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9. Procurment Management


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The project procurement management includes the processes necessary to purchase or acquire products, services or results needed from outside the project team,
It includes contract management and change control processes required to develop and administer or purchase order issued by authorized project team members,
Also includes controlling any contract issued by an outside organization (the buyer) that is acquiring deliverables from the project from the performing organization ( the seller) and administering the contractual obligations placed by the contract on the project team.

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9. Procurment Management

  1. 1. 7/25/2017 Procurement Management www.Testudaan.com1 Best PMP Exam Simulator
  2. 2. • The project procurement management includes the processes necessary to purchase or acquire products, services or results needed from outside the project team • It includes contract management and change control processes required to develop and administer or purchase order issued by authorized project team members • Also includes controlling any contract issued by an outside organization (the buyer) that is acquiring deliverables from the project from the performing organization ( the seller) and administering the contractual obligations placed by the contract on the project team Project Procurement Management 7/25/2017www.Testudaan.com2 Best PMP Exam Simulator
  3. 3. • Depending on the application area: the seller may be identified as a contractor, subcontractor, vendor, service provider, or supplier • Depending on the buyer’s position: in the project acquisition cycle, the buyer may be called a client, customer, prime contractor, contractor, acquiring organization, service requestor, or purchaser • The seller can be viewed during the contract life cycle first as a bidder, then as the selected source and then as the contracted supplier or vendor Project management team has to make certain that all procurements meet the specific needs of the project while adhering to organizational procurement policies Project Procurement Management 7/25/2017www.Testudaan.com3 Best PMP Exam Simulator
  4. 4. Buyer and Seller Roles CUSTOMER ORGANIZATION SERVICE PROVIDER ORGANIZATION Project Procurement Management 7/25/2017www.Testudaan.com4 Best PMP Exam Simulator
  5. 5. Procurement Management 7/25/2017 Start Project / Enter Phase Initiating Planning Executing Closing End Project / Exit Phase Monitoring and Control Process Process Groups Initiating Planning Executing Monitoring & Control Closing Procurement Management Plan Procurement Management Conduct Procurements Control Procurements Close Procurements www.Testudaan.com5 Best PMP Exam Simulator
  6. 6. Is the process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers 12.1 Plan Procurement Management 7/25/2017www.Testudaan.com6 Best PMP Exam Simulator
  7. 7. 12.1 Plan Procurement Management->Process flow 7/25/2017www.Testudaan.com7 Best PMP Exam Simulator
  8. 8. What is a Fixed Price contract ? • It involves a fixed total price for a well-defined product • Scope of work is very well-known and provides complete and exact specifications • Kind of projects that have been undertaken multiple times in the past e.g. construction projects or most software development projects ContractType Description Fixed Price Plus Incentive Fee (FPIF )  The buyer pays the seller a fixed total amount plus an incentive bonus, if certain performance objectives are met Firm Fixed Price (FFP)  The buyer pays the seller a fixed total amount, regardless of the seller’s costs  This contract type poses the greatest risk for the seller, however, it also offers the best opportunity for the seller organization to make increased profits by reducing it’s costs Fixed Price with Economic PriceAdjustment (FP-EPA)  This type is used whenever the seller’s performance period spans a considerable period of years as it is desired to with many long term relationships  It is fixed price with special provision allowing for pre defined final adjustments to the contract price due to changed conditions, such as “Inflation, specific commodities etc. Plan Procurement Management – Contract Types 7/25/2017www.Testudaan.com8 Best PMP Exam Simulator
  9. 9. What is a Cost Reimbursable contract ? • It involves payment or reimbursement to the seller for the seller’s actual direct costs, plus a fee typically representing the seller’s profit • Entire project scope is not clearly known but only the requirements are known, typically in the kind of projects that have never been attempted before e.g. research and development (R&D) projects ContractType Description Cost Plus Fixed Fee (CPFF)  The seller’s fee is a fixed fee, calculated as a percentage of the estimated project costs and does not change unless the project scope changes Cost Plus Incentive Fee (CPIF)  The seller’s fee is a pre-determined fee plus an incentive bonus, if certain performance objectives are met  Such a contract often specifies a pre-negotiated sharing formula, for sharing the cost savings, if the final costs are less than the expected costs Cost PlusAward Fee (CPAF)  The seller is reimbursed for all legitimate costs, but the majority of the fee is only earned based on the satisfaction of certain broad subjective performance criteria  The determination of the fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals Plan Procurement Management – Contract Types 7/25/2017www.Testudaan.com9 Best PMP Exam Simulator
  10. 10. ContractType Description Time & Material (T&M)  It resembles CR contracts because the full value of the agreement and the exact quantity of items to be delivered are not defined by the buyer at the time of awarding the contract  It resembles fixed-price contracts because the unit rates are preset by the buyer and seller when both parties agree on the rates for a particular resource  For instance, the per person hour $ rate might be pre-decided but the total effort and hence, the total value of the project may not be known What is aTime and Material contract ? • It is a hybrid type of contract that contains aspects of both cost -reimbursable and fixed-price type of contracts. Plan Procurement Management – Contract Types 7/25/2017www.Testudaan.com10 Best PMP Exam Simulator
  11. 11. T&M CPFF CPAF CPIF FPEPA FPIF FFP Buyer LowHigh SellerLow High Plan Procurement Management – Contract Types 7/25/2017www.Testudaan.com11 Best PMP Exam Simulator
  12. 12. • A general management technique used to determine whether it is more cost-effective for the project team to produce a particular product or service or to purchase it from outside sources • If a buy decision is to be made, then a further decision of whether to purchase or rent is also made • Should consider direct costs (out-of-pocket costs to purchase the product) as well as indirect support costs (costs involved in supporting the purchasing processes and the purchased item). • The long-range strategy of the performing organization is also a component of the make-or-buy analysis, if it anticipates future requirements for those items  When this occurs, the costs charged or allocated to the project might be less than the actual costs, with the difference representing the organization’s investment for the future Make or Buy Analysis Plan Procurement Management – T & T 7/25/2017www.Testudaan.com12 Best PMP Exam Simulator
  13. 13. 1. Standardized procurement documents and types of contract to be used. 2. Risk management issues. 3. Whether independent estimates will be used and whether they are needed as evaluation criteria. 4. Those actions project management team can take unilaterally, if the performing organization has a prescribed procurement, contracting and purchasing department. 5. Managing multiple suppliers. 6. Coordinating procurement with other project aspects, such as scheduling and performance reporting. 7. Handling the make-or-buy decisions and linking them to EstimateActivity Resources and Develop Schedule processes. 8. Setting the scheduled dates in each contract for the contract deliverables and coordinating with the schedule development and control processes. Procurement Management Plan Plan Procurements Management - Output 7/25/2017www.Testudaan.com13 Best PMP Exam Simulator
  14. 14. Plan Procurements Management - Output Procurement Management Plan 9. Handling the long lead time to purchase certain items from sellers and coordinating the extra time needed to procure these items with the development of the project schedule. 10. Identifying requirements for performance bonds or insurance contracts to mitigate some forms of project risks. 11. Constraints and assumptions which could affect planned procurements. 12. Establishing the direction to be provided to the sellers on developing and maintaining aWBS. 13. Establishing the form and format to be used for the procurement / contract statement of work. 14. Identifying pre-qualified sellers, if any, to be used. 15. Procurement metrics to be used to manage contract and evaluate sellers. Plan Procurements Management - Output 7/25/2017www.Testudaan.com14 Best PMP Exam Simulator
  15. 15. Plan Procurements Management - Output Procurement Statement OfWork • It is developed from project scope baseline • It defines only that portion of the project scope that is to be included within the related contract • It describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services or results • It includes a description of any collateral services required such as performance reporting or post-project operational support for the procured item • Each procurement item requires a Procurement SOW, but multiple products or services can be grouped as a single SOW • It can be revised and refined as required, as it moves through the procurement process until incorporated into a signed contract award Plan Procurements Management - Output 7/25/2017www.Testudaan.com15 Best PMP Exam Simulator
  16. 16. Procurement Statement OfWork • Specifications • Quantity desired • Quality levels • Performance data • Period of performance • Work location • Other requirements, if any Plan Procurements Management - Output 7/25/2017www.Testudaan.com16 Best PMP Exam Simulator
  17. 17. Procurement Documents (likeTemplates) They include – 1. A description of the desired form of the response 2. Relevant procurement statement of work 3. Any required contractual provisions like NDA, a copy of the model contract, etc. • Are used to solicit proposals from prospective sellers • Are structured to facilitate an accurate and complete response from each prospective seller • Are sufficient enough to ensure consistent, appropriate responses but flexible enough to allow consideration of any seller suggestions for better ways to satisfy the same requirements • Are structured to facilitate easy evaluation of the responses Plan Procurements Management - Output 7/25/2017www.Testudaan.com17 Best PMP Exam Simulator
  18. 18. Common terms Used For Procurement Documents • RFI – Request For Information • IFB – Information For Bid • RFP – Request For Proposal • RFQ – Request For Quotation • Tender Notice • Invitation For Negotiation • Seller Initial Response Specific procurement terminology used may vary by industry and location of the procurement Plan Procurements Management - Output 7/25/2017www.Testudaan.com18 Best PMP Exam Simulator
  19. 19. Source Selection Criteria • Understanding of need • Overall or life-cycle cost (on the lower side) • Technical capability • Risk • Management approach • Technical approach • Warranty • Financial capacity • Production capacity and interest • Business size and type • Past performance of the sellers • References • Intellectual property rights • Proprietary rights Plan Procurements Management - Output 7/25/2017www.Testudaan.com19 Best PMP Exam Simulator
  20. 20. Make-or-By Decisions • They are documented conclusions reached of what project products, services or results will be acquired or developed internally by the project team • If a decision to make is reached then the procurement plan may define processes and agreements internal to the organization • If a decision to purchase is reached then a similar process of reaching agreement with the seller is defined and documented Plan Procurements Management - Output 7/25/2017www.Testudaan.com20 Best PMP Exam Simulator
  21. 21. Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract 12.2 Conduct Procurements 7/25/2017www.Testudaan.com21 Best PMP Exam Simulator
  22. 22. 12.2 Conduct Procurements->Process flow 7/25/2017www.Testudaan.com22 Best PMP Exam Simulator
  23. 23. • Can be in the form of a simple purchase order or a complex document • Is a mutually binding agreement that obligates the seller to provide the specified products, services or results and obligates the buyer to pay the seller for them • Is a legal relationship subject to remedy in the courts  Statement of work  Schedule baseline  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  Penalties  Incentives  Insurance and performance bonds  Subordinate contractor approvals  Change request handling  Termination clause  Alternate Dispute Resolution (ADR) mechanism Agreements Conduct Procurements – Output 7/25/2017www.Testudaan.com23 Best PMP Exam Simulator
  24. 24. Process of managing procurement relationships , monitoring contract performance, and making changes and corrections to contract 12.3 Control Procurements 7/25/2017www.Testudaan.com24 Best PMP Exam Simulator
  25. 25. 12.3 Control Procurements->Process flow 7/25/2017www.Testudaan.com25 Best PMP Exam Simulator
  26. 26. • Both the parties meet their contractual obligations and that their own legal rights are protected • Managing interfaces among the various providers • Monitoring payments to the seller and ensures that payment terms within the contract are met and that seller compensation is linked to seller progress, as defined in the contract • Managing any early termination of the contracted work (for cause, convenience or default) in accordance with the termination clause of the contract • Agreements can be amended any time prior to contract closure by mutual consent, in accordance with the change control terms of the agreement (such amendments are captured in writing) Control Procurements - Activities 7/25/2017www.Testudaan.com26 Best PMP Exam Simulator
  27. 27. • Includes the application of the appropriate project management processes to the contractual relationship(s) and • Integration of the outputs from these processes into the overall management of the project  Direct and Manage ProjectWork to authorize the contractor’s work at the appropriate time  Control Quality to inspect and verify the adequacy of the contractor’s product  Perform Integrated Change Control to ensure that changes are properly approved and that all those need to know are aware of such changes  Control Risks to ensure that all risks (vendor-related) are mitigated Control Procurements - Activities 7/25/2017www.Testudaan.com27 Best PMP Exam Simulator
  28. 28. Procurement Performance Reviews Are structured reviews of the seller’s progress to deliver project scope and quality,within cost and on schedule,as mentioned in the contract • Rates how well the seller is performing the project work • Includes buyers inspections as well as quality audits • Documents the seller’s ability to continue to perform work on the current contract • Indicates if the seller can be allowed to perform work on future projects • Can form the basis for early termination of the seller’s contract • Can determine how contract penalties, fees or incentives are administered Control Procurements – T & T 7/25/2017www.Testudaan.com28 Best PMP Exam Simulator
  29. 29. Claims Administration • Contested changes (also called as claims, disputes or appeals) and potential constructive changes are those requested changes where the buyer and the seller cannot agree on compensation for the change or cannot agree that a change has occurred • Claims are documented, processed, monitored and managed throughout the contract life- cycle • If the parties themselves do not resolve a claim, it may have to be handled in accordance with the alternative dispute resolution (ADR) typically following procedures established in the contract • Settlement of all claims and disputes through negotiation is the preferred method Control Procurements – T & T 7/25/2017www.Testudaan.com29 Best PMP Exam Simulator
  30. 30. Process of completing each project procurement 12.4 Close Procurements (Contract Closure) 7/25/2017www.Testudaan.com30 Best PMP Exam Simulator
  31. 31. 12.4 Close Procurements (Contract Closure)->Process flow 7/25/2017www.Testudaan.com31 Best PMP Exam Simulator
  32. 32. Records Management System • It is a specific set of processes, related control functions and automation tools that are consolidated and combined into a whole as part of the Project Management Information System (PMIS) • It is used by the Project Manager to manage contract and procurement documentation and records • It is used to maintain an index of contract and assist with retrieving and archiving contract documentation and correspondence Control Procurements – T & T 7/25/2017www.Testudaan.com32 Best PMP Exam Simulator
  33. 33. • It involves verification that all of the seller’s work and deliverables were acceptable and supports the‘Close Project or Phase’ process • Early termination of a contract is a special case of contract closure and can result from a mutual agreement of the parties or from the default of one of the parties • Based upon the terms and conditions, the buyer may have the right to terminate the whole contract or a portion of it, for cause or convenience, at any time • It also involves administrative activities such as finalizing open claims, updating records to reflect final results and archiving such information for future use • Unresolved‘claims’ may be subject to‘arbitration’ or‘litigation’ after contract closure Control Procurements – T & T 7/25/2017www.Testudaan.com33 Best PMP Exam Simulator
  34. 34. 7/25/2017 Thank you Saraca Solutions Pvt. Ltd. www.Testudaan.com34 Best PMP Exam Simulator