Managing Project Procurement

Five External Sources

1. Services Firms• Lack of internal expertise

• Package solution not feasible

• Service firm may also build…what will YOU do?

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

Outsourcing to Offshore

• Security issues

• Potential language/legal/cultural barriers

• 24/7 development

• Requires close monitoring

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

1. Plan Purchases and Acquisitions

• Determination of which projects needs can best be met by obtaining services or products from outside organizations

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

Plan Purchases and AcquisitionsTechniques

• Make or buy

• Expert judgment

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

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

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

2. Plan Contracting

• Creation of documents required to support the Request Seller Responses and Select Sellers processes

Plan Contracting – Inputs

• Statement of Work

• Make-or-by decisions

• Procurement management plan

Plan Contracting – Tools & Techniques

• Standard forms/templates

• Expert judgment

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

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

3. Request Seller Responses

• The process of obtaining responses to procurement documents produced during Plan Contracting

Request Seller Responses – Inputs

• Procurement documents– RFP

• Organizational process assets– List of qualified sellers

• Procurement management plan

Request Seller Responses – Outputs

• List of qualified vendors requested to submit a RFP

• Formal procurement documents

• Proposals

4. Select Sellers

• Contract with a vendor to supply the desired product or service

Select Sellers – Inputs

• Organizational process assets

• Procurement management plan

• Evaluation criteria

• Procurement document package

• Qualified seller list

• Project management plan

Select Sellers – Tools & Techniques

• Weighing system

• Independent estimates

• Screening system

• Contract negotiations

• Seller rating systems

• Expert judgment

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

• 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.)

• 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.)

5. Contract Administration

• Procedures that enable the organization to compare what was contracted for and what has been delivered

Contract Administration – Inputs

• Selected sellers

• Contract management plan

• Performance reports

• Work performance information

• Approved change requests– Contract terms

– Descriptions of work

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

• 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.)

• 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.)

Contract Administration – Outputs

• Contract documentation

• Organizational process asset updates

• Recommended correction actions

6. Contract Closure

• Verification that all products and services contracted for are acceptable

Contract Closure – Inputs

• Procurement management plan

• Contract management plan

• Contract documentation of work performed

• Contract closure procedure

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

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

Questions?