Project

Procurement
Management

Kishor Ohol
07030141038
Himanshu Sharma
07030141040
Bhawna
07030141042
Deepti Tomar
 Project Procurement
Management
• Procurement means acquiring goods and/or
services from an outside source
• include purchasing and outsourcing
• Why Outsource?
– To reduce both fixed and recurrent costs
– To allow the client organization to focus on its
core business
– To access skills and technologies
– To provide flexibility
– To increase accountability
 Processes of Project
Procurement Management
• Procurement planning
– determining what to procure and when
• Solicitation planning
– documenting product requirements and identifying
potential sources
• Solicitation
– obtaining quotations, bids, offers, or proposals as
appropriate
• Source selection
– choosing from among potential vendors
• Contract administration
– managing the relationship with the vendor
• Contract close-out
– completion and settlement of the contract
Project Procurement Management
Processes and Key Outputs
 Procurement planning
• identifying which project needs can be best
met by using products or services outside the
organization. It includes deciding
– whether to procure
– how to procure
– what to procure
– how much to procure
– when to procure
• determines how project needs can best be
met by sourcing products or service outside
the organization.
 Inputs to Procurement
planning
• Scope statement – describes current project needs and
strategies
• Product description – defines the end product of the
project and provides important information about any
technical issues or concerns.
• Procurement resources – resources and expertise needed
to support project procurement activities
• Market consideration – affect available products and
services that have an impact on decision-making
• Other planning inputs – includes miscellaneous items such
as cost and schedule estimates, quality management plans,
cash-flow projections, WBS, identified risks, planned staffing
needs.
• Constrains – factors that limit the buyer’s options, such as
availability of funds.
• Assumptions –factors that, for planning purposes, will be
considered to be true, real, or certain
 Tools and techniques
• Make-or-buy analysis – determines whether it’s more
cost effective for the performing organization to
produce the product or purchase it from an outside
vendor.
• Expert judgment – can be sought from groups or
individuals with specialized knowledge or training.
These include technical consultant company, HR
consultant company
• Contract type selection – an important factor to
influence and control the seller’s performance.
 Outputs from Procurement
planning
• Procurement management plan – part of
project plan. It describes how the remaining
procurement processes (solicitation planning,
contract closeout) will be managed.
• Statements of Work (SOW) – describes the
procurement items in sufficient detail for
prospective sellers to determine if they are
capable of providing the items
 Solicitation Planning
• This process involves documenting
the product requirements and
identifying potential sources in
preparation to support solicitation.
 Inputs to Solicitation
Planning
• Procurement management plan
– describe how to manage the procurement process (from
output of procurement planning process)
• SOW - describes the procurement items in
sufficient detail for prospective sellers to
determine if they are capable of providing the
items.
• Other planning inputs
– includes preliminary cost and schedule estimates,
quality management plans, cash-flow projections, the
WBS identified risks, and planned staffing.
 Tools and techniques
• Standard forms – include
standardized contracts, description of
procurement items, and bid documents.
• Expert judgment - can be sought
from groups or individuals with
specialized knowledge or training.
These include technical consultant
company, HR consultant company
Outputs from Solicitation
Planning
• Procurement documents
– solicit proposals from potential buyers.
– Documents include Request For Proposal (RFP),
Request For Quotation (RFQ), Invitation to bidding,
invitation for negotiation, contractor initial response.
– Others: project SOW, description of the desired format
of the response, required contractual provisions,
evaluation criteria to rate or score proposals (objective
or subjective), overall or life-cycle cost, technical
capabilities, management approach, financial capacity.
• SOW updates – modifications to existing SOWs.
 Solicitation
• It involves obtaining information in the form of
bids and proposals from prospective sellers.
• The seller trying to win business bears most of
the effort of gathering the information.
• Organizations can advertise to procure goods
and services in several ways
– approaching the preferred vendor
– approaching several potential vendors
– advertising to anyone interested
• A bidders’ conference can help clarify the
buyer’s expectations
 Inputs to Solicitation
• Procurement documents – solicit proposals
from potentials buyers. Documents include
Request for proposal (RFP), Request for
quotation (RFQ), Invitation to bidding, invitation
for negotiation, contractor initial response.
• Qualified seller lists – The preferred vendors
for a product or service. The performing
organization usually has a list of preferred
suppliers.
 Tools and technique
• Bidder conferences – provide mutual
understandings in meetings. Bidder
conferences give a chance to exchange key
information with the project manager and his
team.
• Advertising – request for services, supplies,
materials, and equipments completed primarily
on government projects to ensure equal access
to bidding opportunities.
Outputs from Solicitation
• Proposals
– entail the seller preparing documents that
describe its willingness and ability to provide
the service or product.
– It becomes an important part of the project
records. In some cases, they become the
SOW.
– In many events, the proposals are used to
develop the formal contracts.
 Source Selection
• Source selection involves
– evaluating bidders’ proposals
– choosing the best one
– negotiating the contract
– awarding the contract
• Buyers often create a “short list”
• It is helpful to prepare formal evaluation
procedures for selecting vendors
• During Source Selection, project manager use the
proposals and evaluation criteria (developed in
Solicitation Planning) and exercise his judgment in
analyzing the answers from the sellers in order to
select the best (or most suitable) bid.
 Inputs to Source
Selection
• Proposals – seller-prepared document that
describe the seller’s ability and willingness to
provide the requested product and service. (it
is output from Solicitation Planning)
• Evaluation criteria – establish ratings or
scores for proposals. The criteria can be
objective or subjective.
• Organizational policies – it may affect the
project manager’s decision. These policies can
come from any of the organization involved in
the project
 Tools and technique
• Contract negotiations – clarification and mutual agreement on
structure and requirements of a contract prior to signing. The
subjects covered usually include: a) responsibilities and
authorities; b) applicable terms and law; c) financing and price;
technical and business management.
• Weighting system – to quantify data in 3 steps to minimize
personal prejudices of source selection. First, they assign
numerical weight to evaluation criteria. Second, they rate the
seller. Finally, they multiply weights by rating and totaling overall
score.
• Screening system – establish minimum performance criteria.
• Independent estimates – prepared by the project procuring
section to determine any significant differences. The differences
could mean the seller didn’t understand the SOW or omitted
something in the SOW.
 Outputs from Source
selection
• Contract – a mutually binding agreement
that obligates a seller to provide goods or
services and the buyer to make payment.
• It establishes a legal relationship that is
subject to remedy in court.
– Most organizations have policies and procedures
concerning who can sign a contract, refereed as
delegation of procurement authority.
– Many organizations also require legal review and
approval of contracts.
 Types of Contracts
• Fixed price or lump sum: involve a fixed
total price for a well-defined product or service
• Cost reimbursable: involve payment to the
seller for direct and indirect costs
• Time and material contracts: hybrid of both
fixed price and cost reimbursable, often used
by consultants
• Unit price contracts: require the buyer to
pay the seller a predetermined amount per unit
of service
• Different contracts are appropriate for different
kinds of work.
Figure: Contract Types
Versus Risk
 Contract Administration
• Ensures that the seller’s performance meets
contractual requirements.
• It involves managing vendor relationships,
especially important with change requests
• It entails maintaining formal correspondence with
the seller and expediting requirement for
payment with performing organization.
• Contracts are legal relationships, so it is
important that legal and contracting professionals
be involved in writing and administering contracts
• Many project managers ignore contractual issues,
which can result in serious problems
 Inputs to Contract
Administration
• Contracts - a mutually binding agreement that
obligates a seller to provide goods or services and
the buyer to make payment.
• Work results – seller’s deliverables, quality
standards, and actual costs.
• Change requests – modifications to the contract
or its description of the product or service. If the
seller’s work is unsatisfactory, the project
manager can terminate the contract.
• Seller invoices – submitted periodically and
requesting payment for work performed. The
contract defines invoice requirements and
supporting document.
 Tools and technique
• Contract change control system – defines how
a contract may be modified. It includes
paperwork, tracking system, dispute resolution
procedures, and the hierarchy of approval levels.
• Performance reporting – tells the project
management team how effective the seller is
achieving the contractual objectives. Performance
reporting is generated by the communications
process. It is part of processes of controlling the
project.
• Payment system – it involves the organization’s
account payable process
 Outputs from Contract
Administration
· Correspondence – retained as a way of documenting
and clarifying the contracts’ terms and conditions.
· Contract changes – changes (formal and informal) are
fed back through the planning and procurement
processes. The project plan or other relevant
documentation is updated when necessary.
· Payment requests – Issues when project manager are
using an external payment system. It is the responsibility
of the project manager to interface with account payable
for timely payments to sellers.
 Contract Close-out
• Closing takes place at the end of the project.
Because projects are temporary.
• Project closeout briefings and lessons-learned
documents provide important feedback.
• Contract close-out includes
– product verification to determine if all work was
completed correctly and satisfactorily
– administrative activities to update records to reflect
final results
– archiving information for future use
• Procurement audits identify lessons learned in
the procurement process
 Inputs to Contract
closure
• Contract documentation – includes
the contract along with all supporting
schedules, requested and approved
contract changes, any seller-
developed technical documentation,
seller performance reports, financial
documents, and the results of any
contract-related inspections.
 Tools and technique
• Procurement audits – structured
reviews of the procurement process,
from procurement planning through
contract admin. The objective of a
procurement audit is to identify
success and failures that warrant
transfer to other procurement items
of this project or to other projects.
 Outputs
from Contract closure
• Formal acceptance & closure –
provides the seller with formal
written notice that the contract has
been completed.
• Contract file – a complete set of
indexed records. Compile them for
inclusion with the final project
records.
 Summary
• Project Procurement Management
– acquiring goods and/or services from an outside source
• Project Procurement Management Processes

• Procurement planning • Source selection

– identifying which project needs can be best
• Solicitation planning
– documenting product requirements and
identifying potential sources
• Solicitation
– obtaining quotations, bids, offers, or
proposals as appropriate
– choosing from among potential vendors
• Contract administration
– managing the relationship with the
vendor
• Contract close-out
– completion and settlement of the
contract
 References
• PMI’s PMBOK 2000
• Textbook : Information Technology Project
Management
• PDF of Project Procurement Management
(By Project Management Partner)
• Article by Joseph Phillips @
www.informIT.com on 26th -AUG-2005
• Project Management Professional Study
Guide by Joseph Phillips
Thank You !!!