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Managing Project Procurement
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Five External Sources
1. Services Firms• Lack of internal expertise
• Package solution not feasible
• Service firm may also build…what will YOU do?
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Outsourcing• Outside organization develops or runs an activity for
another company– Off or on-site
– Rationale• Economies of scale
• Access to larger talent base
• Enables company to better focus on core business
• Faster delivery
• Internal resources can be freed for other tasks
• Increased process efficiencies
• Potential for increased revenue
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Outsourcing to Offshore
• Security issues
• Potential language/legal/cultural barriers
• 24/7 development
• Requires close monitoring
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Project Procurement Management Processes (PMBOK)
1. Plan Purchases and Acquisitions
2. Plan Contracting
3. Request Seller Responses
4. Select Sellers
5. Contract Administration
6. Contract Closure
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1. Plan Purchases and Acquisitions
• Determination of which projects needs can best be met by obtaining services or products from outside organizations
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Plan Purchases and Acquisitions Inputs• Enterprise environmental factors– Assessment of available products and services; key
providers; and any acquisition requirements
• Organizational process assets– Organizational policies/procedures/guidelines governing
procurement
• Project scope statement– Boundaries of the project (requirements, constraints and
assumptions)
• WBS and WBS dictionary– Specific work; descriptions; and deliverables
• Project management plan
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Plan Purchases and AcquisitionsTechniques
• Make or buy
• Expert judgment
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Contract Types
• Fixed-price– Bound by the price quoted
– Less problematic when product or service is well-defined
• Cost-reimbursable– Reimbursement of costs + profit %
• Time-and-materials– Hourly rate billing
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Plan Purchases and AcquisitionsOutputs
• Procurement management plan– Who prepares the evaluation criteria
– Plan for multiple vendor management
– Acquisition of procurement documents
– Procedures for coordinating the procurement process with other project tasks
• Statement of Work (SOW)– Document detailing product or service requested from
vendor
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Service Contracts
• Incident-based– The organization is charged per visit by the service
contractor
• Subscription-oriented– A single fee is charged by the service contractor for
unlimited support
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2. Plan Contracting
• Creation of documents required to support the Request Seller Responses and Select Sellers processes
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Plan Contracting – Inputs
• Statement of Work
• Make-or-by decisions
• Procurement management plan
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Plan Contracting – Tools & Techniques
• Standard forms/templates
• Expert judgment
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Plan Contracting – Outputs
• Request for Proposal (RFP)– Document provided to vendors to ask them to propose a
solution to a specific problem related to a specific project
• Evaluation criteria– Used to rate responses from vendors to RFPs
• Statement of Work updates
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RFP Contents• Project overview and administrative information section
• Technical requirements section
• Management requirements section
• Supplier qualifications and references section
• Suppliers’ section
• Pricing section
• Contract and license agreement section
• Appendices
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3. Request Seller Responses
• The process of obtaining responses to procurement documents produced during Plan Contracting
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Request Seller Responses – Inputs
• Procurement documents– RFP
• Organizational process assets– List of qualified sellers
• Procurement management plan
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Request Seller Responses – Outputs
• List of qualified vendors requested to submit a RFP
• Formal procurement documents
• Proposals
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4. Select Sellers
• Contract with a vendor to supply the desired product or service
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Select Sellers – Inputs
• Organizational process assets
• Procurement management plan
• Evaluation criteria
• Procurement document package
• Qualified seller list
• Project management plan
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Select Sellers – Tools & Techniques
• Weighing system
• Independent estimates
• Screening system
• Contract negotiations
• Seller rating systems
• Expert judgment
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Weighing System
Method to quantitatively compare vendor proposals
Company Alpha Company Beta Company Gamma
Weight Rating Score Rating Score Rating Score
Price 40 3 120 3 120 2 80
Vendor technical ability 10 4 40 4 40 4 40
Solution functionality 15 4 60 3 45 2 30
Vendor experience 10 3 30 3 30 4 40
Vendor financial resources 15 4 60 3 45 4 60
PMI certified project manager 10 5 50 1 10 1 10
TOTAL 100 360 290 260
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• Independent Estimates– Organization determines what they believe the estimate
should cost
• Screening System– Proposals are rejected if performance criteria do not meet a
minimum value/level
• Contract Negotiation– Discussions between the buyer and vendor in order to reach
agreement on contract structure and requirements prior to signing
Weighing System (cont.)
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• Seller Rating System– Historical data on vendor delivery and past performance;
quality ratings; and contractual compliance
• Expert Judgment– Those either inside or outside the organization with
expertise in the specific domain of the proposed contract
Weighing System (cont.)
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5. Contract Administration
• Procedures that enable the organization to compare what was contracted for and what has been delivered
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Contract Administration – Inputs
• Selected sellers
• Contract management plan
• Performance reports
• Work performance information
• Approved change requests– Contract terms
– Descriptions of work
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Contract Administration – Tools & Techniques
• Contract change control
• Buyer-conducted performance reviews
• Inspections and audits
• Performance reporting
• Payment system
• Claims administration
• Records management systems
• Information technology
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• Contract change control– Agreed upon process through which the contract can be
modified
• Buyer-conducted performance reviews– Structured reviews of the vendor’s progress in fulfilling
contract terms
• Inspections and audits– Procedures to determine any shortcomings in vendor’s
work processes or deliverables
• Performance reporting– Progress reports on vendor/supplier contractual obligations
Contract Administration – Tools & Techniques (cont.)
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• Payment system– Procedures to pay the vendor for work performed
• Claims administration– Process for handling disputes between buyer and vendor on
work performed and resulting value
• Records management systems– Automated record-keeping system to manage contract
documentation and results
• Information technology– Supports contract administrations operations
Contract Administration – Tools & Techniques (cont.)
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Contract Administration – Outputs
• Contract documentation
• Organizational process asset updates
• Recommended correction actions
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6. Contract Closure
• Verification that all products and services contracted for are acceptable
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Contract Closure – Inputs
• Procurement management plan
• Contract management plan
• Contract documentation of work performed
• Contract closure procedure
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Contract Closure – Tools & Techniques
• Procurement audit– A structured review of the procurement process from the
Plan Purchases and Acquisition process through the Contract Administration process; including the records management system
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Contract Closure – Outputs
• Closed contract– Notification to vendor the contract has been completed
• Updates to organizational process assets– Contract file
– Deliverable acceptance
– Lessons learned documentation
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Questions?