1. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-1 Chapter 12 Procurement Management

2. Procurement Management Contents The following topics will be covered in this chapter: Overview of Procurement Management Procurement Management processes Plan Procurement Management Conduct Procurements Control Procurements Close Procurements Contract types PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-2

3. Procurement Management Learning Objectives By the end of this chapter, you will be able to: Explain the importance of proper procurement management on projects Name the Procurement Management processes Describe various terminology, tools, and techniques related to procurements, such as contract types Describe the activities that take place in each process PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-3

4. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-4 Procurement Management Processes required to acquire products, services or results needed from outside the project team Organization can be either the buyer or seller of products, services or results of a project Includes Contract Management and change control processes required to develop and administer contracts Includes administering contract issued by outside organization (Buyer) acquiring the project from the performing organization (Seller) Main outputs of this process: –Procurement Management Plan –Procurement documents –Procurement Contract Award Project Procurement management includes below processes: –Plan Procurements –Conduct Procurements –Administer Procurements –Close Procurements

5. Procurement Management Processes PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-5 ProcessProcess Group Plan Procurement ManagementPlanning Conduct ProcurementsExecuting Control ProcurementsMonitoring and Controlling Close ProcurementsClosing Please animate so that each row is highlighted as it’s being mentioned in the narration

6. Review Quiz Which one of the following is not one of the Procurement Management processes? A.Conduct Procurements B.Manage Procurements C.Plan Procurement Management D.Close Procurements PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-6

7. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-7 12.1 Plan Procurement Management Plan Procurements – Document project purchasing decisions –specifying the approach and identifying potential sellers Identify project needs Consideration of potential sellers Procurement management plans might influence –project schedule –estimate Activity Resources and –make or buy decisions Consideration of the risks involved with each make or buy decision. Mitigating risk –transferring risks to the seller

8. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-8 12.1 Plan Procurement Management Inputs and Outputs Class Group Activity – 15 Minutes – Divide Class into 3 groups (3 to 4 students in each group) – Discuss and brainstorm the inputs/outputs – Present your inputs/outputs to the rest of the teams – Check and compare your inputs/outputs with PMBOK ® Guide 5 th edition

9. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-9 Contract Types Fixed Price Contracts –Firm Fixed Price Contracts (FFP) –Fixed Price Incentive Fee Contracts (FPIF) –Fixed Price with Economic Price Adjustment Contracts (FP- EPA) Cost reimbursable contracts –Cost Plus Fixed Fee Contracts (CPFF) –Cost Plus Percentage of Cost (CPPC) –Cost Plus Incentive Fee Contracts (CPIF) –Cost Plus Award Fee Contracts (CPAF) Time and Material Contracts (T& M)

10. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-10 Contract Types (Cont..) Fixed Price (lump sum, firm fixed price) –One price for all work –Most common type of contract –Buyer has the least cost risk –Seller is most concerned with scope of work with this type of contract Cost Reimbursable –Seller costs are reimbursed –Buyer has the most cost risk as total costs are unknown –Used when buyer are sure of what they need rather than what to do –Types: CPFF: Buyer pays all cost, fee is fixed CPPC: Buyer pays all cost + percent of cost as fee CPIF: Buyer pays all cost + agreed upon fee + bonus for deadlines CPAF: Buyer pays all cost + apportionment of bonus based on performance. This is similar to CPIF

11. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-11 Contract Types (Cont..) Time and Material –Priced per hour or per time basis –Has an element of fixed price contract and a cost reimbursable contract –Buyer has medium amount of cost risk –Contract is usually for small dollar amounts and for short length projects

12. Review Quiz Which one of the following is not a valid contract type? A.Fixed Price B.Cost Reimbursable C.Discounted D.Time and Material PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-12

13. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-13 Procurement Management Plan Procurement management plan - describes how procurement processes will be managed and includes: –Types of contracts –Risk management issues –Independent estimates needed? –Standardized documents –Multiple provider management –Incorporate with other project aspects (schedule and performance reporting) Statement of work – describes procurement in detail, clear concise description of services and includes: –Developed from the scope baseline and defines specific portion of project scope to be included in the contract –Can also be a statement of requirements for problem solving activities

14. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-14 12.2 Conduct Procurements Conduct Procurement is the – Process of obtaining seller responses, selecting a seller and awarding a contract Select sellers qualified to perform work based on selection criteria Weighing system can be used to select Seller(s) Weighing system can also be used to establish a negotiating sequence by ranking all proposals by the weighted evaluation scores assigned to each proposal

15. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-15 12.2. Conduct Procurements Inputs and Outputs Class Group Activity – 15 Minutes – Divide Class into 3 groups (3 to 4 students in each group) – Discuss and brainstorm the inputs/outputs – Present your inputs/outputs to the rest of the teams – Check and compare your inputs/outputs with PMBOK ® Guide 5 th edition

16. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-16 Solicitation Procurement Documents –Invitation for Bid (ITB): Buyer requests one price to do all work –Request for Proposal (RFP): Buyer requests price & detailed proposal of how to accomplish the work –Request for Quotation (RFQ): Buyer requests a price quote per item Bidders Conference –Meeting with Prospective sellers to ensure clear understanding –Project Manager addresses all questions raised by Seller Qualified Sellers List –Sellers qualifications are normally checked in advance –Name of companies are on an approved or pre-qualified list Proposals –Seller prepared documents that describe seller’s ability and willingness to provide requested product –Prepared in accordance with requirements of relevant procurement documents

17. Review Quiz A document through which a buyer requests one price to do all the work is known as: A.Request for Quotation B.Task order C.Request for proposal D.Invitation for Bid PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-17

18. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-18 Source Selection Receives, reviews and selects seller Evaluation criteria provides basis of quantitatively evaluating proposals Techniques used: –Weighting system –Screening system –Independent Estimate –Past Performance history Presentations may be requested of the Sellers for following reasons: –Proposal can be presented in person by seller –Buyer can pick the most appropriate seller –Buyers can see the prospective team and ask questions to assess the competency, knowledge and ability of the team

19. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-19 Negotiation Purpose of Negotiation is: –To obtain a fair, reasonable price and develop a good relationship with the seller –To discuss responsibilities, authority and price –To discuss on Applicable law, Technical & Business Management approaches

20. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-20 12.3 Control Procurements Process of –managing procurement relationships, –monitoring contract performance and –making changes and corrections as needed Making sure –seller’s performance meets procurement requirements –buyer performs according to terms of legal contract

21. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-21 12.3 Control Procurements (Cont…) Control Procurements also: Monitors payments to Seller Compensates Seller based on Seller progress Review and documents Seller performance Reviews performance of Seller to take corrective action, if required Measures Seller’s competency for future projects Evaluates Seller’s non-ability to fulfill contractual obligations Manages early termination of contracted work, per termination clause of the contract Amends contracts prior to contract closure by mutual consent and change control terms of contract

22. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-22 12.3 Control Procurements Inputs and Outputs Class Group Activity – 20 Minutes – Divide Class into 3 groups (3 to 4 students in each group) – Discuss and brainstorm the inputs/outputs – Present your inputs/outputs to the rest of the teams – Check and compare your inputs/outputs with PMBOK ® Guide 5 th edition

23. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-23 12.4 Close Procurements Complete/Close project procurement activities Verify that all work and deliverables are accepted Involves administrative activities –finalizes open claims –updates records to reflect final results –archives records for future use Early termination –special case of procurement closure –after mutual agreement of both parties –Termination clause of contract contains rights/responsibilities of the parties Contract closeout occurs before project is closed

24. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-24 12.4 Close Procurements Inputs and Outputs Class Group Activity – 20 Minutes –Divide Class into 3 groups (3 to 4 students in each group) –Discuss and brainstorm the inputs/outputs –Present your inputs/outputs to the rest of the teams –Check and compare your inputs/outputs with PMBOK ® Guide 5 th edition

25. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-25 Tips – Procurement Management Project Manager’s role for procurement –Risk identification and evaluation –Work within the procurement process Procurement process –Procurement planning = Make or buy –Solicitation planning = Request for Proposal –Solicitation = Questions / Answers –Source Selection = Pick Vendor –Contract Administration = Admin –Contract Closeout = Finish Make or Buy: consider out of pocket costs and indirect cost of managing procurement Buy: to decrease risk (cost, schedule, performance, scope of work) Make –Idle plant or workforce –Retain control –Proprietary information / procedures –Buy Vs lease questions

26. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-26 Tips – Procurement Management Contract Type selection: reasonable risk between the Buyer and Seller, greatest initiative for seller’s efficient and economic performance –Scope is well defined –Amount or frequency of changes expected after start date –Amount of effort and expertise the buyer can devote to manage the seller –Industry standards Cost Reimbursable (CR): seller’s cost are reimbursed, buyer bears highest risk (cost increases) –CPFF: Cost plus fixed fee, buyer pays all costs –fee (profit) established –CPPC: Cost plus percentage of costs, bad for buyers (seller not motivated to control costs) –CPIF: Cost plus incentive fee, seller costs + fee + bonus for meeting / exceeding target (incentive clause) Time and Materials: priced on per hour basis, elements of fixed price contract and cost reimbursable contracts – buyer has medium risk

27. PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-27 Tips – Procurement Management Fixed Price (lump sum, or fixed price) : most common, one price for all work, Seller has high risk –FPIF : Fixed price incentive fee –FPEPA: Fixed price economic price adjustment-long duration projects Incentives: Help bring Seller’s objectives in line with buyer’s Incentive Fee and Final Price calculations: –Fee = (Target Cost – Actual Cost ) x Seller ratio(%) –Total Fee = Fee + Target Fee –Final Price = Actual Cost + Total Fee

28. Chapter Summary 1.Procurement Management Overview 2.Procurement Management Processes a.Plan Procurement Management b.Conduct Procurements c.Control Procurements d.Close Procurements 3.Contract types 4.Procurement Management Plan 5.Procurement statement of work PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-28

29. End of chapter quiz Question 1: The buyer has the least cost risk in which type of contract? A.Cost reimbursable B.Fixed Price C.Cannot be determined D.Time and Material PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-29

30. End of chapter quiz Question 2: The company has just sent out a request for proposal. In which process does this occur? A.Send proposals B.Control Procurements C.Plan Procurement Management D.Conduct Procurements PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-30

31. End of chapter quiz Question 3: You, the project manager, are at a gathering where prospective sellers are asking questions and making clarifications. You are most likely at a: A.Bidding conference B.Sales seminar C.Leadership meeting D.Team meeting PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-31

32. End of chapter quiz Question 4: The buyer has the most cost risk in which type of contract? A.Fixed price B.Time and Material C.Cost reimbursable D.Standard PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-32

33. End of chapter quiz Question 5: An important stakeholder wants to know all the work that will be done by the third party provider on the application development project. Which document contains this information? A.Procurement Management Plan B.Request for Bid C.Procurement Statement of Work D.Project Charter PMP, CAPM, PgMP, PMI-SP, PMI-RMP, OPM3 and PMBOK are registered marks of Project Management Institute, Inc Inov8Solutions Inc – Quality Educational Services For Professionals www.Inov8Solutions.com 12-33