Partnership Through Procurement

David Lipien, PMP, MCP

Today’s objectives

1. Understand the importance Procurement Management plays in the success of companies in general and specifically in IT delivery.

2. Better appreciate the actors in the process to better empathize with said actors and maximize value for all stakeholders.

3. Identify tools and resources available to better utilize the Procurement Management Processes.

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Procurement Management; people, hardware, software and services required outside the organization.

Definition from both PMBOK (Project Management Body of Knowledge) :

1. PMBOK definition: Project Procurement Management includes the processes to purchase or acquire the products, service or results needed from outside the project team to perform the work. It includes the contract management and changes control processes required to administer contracts or purchase orders issued by authorized project team members. This also encompasses administering any contract issued by an outside organization (the buyer) that is acquiring the from the performing organization (the seller) and administrating contractual obligations placed on the project team by the contracts.

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Sourced: 1. A Guide to the Project Management Body of Knowledge (PMBOK® Guide) Third Edition, page 269

Procurement Management is one of the most critical areas that does not receive the attention it deserves.

Shareholder value eroded, customer satisfaction comprised, service costs impacted and the service behind the storefront is now front and center – among other real issues.

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Sourced: Amex and Costco, United Airlines, IBM and Bridgestone, Uber and Lyft, & Netflix and Amazon.

When done with a strategic focus, value is created, costs are contained and risks are mitigated.

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Sourced: Cisco.com, IBM.com, Bain.com (LG Electronics) & Microsoft (Brad Smith Post)

In the globally integrated, highly complex, litigious society knowing the basics and terms is critical.

It takes a village, so do not go it alone, pull in experts – lawyers, technical experts, strategic partners, quality analysts, etc. as needed.

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Master Agreements

Transactional Agreements

Enterprise Services Work Order

Contract(s) reached between parties, in which the parties agree to most of the terms that will

govern future transactions or future agreements.

Business Agreements

Master Service Agreements

Amendments

Descriptions of Services

Statement of Work

Exhibit

Example items - Definitions, Ownership and license of service deliverables,

Restrictions on Use, Payment Terms, Confidentiality, Warranties, Defense

of Infringement and Misappropriation Claim, Limitation of Liability, Term

and Termination, Notice to Us, Insurance, Data Privacy, etc.

Note: Illustrative and not intended to be legally accurate, always consultant your legal counsel.

Nearly 70% of organizations spend at least 10% of their IT budget on outsourcing and contractors1.

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Sourced: 1. CEB, CIO Executive Board IT Budget and Spending Database, 2012 and CEB, “3 Ways to Make IT Contracts Better”

At the core of Procurement Management there are two actors: buyer/consumer and seller/producer.

1. The seller may be an outside vendor or another group in the organization (the same or similar rigor to engage is prudent).

2. SOW – statement of work, typically used for vendors.

3. Having a document of understanding (DOU) between groups or divisions at the same company). MOU (memo of understanding) also used.

4. There are four basic requirements for a contract1: (1.) there must be an agreementbetween the parties formed by an offer and acceptance; the parties’ promise must be supported by something of value, known as consideration; both parties must have the capacity to enter into a contract (i.e., not be mentally incompetent or a minor); and (4.) the contract must have a legal purpose.

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Sourced: 1. Bagley, C.E. and Dauchy, C.E. (2003) The Entrepreneur’s Guide to Business Law. Toronto, Canada: Thomson Press

Defined issues, expected outcomes and engagement models help make the procurement process successful.

1. What are the real goals for both parties to maximize value and mitigate risk?

2. Getting to Yes1:

a. Separate the People from the Problem.

b. Focus on Interests, Not Positions.

c. Invent Options for Mutual Gain.

d. Insist on Using Objective Criteria.

3. BATNA - best alternative to a negotiated agreement.

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Sourced: 1. Fisher, R.. and Ury, W. (1991) Getting to Yes Negotiating Without Giving In. New York, New York: Penguin Press | HBR Making the Consensus Sale

Thinking through the shared goals and individual outcomes is critical, “walk in my shoes approach.”

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FINISHED FILES ARE THE

RESULT OF YEARS OF

SCIENTIFIC STUDY COMBINED

WITH THE

EXPERIENCE OF MANY YEARS.

Count the number of times the letter F appears.

Perspective, inclusion, diverse thought and a willingness to learn enable mutual benefit.

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“No man has the right to dictate what other men should perceive, create or produce, but all should be encouraged to

reveal themselves, their perceptions and emotions, and to build confidence in the creative spirit.”

- Ansel Adams (American Photographer and Environmentalist)

FINISHED FILES ARE THE

RESULT OF YEARS OF

SCIENTIFIC STUDY COMBINED

WITH THE

EXPERIENCE OF MANY YEARS.

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Sourcing models can span full insourcing, selective outsourcing and full outsourcing.

1. Rare to see one model exclusively.

2. Corporate cultural, strategy, risk tolerance, quality and cost all factor into the decision process.

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Full Insourcing Full OutsourcingSelective Outsourcing

Project resources are

acquired internally. The

project team is

responsible for all the

project processes delivery

of the project.

Specific project resources

are acquired internally and

the project team is

responsible for many of

the project processes.

The remaining resources

and project processes are

outsourced externally.

Project resources and

processes are the

responsibility of external

resources.

Source: Marchewka, J. (2015). Information Technology Project Management: Providing Measureable Organizational Value: Wiley. Chapter 4 – figure 4.4

Sourcing models also look at vendor involvement, geography and the number of providers.

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Delivery Models looks at more of the specifics of a sourcing model and there is a lot to think about!

Staff augmentation, services to assist or are there Deliverables that need to be formally accepted? Is the work happening on-site, via remote delivery or both? Are there required background checks, drug tests, do the resources get e-mail addresses, laptops, badges, etc.? Worker status (H1, etc.) what are the obligations?

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Sourced: FedEx (via Forbes), Microsoft (via New York Times) and IRS

The RFP allows the buyer and seller to work off the same sets of rules and understanding.

Request for Proposal (RFP) – used to solicit bids, quotes or proposals from prospective buyers.

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Seller ’s Process View

Pricing Models and delivery models are often intertwined, but should be treated separately.

1. Fixed Price or lump-sum: total or fixed price is negotiated or set as the final price for a specific product or service.

2. Cost-reimbursable: actual cost (direct and in-direct), plus a fee.

a. Cost-plus-fee (CPF): 2 hours labor @ $50 plus $100 router = $200 cost plus a 20% fee. The total price would be $240.

b. Cost-plus-fixed-fee (CPFF): the fixed amount does not change unless the scope changes. From the previous example the labor is fixed amount as does not change.

c. Cost-plus-incentive-fee (CPIF): adding an incentive bonus to complete a certain objective prior to an event, getting the router installed prior to the new retail location opens.

3. Time and Materials: a hybrid of cost-reimbursable and fixed-price.

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Sourced: Marchewka, J. (2015). Information Technology Project Management: Providing Measureable Organizational Value: Wiley. Chapter 4 – page 103 & 104

Cradle to grave procurement management needs to be weaved into the project delivery method.

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Sourced: Jose, S., Kelleher, L. and Lipien, D. The Globally Integrated Enterprise and the Insurance Factory Model. IBM Global Business Services. 2009

Client needed to be innovative, reduce costs and execute a multi-channel strategy.

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Sourced: http://archive.acord.org/2010/presentations/harders.pdf

The “as a service” or cloud models are not only new, but they are evolving how delivery gets done.

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Sourced: CEB – CIO Sourcing Handbook Tactics and Templates for Sourcing Strategy and Vendor Management | Here Come the Clouds

“The Cloud is changing the way we

think about IT and IT services.

Arguably, only an ERP engagement

or since the Y2K days have we had

a technology and business event

that touches the IT function the line

of business and the supporting

corporate functions such as legal,

finance, et cetera, like the Cloud”.

- Here Come the Clouds

There are potholes in the sourcing lifecycle that can be avoided.

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Delivering projects and working with people is not easy; reflecting allows to avoid making a mistake twice.

1. PMO (project management offices) and VMO (vendor management offices) can help project success, when engaged correctly.

2. There are no free lunches - some firms may be cheaper in the short term, but you will get what you pay for – it takes longer and costs more money.

3. Pick a trusted global partner with longevity in the chosen locale and in global integration experience, as well as inscrutable business practices. Careful scrutiny and selection are table stakes to successful global integration.

4. Sourcing oversight - providing balanced oversight over your vendor/partner is critical, it is a supply chain similar to that of any manufacturing company. All parties and variables must be proactively and carefully managed.

5. Resource diversification - do not put all your eggs in one basket, it could be the wrong one. Multiple geographies are advised to enable delivery to “follow the sun.” Where possible, leverage a geographic core competency such as housing testing in Ireland, development in India and design in North America.

6. Iterate and have interim milestones – lengthy waterfall and “big bang” are risky.

7. Do not write in hundreds of assumptions, capture appropriate and meaningful assumptions with owners and impacts if the assumption is violated.

8. Define acceptance criteria and the definition of “done”.

9. Choose your battles - establish an escalation process.

10. Keep amazing documentation and decision logs.

11. Do not forget the little things, e.g. will a partner/vendor use your HW, will you issue them an e-mail account will they log time in a vendor system and client system, do non-client resources have to be escorted about the building, is there a Vendor Management Systems to pay invoices?

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Confirm objectives met and closing thoughts…….

1. Understand the importance Procurement Management plays in the success of companies in general and specifically in IT delivery.

⁻ Examples from the real-world of business (Costco) and success (Cisco).

2. Better appreciate the actors in the process to better emphasize with said actors and maximize value for all stakeholders.

⁻ Appreciating different views, looking at the variety of models (sourcing, price, delivery) and processes (RFP, onboarding, etc.)

3. Identify tools and resources available to better utilize the Procurement Management Processes.⁻ Referenced resources (contract law, etc.), cases examples, process flows (RFP, etc.) and Lessons Learned.

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Mark Twain: “The secret of getting ahead is getting started. The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks, and then starting on the first one.”

David Lipien is a Director with Microsoft’s Premier Services, where he works with clients

to increase productivity, mitigate risk, and leverage IT for business success. He manages

a multi-million dollar portfolio of diverse technology delivery contracts that are

managed by Microsoft Application Development Managers for clients across industry

and technology domains. His specialties include internet-based technologies, object-

based project methodologies, release management and global delivery.

David is a PMI Certified Project Management Professional and Microsoft Certified

Professional (MCP), and holds a Bachelor of Science and a Master of Business

Administration. He has also completed an Executive Management Program at the

Harvard Business School. David has published numerous articles in the IT and business

space. Prior to joining Microsoft, David had the pleasure and privilege of working at

AT&T and IBM.

dlipien@hotmail.com@davidlipienwww.linkedin.com/in/lipien/