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PMP Examination Preparatory Course Topic: Project Procurement Management

Version 4.0

Procurement Management

Hot Topics Make or Buy Analysis Contract


Buyer

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 reserved 1

Procurement Management
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 processesto to purchase purchaseor oracquire acquireproducts, products,services servicesor orresults resultsneeded neededfrom fromoutside outside project projectteam teamto toperform performthe thework. work.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 2

Procurement Management

Initiating Process Group

Planning Process Group Plan Procurements

Executing Process Group Conduct Procurements

Monitoring & Controlling Process Group Administer Procurements

Closing Process Group Close Procurements

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 3

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 undera acontract. contract.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 4

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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 5

Plan Procurements

Inputs Scope Baseline Requirements Documentation Teaming Agreements Risk Register Risk-related contract decisions Activity resource requirements Project Schedule Activity Cost estimates Cost performance baseline Enterprise environmental factors Organizational process Assets

Tools and Techniques Make-or-buy analysis Expert judgment Contract types

Outputs Procurement management plan Procurement statements of work Make-or-buy decisions Procurement documents Source selection criteria Change requests

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 6

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.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 7

Inputs (contd) - 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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 8

Inputs (contd) - 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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 9

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 10

Tools & Techniques (contd) - 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)

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 11

Tools & Techniques (contd) - Plan Procurements


Contract types
Firm Fixed price Most commonly used contract type. A fixed total price for a welldefined 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).

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 12

Tools & Techniques (contd) - Plan Procurements


Firm Fixed Price (FFP) 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)

Sellers risk

Buyers risk

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 13

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 14

Outputs (contd) - 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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 15

Outputs (contd) - Plan Procurements


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
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 16

Outputs (contd) - Plan Procurements


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
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 17

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 18

Conduct Procurements
Conduct Procurements is a process of obtaining seller responses, selecting a seller and awarding a contract.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 19

Conduct Procurements
Inputs Project Management Plan Procurement Documents Source Selection Criteria Qualified Seller List Seller Proposals Project Documents Make-or-buy decisions Teaming agreements Organizational process Assets
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 20

Tools and Techniques Bidder conferences Proposal evaluation techniques Independent Estimates Expert Judgment Advertising Internet Search Procurement Negotiations

Outputs Selected sellers Procurement contract award Resource calendars Change requests Project Management plan updates Project document updates

Inputs - Conduct Procurements


Project Management Plan
Described earlier

Procurement Documents
Described earlier

Source Selection Criteria


Described earlier

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
Described earlier

Seller Proposals
Seller-prepared documents that describe the sellers ability and willingness to provide the requested product, services or results It is legal and formal offer in response to a buyers request
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 21

Inputs (contd) - Conduct Procurements


Project Documents
Risk Register Risk-related contract decisions

Teaming agreements
Described earlier

Organizational process Assets


Listing of prospective and previously qualified sellers Information on relevant past experience with sellers, both good and bad.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 22

Tools & Techniques Conduct Procurements


Bidders 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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 23

Tools & Techniques (contd) 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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 24

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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 25

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 26

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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 27

Definitions

Term
Request for Proposal (RFP) Request for Quote (RFQ) Warranty

Definition
Request for a price and a proposed method of meeting requirements Often used when both price and technical evaluation determine winners Materials or services Price-driven 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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 28

Definitions (contd)

Term
Force Majeure

Definition
In an extraordinary event or circumstance beyond the control of the parties prevents one or both parties from fulfilling their obligations under the contract. Any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach. Intellectual property reflects the idea that this subject matter is the product of the mind or the intellect. Retainage is a sum withheld from the progress payments to the Contractor and later paid in accordance with the terms of the construction contract. Cancellation of an outsourcing agreement. 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
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 29

Breach / Material breach Intellectual property Retainage

Termination Waiver

Definitions (contd)

Term
Purchase order Letter of intent

Definition
Form of contract that is unilateral Used for simple procurements Normally not a contract but an agreement between two parties No legal binding Expresses Intention

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 30

Contractual elements
What is required to make a contract?
An offer Acceptance Consideration Legal capacity Legal purpose

A Acontract contractis ismutually mutuallybinding bindinglegal legalagreement agreementthat thatobligates obligatesthe thebuyer buyer to topay paythe theseller sellerto toprovide providethe thespecified specifiedproducts, products,services servicesor orresults results and andobligates obligatesthe thebuyer buyerto topay paythe theseller. seller.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 31

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 thatsellers sellers performance performancemeets meetscontractual contractualrequirements requirementsand andthat thatthe thebuyer buyer performs performsaccording accordingto tothe theterms termsof ofthe thecontract. contract.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 32

Administer Procurements

Inputs Procurement documents Project management plan Contract Performance reports Approved change requests Work performance information

Tools and Techniques Contract change control system Procurement performance reviews Inspections and audits Performance reporting Payment systems Claims administration Records management system

Outputs Procurement documentation Organizational process assets (updates) Change requests Project management plan (updates)

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 33

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 34

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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 35

Tools & Techniques (contd) - 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 cant 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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 36

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.

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 37

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.
PMBOK Workshop | Financial Services
All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 38

Close Procurements

Inputs Project management plan Procurement documentation

Tools and Techniques Procurement audits Negotiated settlements Records management system

Outputs Closed Procurements Organizational process assets updates

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 39

Input - Close Procurements


Project management plan
Described earlier

Procurement documentation
Described earlier

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 40

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 Described earlier

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 41

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

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 42

Recap

Make or Buy Analysis Contract

Buyer

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 reserved 43

Review Questions Time Review Questions

PMBOK Workshop | Financial Services


All work described was performed by Capgemini or a Capgemini affiliate 2009 Capgemini - All rights reserved 44

Thank You

www.capgemini.com/financialservices

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