Project Management For Good Procurement Practices


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Good procurement Practices for PMs based on 3rd Ed of PMBOK

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  • Project Management For Good Procurement Practices

    1. 1. Project Management for Good Procurement Practices Presented by : Thomas J. Cornish PMP
    2. 2. Agenda <ul><li>Introduction (10 min) </li></ul><ul><ul><li>Project Management Overview - Lifecycle </li></ul></ul><ul><li>I. Understanding Procurement in Light of Project Management (30 min) </li></ul><ul><ul><li>Difference between direct procurement and indirect procurement </li></ul></ul><ul><ul><li>Understanding the role of the procurement manager </li></ul></ul><ul><ul><li>Engineering economics </li></ul></ul><ul><ul><li>Legal tangles - Skipping </li></ul></ul>
    3. 3. Agenda <ul><li>II. User Requirement Specification (URS) (25 min) </li></ul><ul><ul><li>Drafting functional specification </li></ul></ul><ul><ul><li>Creating design specification </li></ul></ul><ul><ul><li>Thrashing out of critical issues </li></ul></ul><ul><li>III. Vendor Management (25 min) </li></ul><ul><ul><li>Vendor master, audit and selection </li></ul></ul><ul><ul><li>Vendor rating and creating strategic alliance </li></ul></ul><ul><li>Break (10 min) </li></ul>
    4. 4. Agenda <ul><li>IV. Budget Control and Variance analysis (30 min) </li></ul><ul><ul><li>Procurement status review </li></ul></ul><ul><ul><li>Follow-up and delivery status </li></ul></ul><ul><ul><li>Documentation and payment </li></ul></ul><ul><li>V. Project Completion and Handing Over (15 min) </li></ul><ul><ul><li>Commissioning of the plant </li></ul></ul><ul><ul><li>Handing over of validation documents </li></ul></ul><ul><ul><li>Reconciliation and disposal </li></ul></ul><ul><ul><li>Closure of project </li></ul></ul><ul><ul><li>Knowledge Management </li></ul></ul>
    5. 5. Agenda <ul><li>Q&A (5-10 min) </li></ul><ul><li>Case Studies (50 Min) </li></ul>
    6. 6. Introduction <ul><li>Thomas J Cornish PMP </li></ul><ul><li>Sr. Automation Engineer / IT Project Manager </li></ul><ul><li>Pfizer Inc. </li></ul><ul><li>1998 – 2001 System Integrator </li></ul><ul><li>2001 – current Automation Engineer / IT Project Management </li></ul>2003 Extreme Project Management
    7. 7. Intro to Project Management
    8. 8. Section Overview <ul><li>This section will describe an approach for improving project management business processes. It will begin with an overview of the Knowledge Areas and Processes contained in the Project Management Institute (PMI) Project Management Body of Knowledge (PMBOK). </li></ul>
    9. 9. Section Overview <ul><li>Some “notes” from my personal lessons learned will be introduced and described throughout the presentation that are related to Project Procurement </li></ul>
    10. 10. What is a Project? <ul><li>A Project is a temporary endeavor undertaken to create a unique product or service. </li></ul>
    11. 11. What is a Project? <ul><li>Temporary – Definite beginning and end. End is reached when objectives have been achieved or when it becomes clear that the objectives can not be achieved or is no longer needed. </li></ul><ul><li>Unique – Something which has not been done before. </li></ul><ul><li>Creation - not repetitive such as found in operation or production. </li></ul>
    12. 12. What is Project Management <ul><li>The Application of Knowledge, Skills, Tools, and Techniques Which are Applied to Accomplish the Goals of a Project </li></ul>
    13. 13. 5 PMI Processes <ul><li>Projects are composed of processes. A process is “a series of actions bringing about a result”. Project management processes are organized into five groups: </li></ul><ul><ul><li>Initiating processes </li></ul></ul><ul><ul><li>Planning processes </li></ul></ul><ul><ul><li>Executing processes </li></ul></ul><ul><ul><li>Controlling processes </li></ul></ul><ul><ul><li>Closing processes </li></ul></ul>See Checklist in Appendix
    14. 14. Triple Constraint Schedule Budget Quality Scope
    15. 15. 9 PMI Knowledge Areas <ul><li>Integration Management </li></ul><ul><li>Scope Management </li></ul><ul><li>Time Management </li></ul><ul><li>Cost Management </li></ul><ul><li>Quality Management </li></ul><ul><li>Human Resource Management </li></ul><ul><li>Communications Management </li></ul><ul><li>Risk Management </li></ul><ul><li>Procurement Management </li></ul>
    16. 16. Project Procurement Management <ul><li>The processes required to acquire goods and services from outside the organization. </li></ul><ul><li>Procurement Planning - Determining what to procure and when. </li></ul><ul><li>Solicitation Planning- Documenting product requirements and identifying potential sources. </li></ul><ul><li>Solicitation - Obtaining quotations, bids, offers, or proposals as appropriate. </li></ul>
    17. 17. Project Procurement Management <ul><li>Source Selection - Choosing from among potential sellers. </li></ul><ul><li>Contract Administration - Managing the relationship with the seller. </li></ul><ul><li>Contract Close-out - Completion and settlement of the contract including resolution of any open items. </li></ul>
    18. 18. Procurement Planning <ul><li>Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding </li></ul><ul><ul><li>whether to procure </li></ul></ul><ul><ul><li>how to procure </li></ul></ul><ul><ul><li>what to procure </li></ul></ul><ul><ul><li>how much to procure </li></ul></ul><ul><ul><li>when to procure </li></ul></ul>
    19. 19. Relationship - Knowledge Area & Processes Processes Knowledge Areas Initiating Planning Executing Controlling Closing Integration Management   Project Plan Development Project Plan Execution Integrated Change Management   Scope Management Initiation Scope Planning Scope Definition   Scope Verification Scope Change Control   Time Management   Activity Definition Activity Sequencing Activity Duration Estimating Schedule Development   Schedule Control   Cost Management   Resource Planning Cost Estimating Cost Budgeting   Cost Control   Quality Management   Quality Planning Quality Assurance Quality Control   Human Resource Management   Organizational Planning Staff Acquisition Team Development   Administrative Closure Communication Management   Communication Planning Information Distribution Performance Reporting   Risk Management   Risk Management Planning Risk Identification Qualitative Risk Analysis Quantitative Risk Analysis Risk Response Planning   Risk Monitoring and Control   Procurement Management   Procurement Planning Solicitation Planning Solicitation Source Selection Contract Administration   Contract Closeout
    20. 20. Understanding Procurement in Light of Project Management
    21. 21. Direct vs. Indirect Procurement <ul><li>Direct procurement occurs in manufacturing settings only. It encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. </li></ul>
    22. 22. Direct vs. Indirect Procurement <ul><li>In contrast, indirect procurement activities concern “operating resources” that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardized low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services. </li></ul>
    23. 23. Direct vs. Indirect Machinery, Engineering Lubricants, spare parts Vials, Tubes, stoppers, caps, etc in pharmaceutical Examples Strategic Clerical Operational Nature High Low Industry specific Value Low Relatively high High Frequency Low Low Large Quantity F E A T U R E S Capital Good and Services Maintenance, Repair and Operating (MRO) Supplies Raw Material and Production Goods Indirect Procurement Direct Procurement TYPES   Direct procurement and indirect procurement
    24. 24. Indirect Procurement focus for PM <ul><li>90%+ of Project Procurement will be Indirect </li></ul><ul><ul><li>Engineering services </li></ul></ul><ul><ul><li>Equipment </li></ul></ul><ul><ul><li>Validation services </li></ul></ul>
    25. 25. Understanding the role of the procurement manager <ul><li>The role: To Continuously improve the quality, cost, and service of all goods and services purchased and to improve and align the purchase to pay process. </li></ul><ul><li>Principal liaison with suppliers on matters relating to all commercial terms (Pricing and Purchase commitments) </li></ul>
    26. 26. Understanding the last slide <ul><li>Supplier qualification </li></ul><ul><li>Preferred supplier agreements </li></ul><ul><li>Cost – Benefit Analysis </li></ul><ul><li>Bid Process </li></ul><ul><ul><li>Request for Information (RFI) </li></ul></ul><ul><ul><li>Request for Quote (RFQ) </li></ul></ul><ul><ul><li>Request for Proposal (RFP) </li></ul></ul><ul><li>Negotiation / Award Purchase Order or Contract </li></ul>
    27. 27. Engineering Economics <ul><li>Engineering economics deals with economic analysis and evaluation in the planning, design and operation of engineering systems. It involves quantification of benefits and costs associated with engineering projects in order to determine their economic and financial feasibility and in comparing and choosing between project alternatives. </li></ul>
    28. 28. Engineering Economics (College) <ul><li>Present Value (PV) </li></ul><ul><li>Future Value (FV) </li></ul><ul><li>Internal Rate of Return (IRR) </li></ul><ul><li>Return on Investment (ROI) </li></ul>
    29. 29. Best Practices <ul><li>Life Cycle Cost Analysis </li></ul><ul><li>Cost – Benefit Analysis </li></ul><ul><li>Feasibility Studies </li></ul><ul><li>Value Improvements </li></ul><ul><li>Risk Analysis </li></ul><ul><li>3-D Modeling (CAD) </li></ul>
    30. 30. Life Cycle Cost Analysis <ul><li>Life Cycle Cost : All costs associated with the acquisition and ownership of a system (or equipment) over it’s full life </li></ul><ul><li>Accounts for and includes both Acquisition Costs and Sustaining Costs </li></ul><ul><li>Useful for new or existing equipment </li></ul><ul><li>A key component for justification of higher bid projects. </li></ul>
    31. 31. Life Cycle Cost Definitions <ul><li>Net Present Value: a financial tool for evaluating economic value added. It is the present value of an investment’s future net cash flows. (Finance) </li></ul><ul><li>Acquisition Costs: Costs associated with the purchase and installation of a system or equipment (Engineering) </li></ul><ul><li>Sustaining Costs: Costs associated with the maintenance and operation of the system or equipment over its full life. (Maintenance) </li></ul>
    32. 32. SUSTAINING costs are typically 2 to 20 times higher than Acquisition costs
    33. 33. Statistical Tools <ul><li>Mean Time Between/To Failure : Determines failure rate and used in many reliability tools </li></ul><ul><li>Failure rates and % Reliability : Used for benchmarking and determination of system reliabilities for modeling </li></ul><ul><li>Probability Charts (including Weibull Analysis) – used for single failure types; yields failure modes & durability models, and is also a failure prediction tool ( Raptor ) </li></ul><ul><li>Crow-AMSAA plots – used for multiple failure types; yields trends and events in equipment or system reliability, and is also a failure prediction tool </li></ul>
    34. 34. Cost Benefit Analysis <ul><li>Define the Project </li></ul><ul><li>Research the Cost Elements </li></ul><ul><li>Identify Cost Drivers </li></ul><ul><li>Analyze Risk and Sensitivity </li></ul><ul><li>Analyze Alternatives </li></ul><ul><li>Present the Results </li></ul><ul><li>It is important to identify and estimate the costs and benefits using a common, comprehensive structure so alternatives can be consistently compared to reflect accurate results and conclusions </li></ul>
    35. 35. Value Improvement Practices (VIP) <ul><li>Technology Selection </li></ul><ul><li>Process Simplification </li></ul><ul><li>Plant Quality </li></ul><ul><li>Reliability Modeling </li></ul><ul><li>Energy Optimization </li></ul><ul><li>Waste Minimization </li></ul><ul><li>Facility Optimization </li></ul>See VIP Document for more examples
    36. 36. Engineering Economics <ul><li>“ It is unwise to pay too much, but it’s worse to pay too little. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing you bought it to do. </li></ul><ul><li>“ The common law of business balance prohibits paying a little and getting a lot – it can’t be done.” </li></ul>John Ruskin (1819-1900) British Poet, Scientist and Philosopher
    37. 37. User Requirement Specification (URS)
    38. 38. First set Goals <ul><li>Be SMART </li></ul><ul><ul><li>Specific </li></ul></ul><ul><ul><li>Measurable </li></ul></ul><ul><ul><li>Attainable </li></ul></ul><ul><ul><li>Realistic and tangible </li></ul></ul><ul><ul><li>Time bound </li></ul></ul><ul><li>Should result in Project vision and scope document </li></ul>
    39. 39. Requirements Development <ul><li>Requirements are the specifications for your goals </li></ul><ul><li>Answer the question “How do we know it was successful?” </li></ul>
    40. 40. Requirements Development <ul><li>Should be SMART as well </li></ul><ul><li>Should also be “Implementation Free” </li></ul><ul><ul><li>i.e. requirements specify “what” not “how” </li></ul></ul><ul><li>Should Relate to the Scope / Charter </li></ul><ul><ul><li>Customer meetings to decide needs vs. wants </li></ul></ul><ul><ul><li>Verify needs </li></ul></ul><ul><li>Prioritize requirements </li></ul>
    41. 41. Requirements Development <ul><li>Focus Planning on the Business NEED </li></ul><ul><ul><li>Strategy </li></ul></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Process </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><li>Quality based approach </li></ul>
    42. 42. Quality “ Price has no meaning except in terms of the quality of the product.”   Dr. W. Edwards Deming (1900-1993)
    43. 43. Quality Outcome <ul><li>A Quality Outcome is a completed project that: </li></ul><ul><ul><li>Successfully achieves the Owner’s vision for the project; </li></ul></ul><ul><ul><li>Incorporates the long-term developmental needs of the local community and the global environment; </li></ul></ul><ul><ul><li>Accomplishes the above at the lowest possible life-cycle cost. </li></ul></ul><ul><li>A Quality Outcome is significantly more likely when a project is executed using Quality-Based Principles. </li></ul>
    44. 44. Quality-Based Principles <ul><li>Informed Purchaser; </li></ul><ul><li>Quality-Based Selection of Consultants; </li></ul><ul><li>Employer/Consultant & Employer/ Contractor Contracts; </li></ul><ul><li>Business Integrity Management; </li></ul><ul><li>Capacity Building and Sustainability; </li></ul><ul><li>Quality-Based Project Management and Construction; and </li></ul><ul><li>Monitoring of Outcomes </li></ul>
    45. 45. Informed Purchaser <ul><li>An Informed Purchaser is an Owner who either has the in-house technical expertise or engages outside experts necessary to: </li></ul><ul><ul><li>Clearly Convey Project Vision; </li></ul></ul><ul><ul><li>Evaluate And Select Consultants; </li></ul></ul><ul><ul><li>Understand The Risks And Procedures Inherent In Project Execution; And </li></ul></ul><ul><ul><li>Follow Through With Proper Operating & Maint. Procedures And Monitoring Of Outcomes. </li></ul></ul>
    46. 46. Informed Purchaser <ul><li>The Informed Purchaser will be better equipped to incorporate other Quality-Based Principles at the project development phase, including: </li></ul><ul><ul><li>Capacity Building; </li></ul></ul><ul><ul><li>Sustainability; and </li></ul></ul><ul><ul><li>Monitoring of Outcomes. </li></ul></ul>
    47. 47. Result of Good Quality Outcome <ul><li>Quality Based Selection (QBS) produces quality designs. </li></ul><ul><li>Quality designs produce quality projects. </li></ul><ul><li>Quality projects have fewer change orders during construction. </li></ul><ul><li>Fewer change orders result in lower construction costs. </li></ul><ul><li>Quality designs and lower construction costs result in lower life-cycle costs. </li></ul><ul><li>QBS is in the Owner’s best interest. </li></ul>
    48. 48. Result of Poor Quality Outcome <ul><li>High maintenance costs. </li></ul><ul><li>Projects fail, e.g., road pavements collapse. </li></ul><ul><li>Cost and time overruns. </li></ul><ul><li>Disputations and litigation. </li></ul><ul><li>Contractors default and do not complete projects. </li></ul>
    49. 49. Common Requirements Errors <ul><li>85% of project failures originate in the requirements because of: </li></ul><ul><ul><li>Incorrect Assumptions (49%) </li></ul></ul><ul><ul><li>Omitted requirements (29%) </li></ul></ul><ul><ul><li>Inconsistent requirements (13%) </li></ul></ul><ul><ul><li>Ambiguous requirements (5%) </li></ul></ul>
    50. 50. Requirements Gathering Techniques <ul><li>Interviews </li></ul><ul><li>Document analysis </li></ul><ul><li>Brainstorming </li></ul><ul><li>Requirements workshops </li></ul><ul><li>Prototyping </li></ul><ul><li>Modeling </li></ul><ul><li>Performance and Capacity analysis </li></ul>
    51. 51. Requirements Gathering Techniques <ul><li>Interviews – useful but often predisposition of the person being interviewed can bias the information obtained </li></ul><ul><li>Document analysis – Business plans, master plans, strategic plans, RFP, RFI, SOPs, existing specifications </li></ul><ul><li>Brainstorming – idea generation and idea reduction, useful as it usually results in thinking out of the box </li></ul>
    52. 52. Requirements Gathering Techniques <ul><li>Workshops – Involve users across multiple organizational boundaries, interactive, and cooperative one type – Joint Application Development (Make – A – Batch) </li></ul><ul><li>Prototyping – technique for building a rough version of the desired outcome. This can give an impression that development is farther along than actually is the case. Often used to give operators the impression of the intended use. Usually requires a small investment up front. </li></ul>
    53. 53. Requirements Gathering Techniques <ul><li>Modeling – Is a representation of reality intended to facilitate understanding, typically through software. Must know details about the process up front. May be better used to assist in process improvements </li></ul><ul><li>Performance and Capacity analysis – This is where the IE comes in. Determine capacity and performance needs through studies, time trials, process mapping, flow studies, etc. </li></ul><ul><li>Find out what method works best for you. </li></ul>
    54. 54. Tips <ul><li>Often customers say one thing during the requirements elicitation and then do something different – Press & Verify </li></ul><ul><li>Use common techniques, find a set that works in your environment and train on its use </li></ul><ul><li>If you are having problems try some of the automated tools (DOORS, Requisite Pro, or Caliber RM) </li></ul><ul><li>Establish metrics and rate implementation effectiveness </li></ul><ul><li>Get training </li></ul><ul><li>Ask “Why?” 5 times – Find out the REAL driver </li></ul>
    55. 55. Requirement Collection Form
    56. 56. URS Development <ul><li>Introduction </li></ul><ul><li>System Overview </li></ul><ul><li>Design Considerations </li></ul><ul><ul><li>Assumptions and Dependencies </li></ul></ul><ul><ul><li>General Constraints </li></ul></ul><ul><ul><li>Goals and Guidelines </li></ul></ul><ul><ul><li>Development Methods </li></ul></ul><ul><li>Architectural Strategies </li></ul><ul><ul><li>strategy-1 name or description </li></ul></ul><ul><ul><li>strategy-2 name or description </li></ul></ul><ul><ul><li>... </li></ul></ul><ul><li>System Architecture </li></ul><ul><ul><li>component-1 name or description </li></ul></ul><ul><ul><li>component-2 name or description </li></ul></ul><ul><ul><li>... </li></ul></ul><ul><li>Policies and Tactics </li></ul><ul><ul><li>policy/tactic-1 name or description </li></ul></ul><ul><ul><li>policy/tactic-2 name or description </li></ul></ul><ul><ul><li>... </li></ul></ul><ul><li>Detailed System Design </li></ul><ul><ul><li>module-1 name or description </li></ul></ul><ul><ul><li>module-2 name or description </li></ul></ul><ul><ul><li>... </li></ul></ul><ul><li>Glossary </li></ul>* Generic templates in Appendix
    57. 57. Vendor Management
    58. 58. Project Procurement Management Processes and Key Outputs
    59. 59. Vendor Audit <ul><li>Gather Information </li></ul><ul><ul><li>Request for Information (RFI) </li></ul></ul><ul><ul><li>Historical Data </li></ul></ul><ul><ul><li>References </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Meetings with vendor </li></ul></ul><ul><ul><li>Site Visit </li></ul></ul>
    60. 60. Vendor Audit <ul><li>Can they meet our requirements? </li></ul><ul><li>Do they have an internal change control process? </li></ul><ul><li>Do they have a history of late delivery? </li></ul><ul><li>Do they have reliable equipment? </li></ul><ul><li>How many systems installed </li></ul><ul><li>References? </li></ul><ul><li>Ask many, many, questions </li></ul>
    61. 61. Managing Vendor Services
    62. 62. Procurement Planning Tools <ul><li>Make-or-Buy Analysis – deciding if it is more effective to buy or internally produce the goods and services for the project. Consider costs, capacity, skills, availability, and confidentiality. </li></ul><ul><li>Contact Type Selection – determining the type agreement where each party provides something (money vs. goods or services). Three types of contracts are considered: </li></ul><ul><ul><li>Fixed Price or Lump Sum </li></ul></ul><ul><ul><li>Cost Reimbursable </li></ul></ul><ul><ul><li>Time and Materials (T&M) </li></ul></ul><ul><li>Put it in a Table </li></ul>
    63. 64. Contract Types <ul><li>Fixed Price – </li></ul><ul><ul><li>Firm Fixed Price (FFP) </li></ul></ul><ul><ul><li>Fixed Price Plus Incentive (FPPI) </li></ul></ul><ul><li>Cost reimbursable – </li></ul><ul><ul><li>Cost Plus Fee (CPF) or Cost Plus Percentage of Cost (CPPC) </li></ul></ul><ul><ul><li>Cost Plus Fixed Fee (CPFF) </li></ul></ul><ul><ul><li>Cost Plus Incentive Fee (CPIF) </li></ul></ul><ul><li>Time and Material (T&M) – </li></ul><ul><ul><li>Put a cap on it (GMax or NTE) </li></ul></ul>
    64. 65. Contract Types Versus Risk
    65. 66. Solicitation Planning <ul><li>Solicitation planning involves preparing several documents: </li></ul><ul><ul><li>Request for Proposals: used to solicit proposals from prospective sellers </li></ul></ul><ul><ul><li>Requests for Quotes: used to solicit quotes for well-defined procurements </li></ul></ul><ul><ul><li>Invitations for bid or negotiation and initial contractor responses are also part of solicitation planning </li></ul></ul>
    66. 67. Solicitation <ul><li>Solicitation involves obtaining proposals or bids from prospective sellers </li></ul><ul><li>Organizations can advertise to procure goods and services in several ways </li></ul><ul><ul><li>approaching the preferred vendor </li></ul></ul><ul><ul><li>approaching several potential vendors </li></ul></ul><ul><ul><li>advertising to anyone interested </li></ul></ul><ul><li>A bidders’ conference can help clarify the buyer’s expectations </li></ul>
    67. 68. Outline for a Request for Proposal (RFP) * Sample Template in Appendix
    68. 69. Statement of Work (SOW) <ul><li>A statement of work is a description of the work required for the procurement </li></ul><ul><li>Many contracts, or mutually binding agreements, include a SOWs </li></ul><ul><li>A good SOW gives bidders a better understanding of the buyer’s expectations </li></ul>
    69. 70. Statement of Work (SOW) Template * Sample Template in Appendix
    70. 71. Vendor Selection <ul><li>Source selection involves </li></ul><ul><ul><li>evaluating bidders’ proposals </li></ul></ul><ul><ul><li>choosing the best one </li></ul></ul><ul><ul><li>negotiating the contract </li></ul></ul><ul><ul><li>awarding the contract </li></ul></ul><ul><li>It is helpful to prepare formal evaluation procedures for selecting vendors </li></ul><ul><li>Buyers often create a “ short list ” </li></ul>
    71. 72. Weighted Scoring Model Total Score 1 Other 2 Return on Investment 3 Cost Benefit Analysis 2 Constraints Impact 2 Resources Required 1 Maturity of Solution 2 Technical Feasibility Total 3 Total 2 Total 1 Weight Business Process Impact Solutions Decision Criteria
    72. 73. Weighted Scoring Model
    73. 74. <ul><li>“ End the practice of awarding business on price tag alone.” </li></ul>Dr. W. Edwards Deming
    74. 75. <ul><li>“ There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey.” </li></ul>John Ruskin (1819-1900) British Poet, Scientist and Philosopher
    75. 76. Procurement of Engineering Services <ul><li>The procurement of engineering services is one of the most important aspects of, and has the greatest impact on, ensuring quality in the constructed project. The Client’s challenge is to get a good “return on investment” in design services. </li></ul>
    76. 77. <ul><li>“ … selection of an Architect or Engineer solely on price-competition basis provides the potential for reductions in quality due to initial underestimation of the costs and resources required to adequately perform the work.” </li></ul>U.S. House of Representatives Subcommittee Report on Structural Failures
    77. 78. Quality-Based Selection (QBS) of Consulting Engineers <ul><li>Quality Outcome is significantly more obtainable when QBS is employed.  This is true for all projects. </li></ul><ul><li>The QBS decision is not a matter of which procurement process leads to greater quality; it is a matter of to what degree quality matters. </li></ul><ul><li>To achieve a Quality Outcome, Life-Cycle Cost must be considered; QBS results in lower Life-Cycle Costs. </li></ul>
    78. 79. Quality-Based Selection of Consulting Engineers <ul><li>The procurement of consulting engineer services has the greatest impact on the Life-Cycle Cost of the project, yet is the least costly component. The Owner’s challenge is to get a good “return on investment” in design services. </li></ul>
    79. 80. Quality-Based Selection of Consulting Engineers <ul><li>The QBS process also provides a greater opportunity to successfully realize the project vision through: </li></ul><ul><li>Innovation - The negotiation phase provides the Owner with the opportunity to consider alternative approaches, which can improve the project and save costs. </li></ul><ul><li>Greater public safety and welfare. The more qualified the consultant, the greater the assurance that the project will promote and protect the public health, safety and welfare. </li></ul>
    80. 81. Quality-Based Selection of Consulting Engineers <ul><li>The QBS process generally includes the selection of the best qualified firm by objective criteria and then negotiates scope of work and price. </li></ul><ul><li>The best qualified firm is selected </li></ul><ul><li>A scope of services fully understood by both parties is negotiated </li></ul><ul><li>A fair and reasonable fee is negotiated </li></ul><ul><li>Failing agreement, negotiations are terminated and an invitation offered to the next-ranked firm to negotiate </li></ul>
    81. 82. Strategic Alliances <ul><li>Are usually put in place to ensure availability of resources and price guarantees over a fixed time period </li></ul><ul><li>Strategic alliances can be set up for preferred suppliers of equipment so multiple sites can gain benefit </li></ul>
    82. 83. Strategic Alliances <ul><li>Improved Efficiency </li></ul><ul><ul><li>Knowledge of site SOP’s, standards, etc. </li></ul></ul><ul><li>Sharing Knowledge </li></ul><ul><ul><li>Comfort level to impart more knowledge because you know they will be back </li></ul></ul><ul><li>Trust </li></ul><ul><ul><li>Build confidence in each others abilities and work better as a team </li></ul></ul>
    83. 84. Budget Control and Variance Analysis
    84. 85. Are you in Control? <ul><li>Controlling deals with </li></ul><ul><ul><li>Measuring performance </li></ul></ul><ul><ul><li>Taking corrective action </li></ul></ul><ul><ul><li>Repeat </li></ul></ul>
    85. 86. How is project health measured? <ul><li>Project Manager evaluates project’s triple constraint of scope, time and cost (and Quality) </li></ul><ul><li>Key Questions </li></ul><ul><ul><li>Is the project performing to budget? </li></ul></ul><ul><ul><li>Is the project on schedule to deliver the agreed scope? </li></ul></ul><ul><li>Typically Summarize Project Health using Green, Yellow, Red Status (Traffic Light Reporting) </li></ul>
    86. 87. Problems with the Traffic Light status approach <ul><li>Subjective to interpretation and influence </li></ul><ul><li>No objective measurement to guide Project Health </li></ul><ul><li>A project can report green and suddenly turn red before a few days before the launch </li></ul><ul><li>A project can report red and be rationalized to green or yellow without any objective data </li></ul><ul><li>No prior indicators to problems </li></ul>Completed On Time/Target Caution/Issue Not Achieving Plan
    87. 88. Project Performance Measurement <ul><li>Critical Tasks not started on time </li></ul><ul><li>Critical Tasks not finished on time </li></ul><ul><li>Non Critical tasks become critical </li></ul><ul><li>Milestones missed </li></ul><ul><li>Long Equipment lead time </li></ul><ul><li>Test Failures </li></ul><ul><li>Delays in approval </li></ul><ul><li>Change requests </li></ul>
    88. 89. Apply Earned Value Analysis <ul><li>Earned Value Analysis (EVA) </li></ul><ul><ul><li>Earned Value Analysis is an objective method to measure project performance in terms of scope, time and cost </li></ul></ul><ul><ul><li>EVA metrics are used to measure project health and project performance </li></ul></ul>
    89. 90. Earned Value Characteristics <ul><li>Point in Time Evaluation </li></ul><ul><li>How much work did you PLAN to complete? (Planned Value – PV) </li></ul><ul><li>How much work did you ACTUALLY complete? (Earned Value – EV) </li></ul><ul><li>How much did you spend to complete the work? (Actual Cost – AC) </li></ul>
    90. 91. EVA Example <ul><li>A $10,000 software project is scheduled for 4 weeks. </li></ul><ul><li>At the end of the third week, the project is 50% complete and the actual costs to date are $9,000 </li></ul><ul><ul><ul><li>Planned Value (PV) = $7,500 </li></ul></ul></ul><ul><ul><ul><li>Earned Value (EV) = $5,000 </li></ul></ul></ul><ul><ul><ul><li>Actual Cost (AC) = $9,000 </li></ul></ul></ul>
    91. 92. What is the project health? <ul><ul><li>Schedule Variance </li></ul></ul><ul><ul><li>= EV – PV = $5,000 – $7,500 = - $2,500 </li></ul></ul><ul><ul><li>Schedule Performance Index (SPI) </li></ul></ul><ul><ul><li>= EV/PV = $5,000 / $7,500 = .66 </li></ul></ul><ul><ul><li>Cost Variance </li></ul></ul><ul><ul><li>= EV – AC = $5,000 - $9,000 = - $4,000 </li></ul></ul><ul><ul><li>Cost Performance Index (CPI) </li></ul></ul><ul><ul><li>= EV/AC = $5,000 / $9,000 = .55 </li></ul></ul>
    92. 93. What is the project health? <ul><ul><li>Objective metrics indicate the project is behind schedule and over budget. </li></ul></ul><ul><ul><li>On-target projects have an SPI and CPI of 1 or greater </li></ul></ul>
    93. 94. Forecasting Costs <ul><li>If the project continues at the current performance, what is the true cost of the project? </li></ul><ul><li>Estimate At Complete </li></ul><ul><ul><li>= Budget At Complete (BAC) / CPI </li></ul></ul><ul><ul><li>= $10,000 / .55 = $18,181 </li></ul></ul><ul><ul><li>At the end of the project, the total project costs will be $18,181 </li></ul></ul>
    94. 95. Establish Ranges to Guide Traffic Light Status <ul><li>Use an objective method like EVA </li></ul><ul><li>Traffic Light status is useful in conveying overall project with one color </li></ul><ul><li>Establish objective SPI and CPI ranges to determine the true project color. </li></ul><ul><ul><li>Green [1.0 - .95] </li></ul></ul><ul><ul><li>Yellow [.94-.85] </li></ul></ul><ul><ul><li>Red [.84, 0] </li></ul></ul>
    95. 96. Earned Value Summary <ul><li>Earned Value is an objective method of determining project performance instead of subjective approaches </li></ul><ul><li>Applying Earned Value enforces the project discipline of tracking project actual performance against baseline costs and dates </li></ul><ul><li>Estimate at Complete calculation can forecast true project costs based on project performance </li></ul>
    96. 97. How do you maintain control? <ul><li>Create, maintain and enforce a change control procedures </li></ul><ul><li>Don’t assume – Verify results </li></ul><ul><li>Establish good communications paths with vendors and stakeholders </li></ul>
    97. 98. Cost Control System Basics – 10 Principles <ul><li>Creating a cost-consciousness in the project management team </li></ul><ul><li>Capturing data realistically in a timely fashion </li></ul><ul><li>Setting up a realistic budget </li></ul><ul><li>Comparing To-Be-Committed to the budget before it is committed </li></ul>
    98. 99. Cost Control System Basics – 10 Principles <ul><li>Comparing Actual Costs to the budget </li></ul><ul><li>Recognize the cause instead of the symptoms when analyzing variances </li></ul><ul><li>Allocating appropriate time and budget to each project task </li></ul><ul><li>Using Accumulated Historic data to improve the cost control cycle </li></ul>
    99. 100. Cost Control System Basics – 10 Principles <ul><li>Considering the overall cost effect of changes </li></ul><ul><li>Continuously improving the existing system </li></ul>
    100. 101. Cost Control System Basics – 4 Assumptions <ul><li>The 10 principles are used throughout the project at all levels. </li></ul><ul><li>The controlling organization must have some level of computerization </li></ul><ul><li>There must be enough motivation for the project team to exercise tight cost control </li></ul><ul><li>The magnitude and complexity of a project must be sufficient to justify the application of the proposed cost control system. </li></ul>
    101. 102. Vendor Control? <ul><li>The procurement manager should ensure that the provider has problem management procedures in place, including escalation procedures within the provider’s organization, and that these are used when needed. </li></ul><ul><li>These procedures should seek to prevent problems as well as to resolve them. </li></ul><ul><li>Require periodic Status reports and verify progress </li></ul>
    102. 103. Vendor Control? <ul><li>If a dispute cannot be resolved at the level where it arises, it will be necessary to involve a higher level of authority. This escalation process needs to be managed. </li></ul><ul><li>The type of contract will often determine the level of control needed </li></ul>
    103. 104. Vendor Control? <ul><li>The contract must define the procedures for undertaking corrective action if, for example, target performance levels are not being achieved. </li></ul><ul><li>You should get a resume list with your bid, make sure they are the ones working on your project </li></ul><ul><ul><li>bait and switch </li></ul></ul><ul><ul><li>Bid for 30 resources and 50 show up on the invoice </li></ul></ul>
    104. 105. Project Completion and Hand Over
    105. 106. Commissioning <ul><li>Most contracts end with site acceptance </li></ul><ul><li>Once commissioning and qualification begin, you are paying extra for vendor support </li></ul><ul><li>Get training up front from the vendor and know the equipment before you send them away (i.e. give them the last payment) </li></ul>
    106. 107. Commissioning <ul><li>You should know that start-up NEVER goes as planned </li></ul><ul><ul><li>Risk analysis should have identified most issues and mitigation strategies should be available </li></ul></ul><ul><li>Try not to run more than a 10 hour shift </li></ul><ul><ul><li>If you run 12 hrs allow a 2 hr overlap for knowledge transfer </li></ul></ul>
    107. 108. Documents <ul><li>Validation documents should be handed over as they are completed – make copies </li></ul><ul><ul><li>Store 1 copy with our QA friends – secured validation files </li></ul></ul><ul><ul><li>Store 1 copy in an Equipment history file </li></ul></ul><ul><ul><li>Keep electronic copies in a local share area for future reference </li></ul></ul><ul><li>Ensure confidentiality from vendors, contractors, and consultants </li></ul>
    108. 109. Contract Closure <ul><li>Contract close-out includes </li></ul><ul><ul><li>product verification to determine if all work was completed correctly and satisfactorily </li></ul></ul><ul><ul><li>administrative activities to update records to reflect final results </li></ul></ul><ul><ul><li>archiving information for future use </li></ul></ul><ul><li>Completing and settling the terms of the contract </li></ul><ul><ul><li>Be aware of specific terms or conditions for completion and closeout </li></ul></ul><ul><li>Procurement audits identify lessons learned in the procurement process </li></ul>
    109. 110. Contract Closure <ul><li>Contract file </li></ul><ul><ul><li>A complete set of indexed records should be prepared for inclusion with the final project records. </li></ul></ul><ul><ul><li>Quality audits should have occurred throughout the project, so problems with the vendor could be corrected as they occurred and before closeout. </li></ul></ul>
    110. 111. Contract Closure <ul><li>Formal acceptance and closure </li></ul><ul><ul><li>The person or organization responsible for contact administration should provide the seller with formal written notice that the contract has been completed. Requirements for formal acceptance and closure are usually defined in the contract. </li></ul></ul><ul><li>Let resources go </li></ul>
    111. 112. Turn Over <ul><li>Get Customer Acceptance </li></ul><ul><ul><li>Does it do what they needed? </li></ul></ul><ul><li>Training </li></ul><ul><ul><li>Does the user know how to use it? </li></ul></ul><ul><li>All sites have different requirements </li></ul><ul><ul><li>Easiest to have a checklist </li></ul></ul>
    112. 113. Project Engineering CPA Closed / Funding Complete Project Engineering Purchase Orders Closed PPT PQ Report Approved Project Engineering CCR(s) / ECP(s) Closed Operations Ticket(s) Approved Operations & Maintenance Training Complete Project Engineering Assets Tagged Operations Project Evaluation Complete PPT Product Validation (PV) Report Approved Project Engineering PVR Approved Project Engineering Internal Work Orders Closed Project Engineering & Maintenance Spare Parts Received Target Completion Date Operations Project Engineering Maintenance Deliverable Responsibility SOP(s) / Reference Manuals Approved Project Punch List Activities Maintenance Support of Equipment Project Turnover Checklist Insert Title Here Project Title:
    113. 114. Change Control Request Capital Project Appropriation Engineering Change Request Product and Process Technology PQ PV PVR SOP Performance Validation Product Validation Project Validation Report Standard Operations Procedure CCR CPA ECR PPT Legend
    114. 115. The purpose of the Project Turnover Checklist is to have a documented schedule showing the shift of project responsibility from Project Engineering to Operations and Maintenance. Turn Over
    115. 116. All projects should have a formal turnover meeting with Operations, Project Engineering, IT, Maintenance and the appropriate QO representative. A table similar to the previous should be filled out during the team meeting to ensure all team members are in agreement regarding deliverable responsibilities and target completion dates. Turn Over
    116. 117. Knowledge Management <ul><li>Store lessons learned, experiences, and documents </li></ul><ul><ul><li>Databases allow ease of entry and can be searched quickly </li></ul></ul><ul><ul><li>Document files can be stored in central locations </li></ul></ul><ul><li>Knowledge Transfer – Training </li></ul>
    117. 118. References <ul><li>PMBOK Guide, third edition v1.2 - PMI </li></ul><ul><li>PMP Study Guide – Kim Heldman, 2002 </li></ul><ul><li>Capital Project Management Process course outline – AMS Consulting, 2002 ( ) </li></ul><ul><li>Recommended Requirements Gathering Practices – Journal of Defense Software Engineering, Apr 2002 – Dr Ralph R. Young </li></ul><ul><ul><li>Also has a good book – Effective Requirements Gathering, Addison-Wesley 2001 </li></ul></ul><ul><li> </li></ul><ul><li> </li></ul>
    118. 119. Questions?
    119. 120. Case Study
    120. 121. <ul><li>Form groups </li></ul><ul><li>Please utilize industry examples </li></ul><ul><li>If you can’t think of one use the enclosed charter, schedule, and risks from one of my PMP study books. </li></ul>Case study
    121. 124. JWD’s Project Gantt Chart
    122. 125. JWD’s List of Prioritized Risks