Project procurement management


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Project procurement management

  1. 1. ProjectProcurementManagementBy “Training Mile” - A training & Developed by Training Milee-Mail: trainingmile@gmail.com
  2. 2. Introduction Procurement is a formal process by which many organizations obtain goods & services. Managing procurements require legal knowledge, negotiations and an understanding of the procurement process. The work is analysed if internal resources can do everything, or if any of the work will be outsourced(i.e. make –or – buy) Once decision is made, procurement SOW is created by the Seller Decision is made on Procurement Document: RFQ (Request for Quotation) RFP (Request for Proposal) IFB (Invitation for Bid) Exam tips Assume you are the buyer All the product & project management work should be stated in the Contract All changes must be submitted and approved in writing A formal change order is required to Change the contarct Contract should help diminish the project work Seller has no choice rather than binding with the
  3. 3. ProcurementProcesses Plan Procurement Conduct Procurement Administer Procurement Close of a Project Manager in Procurements Know the process to know what will happen when Understand the Contract to abide with it Identify Risk and analysis related Procurements Be involved in Contract Negotiations to protect the relationship between Seller & Buyer Help tailor the Contract to the unique needs to project Fit the schedule for completion of the procurement process Make sure all the work in the Contract is done not only the technical scope Request for change in the contract, if you want to ask for something else in respect of procurements Work with the procurement manager to manage the changes in the contract, if any.Centralized/ Decentralized Contract These are the way in which procurements can be organized. Centralized : There is one procurement function and procurement manager handles procurement forvarious projects Decentralized: A procurement manager is assigned to one project full-time and reports directly to projectmanager.*The type of organization will impact the project & Procurement manager’s availability & authority
  4. 4. Inputs-PlanProcurements• Scope Baselines• Requirement Documents• Contracts/Legal contracts• Risk Register• Risk related Contract Decisions• Activity Resource Requirements• Cost Performance Baseline• Enterprise Environmental Factors• Organization
  5. 5. Tools &Techniquesof PlanProcurements Performing Make-or-Buy Analysis Creating a procurement management plan Creating a procurement state of work Selecting a Contract type Fixed Price/Lump Sum Contract Firm Fixed Price Fixed Price Incentive Fee Fixed Price Award Fee Fixed Price Economic Price Adjustment Cost reimbursement Cost Plus fixed Fee Contract Cost Plus Percentage of Costs Cost Plus Incentive Fee Cost Plus Award Fee Time & Material - Hybrid Creating the procurement documents Determining the source selection criteria- e.g. Noof years in business, ability to complete the workon time, Project Management ability etc.Outputs Procurement Management Plan Procurement SOW Make-or-Buy Decision Procurement Documents Source Selection Criteria Changes
  6. 6. Risk and Contract CPAF T&M FPIFCPFF CPIF FPEPA FPQ1. Who has the risk in a cost reimbursablecontract-the buyer or the seller?A: The buyer If the costs increase, the buyerpays the added costQ2. Who has the cot risk in a fixed pricecontract- the buyer or the seller?A: The seller. If the costs increase, the sellerpays the costs and makes less profitOther Important Terms in the exam:1. Ceiling Price: The highest price the buyer will pay.2. Point of Total Assumption(PTA): This is applicable only Fixed price incentive fee contracts. Amount abovewhich the seller bears the cost overrun happened due to mismanagement.Formula: PTA = ((Ceiling price- Target price)/Buyer’s share ratio ) + Target Cost3. Target price: The end result cost, which was expected4. Sharing Ratio: Incentive usually are expressed in a ratio. The sharing ratio describes how the cost savings andcost overruns will be shared.
  7. 7. OtherTermsusedinExam• Non disclosure Agreement• Teaming Agreement/Joint Venture• Special Provision/Special conditions• Terms & Conditions:• Acceptance Criteria• Agent (Who is the authorized representative of each party)• Assignment( Circumstances under which one party can assign its rights to others)• Authority• Bonds• Breach/Default(extremely serious event)• Changes• Confidentiality• Dispute Resolution• Termination• Force Majeure (Fire/Electric Storm, It is usually resolved by the seller receiving an extension of time)• Indemnification/Liability (Who is liable for personal injury, damage, accidents)• Intellectual Property (Who owns the patents, trademarks, copyrights, processes, source codes• Waivers• Warranties• Letter of Intent (If the Contract is not signed on time, seller may ask buyer to provide letter of intent for hiringpeople or purchasing new equipment etc. to fulfil the contract needs)• Privity – Contractual Relationship• Single Source- Contract directly with a preferred seller bypassing the procurement process• Sole Source- A company a patent, which is the only seller in this
  8. 8. ConductProcurements• Getting procurement Documents prepared as per ‘Plan Procurements Process’• Reviewing the seller responses for selecting the seller1. Advertising2. Pre-qualified Seller List3. Bidder Conferences4. Seller’s Proposal & Proposal Review5. Weighing Systems (Similar to Source Selection Method)6. Independent Estimates7. Screening Systems8. Past performance history9. PresentationsAfter Seller/ Vendor Selection : Negotiations (Scope/ Schedule/ Price)Why do we need a contract? To define Roles & responsibilities To make things legally binding To mitigate or allocate
  9. 9. AdministerProcurements• Managing the relationship between the buyer and the seller and assuring that the performance of both the parties tothe procurements meets the contractual requirements• Actions to be taken under administer procurements by Project Manager/ Procurement Manager Review Invoices Complete Integrated Change Control Documentation (Record everything) Authorize payments on time to the seller Resolve disputes Make sure only authorized people are communicating with the seller Monitor the cost , schedule and technical performance against the contract at all times Perform Inspects and Audits Identify risks and Control risks Understand the legal implications of actions taken Report the performance to all the stakeholders Work with the procurement manager for evaluating & managing changes Interpret what contract means Verify the correct scope is being done Review the claims filled by the seller asserting damages against buyer Control quality according to what is required in the
  10. 10. CloseProcurementProcurements are closed: When a contract is completed When a contract is terminated before the work is completed Procurement closure needs to happen before the project closureClosure provides value to both the buyers and sellers and should not be avoided in any circumstancesIf contract is terminated then procurements are closed through negotiated settlements between both the partiesFollowing should be done for Procurement Closure:1. Product Verification2. Negotiated Settlement – Final settlement of claims, Invoices and other Issues3. Procurement Audit4. Update records5. Final Contract Performance Recording6. Lessons Learnt7. Procurement File – Contract, Changes(Approved/Rejected), Submittals from the seller, Seller performance Reports,Financial Informations, inspection results,8. Other activities Arranging the storage of records and drawings, if any Creating & Delivering Legal Documents Returning Property used for procurement to its ownerFormal Acceptance and Closure: Seller has to receive a final sign –off In gaining sign –off, seller also works to measure customer
  11. 11. Thank you!