Module ten

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Module Ten

12.0 Project Procurement Management

“Includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team.”

PMBOK® Guide 2017, Glossary

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12.0 Project Procurement Management Learning Outcomes • Describe and discuss the activities and required processes to develop and manage procurement.

• Describe the Procurement Planning process.

• Identify contract types.

• Explain the procurement negotiation process.

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12.0 Project Procurement Management Knowledge Area Procurement

Initiating Planning 12.1

Executing

Monitoring and Control

12.2

12.3

Closing

Name the three processes in the Project Procurement knowledge area.

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12.0 Project Procurement Management Whose Who? • You are the buyers, customers, or key project stakeholders.

•

You are part of the project team.

• If not mentioned in the question, assume you are the buyer • The seller or vendor is external to the project team • The seller will typically manage the work as a project if the acquisition is not just for material, goods, or commons products • Terms and conditions of the contract become the key inputs to many of the seller’s management processes

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12.0 Project Procurement Management Terminology  Target cost/ estimated cost– The basis for measuring true cost at the end of production  Target or expected profit– The profit value that has been negotiated and set forth in the contract

 Profit ceiling/ profit floor– Maximum and minimum values of the total profit  Price ceiling– The percentage of the target cost for which the client is willing pay beyond the target cost, Ceiling price>target price

 Maximum and minimum fees– Percentages that establish the outer limits of the contractor's fee

 Point of total assumption– The point where the contractor assumes all liability for additional costs

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12.0 Project Procurement Management Terminology (cont.)  Privity– Contractual relationship  Fait Accompli– An accomplished fact that can not be reversed (a done deal)

 Sole source VS. Single source– Noncompetitive process types  Letter of Intent (LOI)– Not a contract and has no legal merit  Retainage – Withheld percentage of funds (payment) until work is complete

 Indemnification – Liability for personal injury, accidents, etc.  Force Majeure – Act of God; beyond the control of either party

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12.1 Plan Procurement Management Knowledge Area: Procurement Process Group: Planning “The process of documenting project decisions, specifying the approach, and identifying potential sellers.”

PMBOK® Guide 2017, Glossary

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12.1 Plan Procurement Management ITTOs Exercise Fill out the ITTOs below and check your answers in the PMBOKÂŽ Guide 2017, pg. 466

Inputs What do you need beforehand?

Tools & Techniques How is it done?

Outputs What are the results?

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12.1.1.1-3 Plan Procurement Management Inputs •Charter (4.1.3.1) •Business documents (1.2.6) • Business case • Business management plan

•Project management plan • • • •

Scope management plan (5.1.3.1) Quality management plan (8.1.3.1) Resource management plan (9.1.3.1) Scope baseline (5.4.3.1)

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 468-472.

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12.1.1.4-6 Plan Procurement Management Inputs •Project documents • • • • •

Milestone list (6.2.3.3) Project team assignments (9.3.3.2) Requirements documentations (5.2.3.1)

Risk register (11.2.3.1) RTM (5.2.3.2) • Resource requirements (9.2.3.1) • Stakeholder register (13.1.3.1)

•Enterprise environmental factors •Organizational process assets – Preapproved seller lists, formal procurement policies, contract types – fixed price, costreimbursable, time and material Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 468-472.

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12.1.1.6 Plan Procurement Management Inputs Organizational process assets • Formal procurement policies, procedures, and guidelines • Management systems • Multi-tier supplier system of pre-qualified sellers

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12.1.1.6 Plan Procurement Management Inputs Organizational process assets (Cont.)

Contract Types

1.

Fixed price or lump sum – Generally involves a total price for a well defined product

• Firm Fixed Price (FFP) • Fixed Price Incentive Fee (FPIF) • Fixed price with Economic Price Adjustment (FP-EPA)

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12.1.1.6 Plan Procurement Management Inputs Organizational process assets (Cont.)

Contract Types 2. Cost-reimbursable contracts – Generally involves payment to the vendor for actual cost (direct and indirect) plus a fee for profit • Cost Plus Fixed Fee (CPFF) – Allowable costs plus a fixed fee • Cost Plus Award Fee (CPAF) (customer satisfaction) • Cost Plus Percentage of Cost (CPPC) – Allowable costs plus a percentage of the costs as a fee (profit).

• Cost Plus Incentive-Fee (CPIF) – Allowable costs plus a predetermined incentive fee – min & max total cost established (performance based)

3. Time and Material/ labor only – T&M contracts are a hybrid combination of cost-reimbursable and fixed price contracts

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12.1.1.6 Plan Procurement Management Inputs Contract Types (Risk indicators)

Seller’s Risk (contractor)

Low

Cost Reimbursable Contracts Cost plus percentage of costs

High

Cost plus fixed fee

T&M

High Fixed Price

Cost plus incentive fee

Buyer’s Risk

Low

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12.1.1.6 Plan Procurement Management Inputs Cost Plus Incentive Exercise I • • • • • •

Sharing ratio = 70/30 Target cost = 100,000 Target fee = 10,000 Maximum fee = 14,000 Minimum fee = 8,000 How much would the contractor get reimbursed if the project cost is • 90,000?

• 120,000?

• 80,000?

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12.1.1.6 Plan Procurements Management Inputs Cost Plus Incentive Exercise II

• • • • •

Sharing ratio = 80/20 Target cost = 100,000 Target fee = 15,000 Price ceiling = 120,000 How much would the contractor get reimbursed if the project cost is • 90,000?

• 105,000?

• 115,000?

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12.1.1.6 Plan Procurements Management Inputs Point of Total Assumption (Break Point) • • • • •

Sharing ratio = 70/30 Target cost = 100,000 Target fee = 15,000 Target price = 115,000 (target cost +target fee) Ceiling price = 120,000

• •

What is the PTA? How much would the contractor get reimbursed if the project cost is A. 90,000? B. 105,000? C. 108,000

PTA = [(Ceiling price – Target price) / Buyer share ratio] + Target Cost

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12.1.2.1-5 Plan Procurement Management T&T •Expert judgment • Data gathering •Market research

• Data analysis • Make-or-buy analysis

• Source selection analysis – Least cost, qualifications only, quality-based/ highest technical proposal score, quality and cost based, sole source, fixed budget

• Meetings

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 472-474.

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12.1.2.3 Plan Procurement Management T&T Make or Buy Compare the relative benefits of in-house versus outsourcing production of a given product, service, or result Make

Buy

1.

Direct control

1. Indirect control

2.

Design/ product confidentiality

2. Supplier skills

3.

Company resources

3. Small volume requirements

4.

Operations integration

4. Multiple resources

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12.1.2.3 Plan Procurement Management T&T Make or Buy Exercise

• It cost the company $10,000 plus $100 per day to develop a product • Leasing the product will cost $400 per day What is the breakeven point in days?

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12.1.2.2,5 Plan Procurement Management T&T Data gathering - Market research/ Meetings • Specific vendor capabilities • Conferences • Online reviews

• Meetings with potential bidders

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12.1.3.1-4 Plan Procurement Management Outputs 1. Procurement management plan explains how 2.

procurement will be managed from inception to closing Procurement strategy – Delivery methods, contract payment type, procurement phases

3. Bid documents RFI, RFQ, RFP.

4. Procurement statements of work (SOW) explains the items being purchased with enough detail and clarifications for everyone to be in agreement with what is being purchased. TOR- terms of reference (bid submission protocol) Look up PMBOK® Guide, table 12-1, page 481 Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 475-478.

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12.1.3.5-9 Plan Procurement Management Outputs 5. Source Selection Criteria – Warranty, financial capacity, technical capability, understanding the need, references, etc.

6. Make or buy?

7. Independent cost estimates 8. Change Requests 9. Project documents updates – risk register, requirements traceability matrix, requirements documentation 10.OPAs

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 479-481.

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12.2 Conduct Procurements Knowledge Area: Procurement Process Group: Executing “Process for obtaining sellers responses, selecting a seller, and awarding a contract.”

PMBOK® Guide 2017, Glossary

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12.2 Conduct Procurements ITTOs Fill out the ITTOs below and check your answers in the PMBOK® Guide 2017, pg. 482

Inputs What do you need beforehand?

Tools & Techniques How is it done?

Outputs What are the results?

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12.2.1.1-2 Conduct Procurements Inputs • Project management plan • • • • • • •

Scope MP Requirements MP Communications MP Risk MP Procurement MP Configuration MP Cost baseline

• Project documents •

Lessons learned register

•

Project schedule

•

Requirements documentation

•

Risk register

•

Stakeholder register

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 484-485.

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12.2.1.3-6 Conduct Procurements Inputs • Procurement documentation • • • •

Bid documents Procurement SOW Independent cost estimates Source selection criteria

• Seller proposals • EEFs • OPAs Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 486-486.

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12.2.2.1-5 Conduct Procurements T&T • Expert judgment – Proposal evaluation, subject matter, relevant functional area, negotiation, regulations

• Advertising • Bidder conferences • Data analysis • Proposal evaluation

• International and team skills Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 487-488.

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12.2.2.1Conduct Procurements T&T Expert judgment - Procurement Negotiations • • • • •

Develop objectives Evaluate opponent - what motivates?

Define strategy and tactics Gather facts Complete price/cost analysis

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12.2.3.1-6 Conduct Procurements Outputs 1. Selected vendors (sellers) 2. Agreements- Mutually binding legal agreement, between the buyer and the seller, subject to remedy in the courts 3. Change requests processed through Perform Integrated Change Control process 4. Project Management Plan is updated to reflect any approved changes- cost, schedule, or scope baselines + procurement management plan, requirements management plan 5. Project documents updates - Requirements documentation, RTM, resource calendars, lessons learned register, and risk register 6. OPAs

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOKÂŽ Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 488-491.

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12.2.3.2 Conduct Procurements

Outputs Contract (agreement) Types- Factors to consider • • • • • • • • • •

Overall degree of cost and schedule risk Type/complexity of requirement Extent of price competition Cost/price analysis Urgency of requirement Performance period Contractor’s responsibility Concurrent contracts Warranty Extent of subcontracting

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12.3 Control Procurements Knowledge Area: Procurement Process Group: Monitoring and Controlling “Process of managing procurement relationships, monitoring contract performance, and making changes and corrections as appropriate, and closing out contracts.”

PMBOK® Guide 2017, Glossary

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12.3 Control Procurements ITTOs Exercise Fill out the ITTOs below and check your answers in the PMBOK® Guide 2013, pg.. 379

Inputs What do you need beforehand?

Tools & Techniques How is it done?

Outputs What are the results?

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12.3.1.1-2 Control Procurements Inputs • Project management plan • • • • •

Requirements documentation Risk management plan Procurement management plan Change management plan Schedule baseline

• Project documents • • • • • • • •

Assumption log Lessons learned register Milestone list Quality reports Requirements documentation RTM Risk register Stakeholder register Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 495.

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12.3.1.3-8 Control Procurements Inputs • Agreements • Procurement documentation • Approved change requests • Work performance data • EEFs • OPAs

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 496-497.

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12.3.2.1-5 Control Procurements T&T

• Expert judgment • Claims administration: Contested changes  disputes  appeals  alternative disputes resolution (ADR)

• Data analysis • • •

• •

Performance reviews Earned value analysis Trent analysis Inspection: Structured review of work being done by vendor Audits: Structured review of procurement process

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 497-498.

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12.3.3.1-7 Control Procurements Outputs

• Closed procurements – formal written notice from buyer that the contract has been completed

• Work performance information – seller’s performance • Procurement documentation updates • Change requests : processed through the Perform Integrated Change Control process

• Project management plan updates: risk MP, •

procurement MP, Schedule baseline, Cost baseline Project documents updates: Lessons learned register, RTM, risk register, stakeholder register

• OPAs

Project Management Institute , A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Sixth Edition, 2017 Project Management Institute, Inc. All rights reserved. Page 499-501.

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12.0 Project Procurement Management Summary • • • • •

Procurement planning Solicitation planning Solicitation Conduct Procurement Control Procurement

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12.0 Project Procurement Management Notes • Write down your personal goals to enhance your project time management knowledge and skills.

• Write down any newly acquired knowledge that you might be able to apply in your workplace.

• Identify additional resources.

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Read

• PMBOK® Guide 2017, Ch.. 12 (Project Procurement Management) • Mulcahy, Ch.. 12 (Procurement Management) • Kerzner, Ch.. 19 (Contract Management) - Optional

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Tests • Rita’s practice exam – Ch.. 12