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 Acquisitions
Techniques
• 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 Acquisitions
Outputs
• 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
Weighing System (cont.)
• 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
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 Administration –
Tools & Techniques (cont.)
• 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 – 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?