PMP Examination Preparatory Course Topic: Project Procurement Management

PMP Examination Preparatory Course
Topic: Project Procurement Management
Version 4.0
Procurement Management
Hot Topics
Make or Buy Analysis Buyer
Contract
Teaming Agreements
Bidder conferences
Proposals
Seller
Procurement management plan
PMBOK Workshop | Financial Services

All work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights
Project procurement Management includes processes required to

acquire products and services from outside the organization.
Project procurement Management processes include the following.

1. Plan Procurements
2. Conduct Procurements
3. Administer Procurements
4. Close Procurements
Project
ProjectProcurement
ProcurementManagement
Managementincludes
includesthe
theprocesses
processestoto
purchase
purchaseororacquire
acquireproducts,
products,services
servicesor
orresults
resultsneeded
neededfrom
fromoutside
outside
project
projectteam
teamto
toperform
performthe
thework.
work.
Initiating Monitoring &

Process Planning Executing Controlling Closing Process
Group Process Group Process Group Process Group Group
 Plan  Conduct  Administer  Close
Procurements Procurements Procurements Procurements

Buyer-seller Relationship
A formal contractual relationship is developed and exists between buyer

and seller
 Buyer - The acquirer of products, goods or services.
 Seller - The provider or supplier of products, goods or services.
A contract represents a mutually binding agreement that obligates seller
to provide products, services or results and obligate buyer to provide
monetary or other valuable consideration.
The buyer-seller relationship can exist at many levels on any one project,
and between organizations internal to and external to acquiring
organization.
An
Anorganization
organizationcan
canbe
beeither
eitherbuyer
buyeror
orseller
sellerof
ofproduct,
product,service
serviceor
or
result
resultunder
underaacontract.
contract.

Plan Procurements
Plan Procurements is a process of documenting project purchasing

decisions, specifying the approach and identifying potential sellers.
Involves considering
 Whether to acquire or not?
 What to acquire?
 When to acquire?
 How to acquire?
 How much to acquire?
Also considers
 Potential Sellers
 Risks involved in make-or-buy decisions.

Plan Procurements
Inputs Tools and Techniques Outputs

 Scope Baseline  Make-or-buy analysis  Procurement
 Requirements Documentation  Expert judgment management plan
 Procurement
 Teaming Agreements  Contract types
statements of work
 Risk Register
 Make-or-buy
 Risk-related contract decisions decisions
 Activity resource requirements  Procurement
 Project Schedule documents
 Activity Cost estimates  Source selection
criteria
 Cost performance baseline
 Change requests
 Enterprise environmental factors
 Organizational process Assets

Inputs - Plan Procurements
 Scope Baseline
• Scope statement
 Product scope, service description, list of deliverables, acceptance criteria.
• WBS
 Relationship among all components of project and project deliverables.
• WBS Dictionary
 Identifies deliverables and description of work within each WBS
 Requirements Documentation
• Information about Project requirements that is considered during procurement
planning.
• Requirements with contractual and legal implications
 Teaming Agreements
• Legal contractual agreements between two or more entities.

Inputs (cont’d) - Plan Procurements
 Risk Register
• Contains Identified Risks, Risk owners and Risk Responses .
 Risk-Related Contract decisions
• Agreements including insurance, bonding, services.
 Activity resource requirements
• Information on specific needs i.e. people, equipment .
 Project Schedule
• Information on required timelines.
 Activity Cost Estimates
• To evaluate the rationale of the bids or proposals .
 Cost Performance Baseline
• Detail on the Planned budget over time.

Inputs (cont’d) - Plan Procurements
 Enterprise environmental factors

• Conditions of market place
• Products, services or results that are available in the market place
• Suppliers, including past performance or reputation.
• Terms and conditions
• Unique local requirement
 Organizational process assets

• Formal procurement Policies, Procedures, Guidelines
• Management systems
• An established multi-tier system of pre-qualified sellers based on prior experience .

Tools & Techniques - Plan Procurements
 Make-or-buy analysis
• Make or buy
• Purchase or rent
• Should consider Life cycle costs for the analysis
• Budget constraints influence make-or-buy decisions
 Expert judgment
• Expert technical judgment
• Expert purchasing judgment
• Expert legal judgment

Tools & Techniques (cont’d) - Plan Procurements
 Contract types
• Different types of contracts are more or less appropriate for different types of
purchases.
• The type of contract used and the specific contract terms and conditions set the
degree of risk being assumed by both buyer and seller.
 Types of contracts
• Fixed price or lump-sum
• Cost-reimbursable
• Time and material (T & M)

Contract types
 Firm Fixed price –Most commonly used contract type. A fixed total price for a well-
defined product and cost not to change unless the scope of work changes.
 Fixed price Incentive Fee contracts – Fixed price plus financial incentives for achieving
performance targets.
 Fixed price with Economic price adjustment contracts – used when the contract
period spans for considerable years. Fixed price with adjustments due to changed
conditions i.e. inflation, increase in labor costs etc.
 Cost Plus Fixed fee contracts – Seller reimbursed for all costs (direct & indirect) for
performing the work plus fixed fee.
 Cost Plus incentive fee contracts - Seller reimbursed for all costs (direct & indirect) for
performing the work plus incentive fee on achieving performance objectives.
 Cost Plus award fee contracts - Seller reimbursed for all costs (direct & indirect) for
performing the work plus fee based on subjective determination of seller performance.
 Time and Material contracts – Hybrid type of contract with aspects of Fixed (i.e. costs
not to exceed and time limits) and Cost reimbursable (value of agreement not defined).

 Firm Fixed Price (FFP) Seller’s risk

 Fixed Price Incentive Fee
(FPIF)
 Fixed price with Economic price
adjustment (FP-EPA)
 Cost Plus Award Fee (CPAF)
 Cost Plus Incentive Fee (CPIF)
 Cost Plus Fixed Fee (CPFF)
Buyer’s risk

Outputs - Plan Procurements
Procurement management plan – Describes how the procurement

processes will be managed. It includes,
 Types of contracts to be used
 Estimate preparation and evaluation
 Standardized procurement document
 Coordinating procurement with scheduling and performance reporting
 Constraints and assumptions
 Identifying performance bonds or insurance contracts to mitigate project risks
 Format to be used for contract statement of work
 Procurement metrics to be used to manage contract and evaluate sellers

Outputs (cont’d) - Plan Procurements
 Procurement statement of work

• Describes the procurement items in sufficient detail for prospective sellers to
determine if they are capable of providing the item
• Describes products, services or results to be supplied by seller
• Includes specifications, quantity desired, quality levels work location etc.
• Should include a description of any collateral services required for the
procured item
 Make-or-Buy decisions
• What project products, services or results will be either acquired or will be
developed by project team
• Make-or-buy decisions document includes a short justification for decision

 Procurement documents - Used to seek proposals from prospective sellers.

• Bids, tender, quotation – when seller selection decision is based on price.
• Proposal – When seller selection is done based on technical skill or approach
 Common names for different types of procurement documents are

• Invitation for bid (IFB)
• Request for proposal (RFP)
• Request for quotation (RFQ)
• Tender notice
• Invitation for negotiation
• Contractor initial response
 Procurement documents should include:

• The relevant statement of work
• Description of the desired form of the response
• Required contractual provisions

 Source selection criteria - Used to rate or score proposals (objective or

subjective)
• Understanding of the need
• Overall or life-cycle cost
• Technical capability
• Risk
• Management approach
• Financial capacity
• Production capacity and interest
• Business size and type
• References
• Intellectual property rights
• Propriety rights
 Change requests

Questions
1. Which type of contract should be used for a well defined product?

a. Unit–price contract
b. Fixed-price contract
c. Cost-reimbursable contract
d. Partnership contract
2. All of the following are processes in project procurement management except

a. Contract termination
b. Conduct Procurements
c. Plan Procurements
d. Administer Procurements

Conduct Procurements
Conduct Procurements is a process of obtaining seller responses,

selecting a seller and awarding a contract.

Conduct Procurements

 Project Management  Bidder conferences  Selected sellers
Plan  Proposal evaluation  Procurement contract
 Procurement techniques award
Documents  Independent  Resource calendars
 Source Selection Estimates  Change requests
Criteria  Expert Judgment  Project Management
 Qualified Seller List  Advertising plan updates
 Seller Proposals
 Internet Search  Project document
 Project Documents  Procurement updates
 Make-or-buy decisions Negotiations
 Teaming agreements
 Organizational process
Assets

Inputs - Conduct Procurements
 Project Management Plan

• Described earlier
 Procurement Documents
 Source Selection Criteria
 Qualified Seller List
• Listing of sellers who have been pre-screened based on their qualifications and past
experience. Procurement documents are directed to only those sellers.
 Make-or-buy decisions
 Seller Proposals
• Seller-prepared documents that describe the seller’s ability and willingness to provide
the requested product, services or results
• It is legal and formal offer in response to a buyers’ request

Inputs (cont’d) - Conduct Procurements
 Project Documents
• Risk Register
• Risk-related contract decisions
 Teaming agreements
 Organizational process Assets
• Listing of prospective and previously qualified sellers
• Information on relevant past experience with sellers, both good and bad.

Tools & Techniques – Conduct Procurements
 Bidder’s conference
• Contractor conference, vendor conference, pre-bid conference
• Meetings with prospective sellers prior to preparation of a proposal
• Ensure all prospective sellers have a clear, common understanding of the
procurement
• Responses to questions may be incorporated into the procurement documents as
amendments
 Proposal evaluation techniques
• Different techniques to rate and score proposals
 Independent Estimates
• Develop Independent Estimate to serve as a benchmark on proposed responses .

Tools & Techniques (cont’d) – Conduct Procurements
 Expert Judgment
• Procurement review by expertise from functional disciplines such as legal, financing .
 Advertising
• Placing advertisements in general-circulation publications, such as newspapers, or in
specialty publications, such as professional journals
 Internet search
• Exploring Internet/Purchasing products on the Internet depending on the Procurement
type.
 Procurement Negotiations
• Involves clarification and mutual agreement on the structure and requirements of the
contract, prior to the signing of the contract.
• Contract negotiations conclude with a Contract document that can be signed by both
buyer and seller.

Outputs - Conduct Procurements
 Selected sellers
• Selected sellers are those sellers who have been judged to be in competitive range
based on outcome of proposal or bid evaluation
• And who have negotiated a draft contract that will become actual contract when an
award is made.
 Procurement contract award
• A mutually binding agreement that obligates the seller to provide the specified product,
and obligates the buyer to pay for it. Major components in a contract document will
include the following: Statement of Work, Schedule baselines, Performance reporting,
Period of performance, Roles and Responsibilities, Pricing, etc.
 Resource calendars
• Quantity and availability of resources
• Dates on which specific resource can active or idle
 Change requests
• Requested changes to project management plan and its subsidiary plans and other
components.

Outputs - Conduct Procurements
 Project Management plan updates

• Updates to Procurement management plan, Scope baseline, Cost baseline, Schedule
baseline.
 Project document updates
• Requirements documentation
• Requirements traceability documentation
• Risk Register

Questions
1. Recent statistics indicate that more than 10,000 airline passengers are
injured each year from baggage that falls from overhead bins. You
recently were assigned to manage a project to make it safer to sit on an
aisle seat on planes. You performed a make or buy analysis and decided
to outsource an improved bin design and manufacture. You found out
that it may be time-consuming to ensure that sellers have clear and
common understanding of the procurement process and of needs of your
project. Which technique may help you saving time?
a. Bidder Conferences
b. Internet Search
c. Advertising
d. Relevant local associations.

Definitions
Term Definition
Request for  Request for a price and a proposed method of meeting requirements
Proposal (RFP)  Often used when both price and technical evaluation determine winners
Request for  Materials or services
Quote (RFQ)  Price-driven
Warranty Implied Warranty. Act of sale implies:
 General fitness for use
 Fitness for special uses
Express Warranty
 Beyond the mere act of the sale
 Seller makes specific representations
Arbitration  Resolution of dispute outside court
 Dispute referred to one or more person by whose decision they abide.

Definitions (cont’d)
Term Definition
Force Majeure In an extraordinary event or circumstance beyond the control of the
parties prevents one or both parties from fulfilling their obligations under
the contract.
Breach / Material Any failure to perform that permits the other party to the contract to either
breach compel performance, or collect damages because of the breach.
Intellectual Intellectual property reflects the idea that this subject matter is the
property product of the mind or the intellect.
Retainage Retainage is a sum withheld from the progress payments to the
Contractor and later paid in accordance with the terms of the construction
contract.
Termination Cancellation of an outsourcing agreement.
Waiver  Voluntary relinquishment or surrender of some known right or privilege
 A waiver can only release negligent activity, not intentional activity
 The waiver must be signed voluntarily and with the full knowledge the
right being waived

Definitions (cont’d)
Term Definition
Purchase order  Form of contract that is unilateral
 Used for simple procurements
Letter of intent  Normally not a contract but an agreement between two parties
 No legal binding
 Expresses Intention

Contractual elements
 What is required to make a contract?

• An offer
• Acceptance
• Consideration
• Legal capacity
• Legal purpose
AAcontract
contractisismutually
mutuallybinding
bindinglegal
legalagreement
agreementthat
thatobligates
obligatesthe
the
buyer
buyerto
topay
paythetheseller
sellerto
toprovide
providethe
thespecified
specifiedproducts,
products,services
servicesor
or
results
resultsand
andobligates
obligatesthe
thebuyer
buyerto
topay
paythe
theseller.
seller.
Administer Procurements
 Process of managing procurement relationships, monitoring contract

performance and making changes and corrections as needed.
 Buyer and seller ensure that both meet their contractual obligations
and have their legal rights protected
 The legal nature of the contractual relationship makes it imperative that
the project team be acutely aware of the legal implications of actions
they take during administration of the contract
 Payment terms should be defined within the contract and should link
progress made with compensation paid
Procurement
ProcurementAdministration
Administrationprocess
processensures
ensuresthat
thatseller’s
seller’s
performance
performancemeets
meetscontractual
contractualrequirements
requirementsand
andthat
thatthe
thebuyer
buyer
performs
performsaccording
accordingto
tothe
theterms
termsof
ofthe
thecontract.
contract.

Administer Procurements

 Procurement documents  Contract change control  Procurement
 Project management plan system documentation
 Contract  Procurement  Organizational process

performance reviews assets (updates)
 Performance reports
 Inspections and audits  Change requests
 Approved change
 Performance reporting  Project management plan
requests
 Payment systems (updates)
 Work performance
information  Claims administration
 Records management
system

Inputs – Administer Procurements
 Procurement documents – discussed earlier

 Project Management Plan – discussed earlier
 Contract – discussed earlier
 Performance reports
• Seller developed technical documentation and other deliverables information
provided in accordance with the contract terms
• Seller Performance reports
 Approved Change requests
• Modifications to the terms of the contract
 Work performance information
• Extent to which quality standards are met, what costs are incurred, sellers’
invoices etc.
• Which deliverables have been completed and which have been not

Tools & Techniques - Administer Procurements
 Contract change control system

• Defines the process by which the contract may be modified. It includes: paperwork,
tracking systems, dispute-resolution procedures, approval procedures, performance
reporting, payment system
 Procurement performance reviews
• Provides management with information about how effectively the seller is achieving the
contractual objectives
 Inspection and audits
• Required by buyer and supported by seller
 Performance reporting
• It provides management with information about how effectively seller is achieving
contractual objectives.

Tools & Techniques (cont’d) - Administer Procurements
 Payment systems
• Handled by the accounts payable system of the performing organization
• It includes the appropriate reviews and approvals by the project management team
 Claims administration
• Contested changes where buyer and seller can’t agree on compensation for the
change.
• Also called claims, disputes and appeals
• Documented, Processed, Monitored and Managed throughout the contract life cycle.
 Records Management system

• Manage contract documents and records by maintaining an index of all documents

Outputs - Administer Procurements
 Procurement documentation
• Contains schedules, requested unapproved contract changes, approved change
requests, seller developed technical documentation and work performance information
 Organizational process assets (updates)

• Correspondence, payment schedule and requests, seller performance evaluation
documentation
 Change requests
• Change requests to Project management plan, its subsidiary plan and other
components i.e. Cost baseline, Performance baseline.
 Project management plan (updates)

• Updates to procurement management plan and Baseline schedule.

Close Procurements
 Completion and settlement of each procurement, including resolution of

any open items
 Involves product verification and administrative closeout
 Early closure of contract is a special case of procurement closure
 May result from mutual agreement of the parties or from default of one
of the parties.
Procurements
Procurementsclosure
closureprocess
processinvolves
involvesverification
verificationthat
thatall
allwork
workand
and
deliverables
deliverableswere
wereaccepted.
accepted.

Close Procurements

 Project management  Procurement audits  Closed Procurements
plan  Negotiated  Organizational process
 Procurement settlements assets updates
documentation  Records management
system

Input - Close Procurements
 Project management plan

 Procurement documentation

Tools & Techniques - Close Procurements
 Procurement audits
• Structured reviews of the procurement process, from plan procurements through
Administer procurements
• Conducted to identify successes and failures in preparation or administration of other
procurement contracts
 Negotiated settlements
• Settlement of Claims, outstanding issues.
• When settlement cannot be achieved through direct negotiation, alternative dispute
resolution may be explored.
 Records Mangement system


Outputs - Close Procurements
 Closed procurements
• Buyer provides the seller with formal notice that contract has been
completed.
 Organizational process assets
• Updates
 Procurement file
 Deliverable acceptance
 Lessons learnt documentation

Recap
Make or Buy Analysis Buyer
Contract
Teaming Agreements
Bidder conferences
Proposals
Seller
Procurement management plan

Review Questions Time
 Review Questions

Thank You
www.capgemini.com/financialservices

PMP Examination Preparatory Course Topic: Project Procurement Management

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PMP Examination Preparatory Course Topic: Project Procurement Management

Uploaded by

Copyright:

Available Formats

PMP Examination Preparatory Course

Topic: Project Procurement Management

Make or Buy Analysis Buyer

PMBOK Workshop | Financial Services

Project procurement Management includes processes required to

Project procurement Management processes include the following.

Initiating Monitoring &

PMBOK Workshop | Financial Services

A formal contractual relationship is developed and exists between buyer

PMBOK Workshop | Financial Services

Plan Procurements is a process of documenting project purchasing

PMBOK Workshop | Financial Services

Inputs Tools and Techniques Outputs

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

 Enterprise environmental factors

 Organizational process assets

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

 Firm Fixed Price (FFP) Seller’s risk

PMBOK Workshop | Financial Services

Procurement management plan – Describes how the procurement

PMBOK Workshop | Financial Services

 Procurement statement of work

PMBOK Workshop | Financial Services

 Procurement documents - Used to seek proposals from prospective sellers.

 Common names for different types of procurement documents are

 Procurement documents should include:

PMBOK Workshop | Financial Services

 Source selection criteria - Used to rate or score proposals (objective or

PMBOK Workshop | Financial Services

1. Which type of contract should be used for a well defined product?

2. All of the following are processes in project procurement management except

PMBOK Workshop | Financial Services

Conduct Procurements is a process of obtaining seller responses,

PMBOK Workshop | Financial Services

Inputs Tools and Techniques Outputs

PMBOK Workshop | Financial Services

 Project Management Plan

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

 Project Management plan updates

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

PMBOK Workshop | Financial Services

 What is required to make a contract?

 Process of managing procurement relationships, monitoring contract

PMBOK Workshop | Financial Services

Inputs Tools and Techniques Outputs

 Contract  Procurement  Organizational process

PMBOK Workshop | Financial Services

 Procurement documents – discussed earlier

PMBOK Workshop | Financial Services

 Contract change control system

PMBOK Workshop | Financial Services