PMP Exam Preparation Course: 11 Project Procurement Management

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Presentation was prepared based on PMBOK 4th Edition

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PMP Exam Preparation Course: 11 Project Procurement Management

  1. 1. www.wizardea.com | contact@wizardea.comB. M. Shahrier Majumder, PMPPMP® Exam Preparation
  2. 2. Project ProcurementManagement
  3. 3. www.wizardea.com | contact@wizardea.comLearning ObjectivesUpon completion of this topic you will learn about– The processes, activities and documentation items for ProjectProcurement Management– Elements (and deliverables) for Project ProcurementManagement– Tools and techniques of the key activities of the ProjectProcurement Management3
  4. 4. www.wizardea.com | contact@wizardea.comProcurement ManagementIncludes the processes necessary to purchase or acquireproducts, services or results needed from outside the project team.4
  5. 5. www.wizardea.com | contact@wizardea.comKey Activities of Procurement Management Plan Procurements: The process of documenting project purchasingdecisions, specifying the approach, and identifying potential sellers. Conduct Procurements: The process of obtaining sellerresponses, selecting a seller, and awarding a contract. Administer Procurements: The process of managing procurementrelationship, monitoring contract performance, and makingchanges, and corrections as needed. Close Procurements: The process of completing each projectprocurement.5
  6. 6. www.wizardea.com | contact@wizardea.comPlan Procurements | Data Flow Diagram
  7. 7. www.wizardea.com | contact@wizardea.comPlan ProcurementsInputs Tools & Techniques OutputsScope baselineRequirement documentationTeaming agreementRisk registerRisk related contractdecisionsActivity resourcerequirementsProject scheduleActivity cost estimatesCost performance baselineEnterprise environmentalfactorsOrganizational process assetsMake-or-buy analysisExpert judgmentContract typesProcurement managementplanProcurement statement ofworkMake-or-buy decisionsProcurement documentsSource selection criteriaChange requests
  8. 8. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and Techniques• Make-or-buy Analysis• Is a general management technique used to determinewhether particular work can be best be accomplished by theproject team or must be purchased from outside sources.• Budget constrains may influence make-or-buy decisions.• Example: You are trying to decide whether to lease or buy an itemfor your project. The daily leas cost is $100. To purchase theitem, the investment cost is $1000 and daily cost is $20. How longwill it take for the leas cost to be the same as the purchase cost?8
  9. 9. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and Techniques• AnswerLet D equal the number of days when the purchase and leas costare equal.$100D = $1000 + 20D$100D – 20D = $1000$80D = $1000D = 12.5This calculation helps a project manager decide whether it is betterto lease or buy. The calculation says that the costs are the sameafter 12.5 days. Therefore, if you are planning to use the item forfewer than 12.5 days, you should lease. If you are planning to use itfor more than 12.5 days, it would be cheaper to buy the item.9
  10. 10. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and Techniques• Contract TypesMainly 3 categories of contract types:• Fixed priced contract (FP)• Cost reimbursable contract (CR)• Time and material contract (T&M)10
  11. 11. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and TechniquesFixed Price Contract– Fixed Price Contract is inappropriate, if• Seller may not have the details accounting records of pastproject activities required to accurately estimate futureprojects.• Buyers may not have the expertise to prepare a completeprocurement statement of work.– If Statement of work is incomplete in FP• The seller is forced to accept a high level of risks• The seller would need to add a huge amount of services totheir price to cover their risks and the buyer, therefore, paysmore than they might otherwise have• The seller can more easily try to increase profits by cuttingscope or claiming that work the buyer wants is outside thecontract and thus requires a change.11
  12. 12. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and TechniquesFixed Price Contract– Fixed Price Incentive Fee (FPIF)• Example: Contract is $1,000,000. For every month the earlythe project is finished, an additional $5,000 will be paid to theseller.– Fixed Price Award Fee (FPAF)• Example: Contract is $1,000,000. For every monthperformance exceeds the planned level by more than 15% anadditional $5,000 will be awarded to the seller, with amaximum award of $50,000.– Fixed Price Economic Price Adjustment (FPEPA)• Example: Contract price is $1,000,000 but a price increase willbe allowed in year two to account for increase in specificmaterial cost.12
  13. 13. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and TechniquesCost Reimbursable Contract– Cost Price (CP)• Contract = Cost. There is no profit.• Appropriate for non-profit organization– Cost Plus Fee (CPF)• Contract = Cost plus 10% of cost as fee– Cost Plus Fixed Fee (CPFF)• Contract = Cost plus a fee of $10,000– Cost Plus Award Fee (CPAF)• Contract = Cost plus $5,000 for every month productionexceeds 10,000 units with maximum award of $50,000.13
  14. 14. www.wizardea.com | contact@wizardea.comPlan Procurements > Tools and TechniquesTime and Material Price Contract• The buyer pays per item or per hour basis• Example: Contract is $100 per hour plus expenses ormaterials at cost.14
  15. 15. www.wizardea.com | contact@wizardea.comRisk and Contract Type15
  16. 16. www.wizardea.com | contact@wizardea.comPlan Procurements > Outputs• Procurement management Plan• Types of contracts to be used• Risk management issues• Evaluation criteria• Standardize procurement document• Any constrain and assumption• Identifying prequalified sellers• Procurement Documents• Request for Information (RFI)• Invitation for Bid (IFD)• Request for Proposal (RFP)• Request for Quotation (RFQ)16
  17. 17. www.wizardea.com | contact@wizardea.comConduct Procurements | Data Flow Diagram
  18. 18. www.wizardea.com | contact@wizardea.comConduct ProcurementsInputs Tools & Techniques OutputsProject management planProcurement documentsSource selection criteriaQualified seller listSeller proposalsProject documentsMake-or-buy decisionsTeaming agreementOrganizational processassetsBidder conferenceProposal evaluationtechniquesIndependent estimatesExpert judgmentAdvertisingInternet searchProcurement negotiationsSelected sellersProcurement contractawardResource calendarsChange requestsProject management planupdatesProject document updates
  19. 19. www.wizardea.com | contact@wizardea.comContract Procurements > Outputs• Procurement Contract Award• Statement of work ordeliverables• Schedule baseline• Performance reporting• Roles andresponsibilities• Pricing• Payment terms• Place of delivery• Acceptance criteria• Warranty• Product support• Insurance andperformance bond• Penalties• Change requesthandling• Termination andalternative disputeresolution mechanism19
  20. 20. www.wizardea.com | contact@wizardea.comAdminister Procurement | Data Flow Diagram
  21. 21. www.wizardea.com | contact@wizardea.comAdminister ProcurementInputs Tools & Techniques OutputsProcurement documentsProject management planContractPerformance reportsApproved change requestsWork performanceinformationContract change controlsystemProcurement performancereviewInspections and auditsPerformance reportingPayment systemClaims administrationRecord managementsystemProcurementdocumentationOrganizational processassets updatesChange requestsProject management planupdates
  22. 22. www.wizardea.com | contact@wizardea.comClose Procurements | Data Flow Diagram
  23. 23. www.wizardea.com | contact@wizardea.comClose ProcurementsInputs Tools & Techniques OutputsProject management planProcurement documentsProcurement auditNegotiated settlementsRecord managementsystemClosed procurementsOrganizational processassets updates
  24. 24. www.wizardea.com | contact@wizardea.comQuestions24• [mail.shahrier@gmail.com]• http://bd.linkedin.com/in/shahrier

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