inspection results. This information can be used for lessons learned information and as a basis of evaluating contractors for future contracts.




Close procurements- Tools and Techniques

Procurement Audits is a structured review of the procurement processes from the plan procurements process through administer contracts process. The purpose of procurement audit is to identify the improvement areas and the flawed procurement processes and/ or procedure. This will assist in reusing the successful/updated procedures in other projects.

Procurement Negotiations refers to the settlement for any outstanding issues, claims and disputes through negotiation. Whenever the settlement cannot be achieved through direct negotiation, some form of alternative dispute resolution(ADR) including mediation or arbitration can be explored

Records Management System is used by the project manager to manage contract and procurement documentation and records. Contract documents and correspondence are archived through the records management system as part of the close procurement process




Close procurements- Outputs

Closed Procurements is the process in which the buyer’s contract administrator sends formal written notice to the seller that the contract is complete.

Organizational Process Assets Updates will be updated due to modification in the procurement files and lessons learned documentation. Also, deliverable acceptance and rejection will be stated in the final contract documentation with supporting reasons.




Reviewing Associated Risks to Buyers & Sellers

Exercise 5: Contract Type

Explain the risks from buyer and seller perspective in case of the following

types of contracts

1. Firm fixed price

2. Fixed price plus incentive fee (FPIF)

3. Cost plus fixed fee

4. Cost plus award fee

5. Cost plus incentive fee

6. Time and Material (T&M)




Negotiations Techniques

– Deadline: imposing a deadline to reach an agreement

– Stalling: one party may claim that an agreement cannot be finalized

because of his limited authority

– Fair and Responsible: a negotiator may claim that the price for a

product is equitable because that’s what another company is

paying.

– Delay: are useful when tempers are beginning to flare, to divert from

a subject, etc (Ex: arrival of refreshments, request for recess etc)

– Withdrawal: one party may attack an issue, then retreat





Negotiations Techniques

– Arbitration: a third party may be brought in when agreement cannot

be reached. (out of court settlement)

– Fait Accompli: a party may claim that what is being asked for has

already been accomplished and cannot be changed





Revising Key Terms : Complete the following

Exercise 5: Procurement Management

1. An Invitation for __________ is a document that ask sellers for

the price of work

2. The buyer selects the __________ selection criteria before

contacting potential sellers

3. The ___________contract has high risk to the seller because the

seller must cover costs that go beyond the price




QUIZ !



project procurement management pmbok 5

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