Project Management

ME-420
Lecture 11
Muhammad Fahad Athar
 Introduction to Project Management

Agenda

• Project Procurement Management

• Project Stakeholder Management

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Project Procurement
Management
 Introduction to Project Management

Project Procurement Management

 Project Procurement Management includes the processes necessary to

purchase or acquire products, services, or results needed from outside the
project team.

 Project Procurement Management includes the management and control

processes required to develop and administer agreements such as contracts,
purchase orders, memoranda of agreements (MOAs), or internal service level
agreements (SLAs).

 The personnel authorized to procure the goods and/or services required for
the project may be members of the project team, management, or part of the
organization’s purchasing department if applicable.

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 Introduction to Project Management

Project Procurement Management

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1. Plan Procurement
Management
 Introduction to Project Management

Plan Procurement Management

 Plan Procurement Management is the process of documenting project

procurement decisions, specifying the approach and identifying potential
sellers.

 The key benefit of this process is that it determines whether to acquire goods
and services from outside the project and, if so, what to acquire as well as how
and when to acquire it.

 Goods and services may be procured from other parts of the performing
organization or from external sources.

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 Introduction to Project Management

Buyer Vs Seller

 In a contract where money is involved, there is a buyer and a seller.

 Who am I if:
- I am constructing a house for myself.
- I am constructing a house for someone else.
- I outsource any deliverable / service / product.

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 Introduction to Project Management

Contract Types

 Fixed Price (FP)

- Buyer pays a fixed amount to seller.
- Used for acquiring goods, products, or services with well defined specifications or
requirements.

 Time and Material (T&M)

- Buyer pays on a per hour or per item basis.
- Typically used for service efforts in which the level of effort cannot be defined when
the contract is awarded.

 Cost-Reimbursable (CR)
- Buyer pays on a per item basis.
- Typically used when the exact scope of work is uncertain and therefore, costs cannot
be estimated accurately enough when the contract is awarded.

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 Introduction to Project Management

Fixed Price Contracts

 Firm Fixed Price (FFP)

- Used when scope of work is well defined.
- Involves ‘Low’ risk for the buyer.
- Contract = USD 1,000,000.

 Fixed Price Incentive Fee (FPIF)

- Profits / Financial incentives can be adjusted based on the seller meeting specified
performance criteria such as getting the work done faster, cheaper or better.
- Contract = USD 1,000,000.
 Plus USD 100,000 for each month the project is finished earlier.

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 Introduction to Project Management

Fixed Price Contracts

 Fixed Price Award Fee (FPAF)

- Fixed price, plus an award based on performance.
- Similar to FPIF, except the total amount is determined in advance, and apportioned
based on performance.
- Award does not always have to be monetary.
- Contract = USD 1,000,000.
 Plus USD 5,000 awarded to seller, if work completed exceeds by 15% than the monthly
target, with a maximum award of USD 50,000.

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 Introduction to Project Management

Fixed Price Contracts

 Fixed Price Economic Price Adjustment (FPEPA)

- Typically used for multi-year contract periods.
- Covers uncertainties about future economic conditions.
- Contract = USD 1,000,000.
 Price increase allowed in year two equivalent to first year’s inflation rate published by State
Bank, or,
 Price increase allowed in year two to account for increased fuel and steel prices.

 Purchase Order (PO)

- Typically, unilateral i-e signed by a single party i-e Buyer.
- Accepted by performance by Seller.
- Used for simple commodity procurements.
- Contract = 50 linear meters of fiber optic cable at USD 10 per meter.

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Fixed Price Contracts

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 Introduction to Project Management

Time and Material Contracts

 Buyer pays on a per hour or per item basis.

 Used for service efforts in which level of effort cannot be defined at the time of
awarding the contract.

 Seller has no incentive of doing the work quickly or efficiently.

 Contract = USD 100 per hour.

- Plus expenses (e.g. travel) or materials, as per actual, or
- Plus materials at USD 10 per linear meter of fiber optic cable.

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 Introduction to Project Management

Time and Material (T&M) Contracts

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 Introduction to Project Management

Cost Reimbursable Contracts

 Cost Contract (CC)

- No profit included, and only costs reimbursed.
- Contract = Cost for work and materials. No profit.

 Cost Plus Fee (CPF) or Cost Plus Percentage of Costs (CPPC)

- Buyer pays all costs plus a percentage of costs as a fee (Seller Profit).
- No incentive for sellers to control costs.
- Contract = Cost, plus 10 percent of costs as fee.

 Cost Plus Fixed Fee (CPFF)

- Buyer pays all costs, plus a fixed fee (Seller Profit).
- Seller fee does not increase with actual costs.
- Seller does not have an incentive to increase costs.
- Contract = Cost, plus a fee of USD 100,000.
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Cost Reimbursable Contracts

 Cost Plus Incentive Fee (CPIF)

- Buyer pays for actual costs, plus a fee.
- The fee will be adjusted based on whether the specific performance objectives stated
in the contract are met.
- Total costs are estimated, i-e ‘Target Cost’.
- Fee for work is determined, i-e ‘Target Fee’.
- Seller gets a percentage of savings, if actual costs are less than target costs, and
shares the cost overrun.
- Contract = USD 1,000,000 (Target Cost)
 Plus USD 50,000 target fee.
 Plus cost savings / over runs shared at 80 (Buyer) : 20 (Seller) ratio.

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 Introduction to Project Management

Cost Reimbursable Contracts

 Cost Plus Award Fee (CPAF)

- Buyer pays for all costs, plus a base fee.
- Plus an award (bonus) based on performance.
- Similar to CPIF, except incentive is an award, and there is no penalty.
- Award amount is determined in advance and apportioned depending on
performance.
- Contract = Cost plus Base Fee plus award for meeting the specific performance
criteria. Maximum award available is USD 50,000.

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Cost Reimbursable Contracts

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 Introduction to Project Management

Contract Types and their Risks

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 Introduction to Project Management

Important Terms to Know

 Price
- This is the amount the seller charges the buyer.
 Profit (fee)
- In a fixed-price or time and materials contract, a seller builds a profit margin into the
amount they charge the buyer. In cost-plus contracts, the "plus" represents the profit,
and that amount is typically negotiated by the buyer and seller.
 Cost
- This is how much an item costs the seller to create, develop, or purchase. A buyer's
costs include a seller's costs and profits.
 Target price
- This term is often used to compare the end result (final price) with what was expected
(the target price). Target price is a measure of success. Target cost plus target fee
equals target price. (Remember, we are thinking about procurements from the
buyer's point of view).

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Important Terms to Know

 Sharing ratio
- Incentives are usually expressed as a ratio, such as 90 / 10. This sharing ratio
describes how the cost savings or cost overrun will be shared; the first number
represents the buyer portion of the ratio and the second number represents the seller
portion (buyer / seller).

 Ceiling price
- This is the highest price the buyer will pay; setting a ceiling price is a way for the
buyer to encourage the seller to control costs. The ceiling price is a condition of the
contract that must be agreed to by both parties before signing.

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Important Terms to Know

 Point of total assumption (PTA)

- This only relates to fixed price incentive fee contracts, and it refers to the amount
above which the seller bears all the loss of a cost overrun. Costs over the PTA are
assumed to be due to mismanagement: a design statement of work should have
been created to allow for fair and reasonable contract negotiations for the required
work, suggesting the seller either did not estimate correctly or did not manage the
work well. Sellers will sometimes monitor their actual costs against the PTA to make
sure they are receiving a profit for completing the project.

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 Introduction to Project Management

Exercise

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 Introduction to Project Management

Exercise

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 Introduction to Project Management

Exercise

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 Introduction to Project Management

Exercise

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 Introduction to Project Management

Bid Documents

 Bid documents are used to solicit proposals from prospective sellers.

Depending on the goods or services needed, the bidding documents can
include a request for information, request for quotation, request for proposal,
or other appropriate procurement documents. The conditions involving their
use are presented below:

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 2. Conduct
Procurements
 Introduction to Project Management

Conduct Procurements

 Conduct Procurements is the process of obtaining seller responses, selecting

a seller, and awarding a contract.

 The key benefit of this process is that it selects a qualified seller and
implements the legal agreement for delivery.

 The end results of the process are the established agreements including
formal contracts.

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 3. Control
Procurements
 Introduction to Project Management

Control Procurements

 Control Procurements is the process of managing procurement relationships;

monitoring contract performance, and making changes and corrections as
appropriate; and closing out contracts.

 The key benefit of this process is that it ensures that both the seller’s and
buyer’s performance meet the project’s requirements according to the terms of
the legal agreement.

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Control Procurements

 In this process, Project Manager is:

- Tying up all loose ends.
- Verifying all work is completed and accepted.
- Finalizing all open claims.
- Paying withheld retained payments to suppliers.
- Performs a procurement audit and closes the procurement.
- Typically involves formal record keeping to safeguard interests of both parties.
- All procurement must be closed out before project closure.

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 Introduction to Project Management

Conflict Resolution

 Negotiation

 Mediation

 Arbitration

 Litigation

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Project Stakeholder
Management
 Introduction to Project Management

Project Stakeholder Management

 Project Stakeholder Management includes the processes required to identify

the people, groups, or organizations that could impact or be impacted by the
project, to analyze stakeholder expectations and their impact on the project,
and to develop appropriate management strategies for effectively engaging
stakeholders in project decisions and execution.

 The processes support the work of the project team to analyze stakeholder
expectations, assess the degree to which they impact or are impacted by the
project, and develop strategies to effectively engage stakeholders in support of
project decisions and the planning and execution of the work of the project.

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Project Stakeholder Management

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Project Stakeholder Management

 The Project Manager should:

- Identify all Stakeholders.
- Determine their requirements.
- Determine their expectations.
- Determine their interest.
- Determine their level of influence.
- Determine their level of authority.
- Plan to engage stakeholders.
- Plan how to communicate with them.
- Manage their expectations, influence and engagement.
- Communicate with them.
- Monitor communications and stakeholder engagement.

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1. Identify Stakeholders
 Introduction to Project Management

Identify Stakeholders

 Identify Stakeholders is the process of identifying project stakeholders

regularly and analyzing and documenting relevant information regarding their
interests, involvement, interdependencies, influence, and potential impact on
project success.

 The key benefit of this process is that it enables the project team to identify the
appropriate focus for engagement of each stakeholder or group of
stakeholders.

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Stakeholder Mapping

 Power / Interest Grid

- This grid is used to group stakeholders based on their level of power and their
interest in the project's outcome. Variations of this tool emphasize other stakeholder
attributes, such as power / influence or impact / influence.

 Stakeholder cube
- This three-dimensional model is used to represent aspects or dimensions of a
stakeholder group.

 Salience model
- This model is used to group stakeholders based on need for attention, authority level,
or level of involvement.

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Stakeholder Register

 Information about stakeholders is compiled in the stakeholder register, a key

output of the Identify Stakeholders process.

 The stakeholder register may include each stakeholder's name, title,

supervisor, project role, contact information, major requirements and
expectations, assessment information, impact and influence, attitude about the
project, stakeholder classification, and other relevant information.

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2. Plan Stakeholder
Engagement
 Introduction to Project Management

Plan Stakeholder Engagement

 Plan Stakeholder Engagement is the process of developing approaches to

involve project stakeholders based on their needs, expectations, interests, and
potential impact on the project.

 The key benefit is that it provides an actionable plan to interact effectively with
stakeholders.

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Stakeholder Engagement Strategy

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3. Manage Stakeholder
Engagement
 Introduction to Project Management

Manage Stakeholder Engagement

 Manage Stakeholder Engagement is the process of communicating and

working with stakeholders to meet their needs and expectations, address
issues, and foster appropriate stakeholder involvement.

 The key benefit of this process is that it allows the project manager to increase
support and minimize resistance from stakeholders.

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Manage Stakeholder Engagement

 Manage Stakeholder Engagement involves activities such as:

- Engaging stakeholders at appropriate project stages to obtain, confirm, or maintain

their continued commitment to the success of the project.

- Managing stakeholder expectations through negotiation and communication.

- Addressing any risks or potential concerns related to stakeholder management and

anticipating future issues that may be raised by stakeholders.

- Clarifying and resolving issues that have been identified.

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4. Monitor Stakeholder
Engagement
 Introduction to Project Management

Monitor Stakeholder Engagement

 Monitor Stakeholder Engagement is the process of monitoring project

stakeholder relationships and tailoring strategies for engaging stakeholders
through modification of engagement strategies and plans.

 The key benefit of this process is that it maintains or increases the efficiency
and effectiveness of stakeholder engagement activities as the project evolves
and its environment changes.

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Thank You!

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