Procurement Management
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In Project management out of 9 knowledge areas procurement management is an important topic where it talks about buying goods and service for the organization to run in a orderly manner without conflicts
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Procurement Management
- 2. What’s Procurement ? Buying Goods & Services from external Organizations
- 3. Goods Services Computers Internet Tables Electricity Books Security Routers Cleaning Cables Water Supply Stationary Web Hosting Building Material CCTV Fixing Vehicles Computer Equipment Maintenance
- 4. Outsourcing • Acquiring Human Resources from external organizations
- 5. Who provides these goods & Services? • Suppliers • Vendors • Contractors • Sellers • Sub contractors
- 7. Procurement Planning Deciding what to procure / When & How , by whom * Make / Buy Analysis Eg : Buying an Off the shelf software ? Or Develop a bespoke software ? 1
- 8. Off the Shelf Bespoke Advantages •Less Expensive to buy than develop • Saves Development Time • Less no of Errors identified / high accuracy • less amount of Testing needed • Added maintenance support •Maximize user satisfaction • Modifications can be done • ensure confidentiality •Completely caters to business functions •Versions can be released Disadvantages •Modifications are not usually possible • unwanted features may exist •Might not cater to all business functions •Standards may be different •More expensive •Takes time to develop / test •Can have errors at the beginning •Less support and guidance provided as a standard
- 9. Make – Buy Analysis Eg : Assume that you can rent a machine for $800 per day. To purchase the item the cost is $12000 PLUS a daily operational cost of $400. Whats the minimum duration the machine must be used , so that the buying would be more beneficial than leasing.
- 10. Answer 12000 + 400d = C ------- 1 800d = C -------- 2 As 1 = 2 12000 + 400 d = 800 d d = 12000/400 = 30 The machine should be used for at least 30 days , for purchasing to be beneficial.
- 11. Solicitation • Process of finding potential suppliers Eg : Advertising procurement notices RFP notices Call for tenders / Quotations 2
- 12. • Quotation : go for least price • Proposal : different approaches to meet customers needs • Tender : goes for the lowest price
- 13. Source Selection • Evaluate sellers • The facilities given by them • Choose the best seller • Eg : weighted averaging model 3
- 14. Example Weight Dialog Weighted Score Etisalat Weighted Score Bandwidth 15% 100 mbps 15% * 100 50 mbps 15% * 50 Network Coverage 25% 70% in SL 25% * 70% 80% in SL 25% * 80% Rental 50% 300 50% * - 300 800 50% *- 800 Data Use 10% 20GB 10% * 20 10GB 10% * 10 Total ?? ?? * Highest weighted average indicate the best service
- 15. Contract Administration • Prepare Contracts • Manage relationships with suppliers • Making necessary updates to contracts (revising) • Renewal of contracts 4
- 16. Contract Close-out Payments settled Open items settled Sign off contract Close the contract / renew the contract Pay / settle necessary compensation / damages 5
- 17. Types of Contracts Fixed price • Pays the initially agreed cost • Suits well designed products or services Cost reimbursable • Pays the actual cost spent • Suits for new , risky , experimental products Unit pricing • Pay per unit Time and Material Costs • Pay fixed price + time based rate • Initial Capital + hourly payment for repair
- 18. Fixed Price Contracts • Pays the fixed total price • Good for reliable contracts • 2 types – Fixed Price – Fixed Price + Incentive 1. Fixed Price Contracts : Only pays the fixed fee, No incentives
- 19. 2. Fixed Price + Incentive fixed amount + Additional amount (conditional) Example : for 30 chairs , buyer pays 50000 plus additional incentive of 3000 for delivering goods ahead of schedule Total cost = 50000 + 3000 = 53000
- 20. Cost Reimbursable Contracts • Cost Plus Incentive Fee (CPIF) • Cost Plus Fixed Fee ( CPFF) • Cost Plus Percentage of Cost ( CPPC)
- 21. Cost + Incentive Fee (CPIF) Actual Cost + Fixed Incentive+ Incentive Bonus Example : a project expects 100000 for a contract but the actual cost is 80000. The contract agrees to pay a 10000 supplier fee & an incentive bonus of 15% for saving cost. Calculate the cost of contract
- 22. Actual Cost + Fixed Incentive+ Incentive Bonus Cost = 80000 + 10000 + (20000 * 15%) Cost = 93000/=
- 23. Cost Plus Fixed Fee ( CPFF) • Buyer has to pay only the allowable performance cost + fixed incentive Cost = Allowable p. cost + Incentive based on agreed cost A project expects 100000 and a fee of 10% of expected cost. If the project spends 120000, calculate contract cost
- 24. Cost = Allowable p. cost + Incentive Cost = 120000 + (100000 * 10%) Cost = 130000
- 25. Cost plus Percentage of Cost ( CPPC) Cost = Allowable P. Cost + Incentive based on Actual cost For the above example , A project expects 100000 and a fee of 10% of expected cost. If the project spends 120000, calculate contact cost
- 26. Cost = Allowable P. Cost + Incentive based on Actual cost Cost = 120000 + (120000 * 10%) Cost = 132 000 This kind of contracts are prohibited in some countries.