Lecture 10
Review of Lecture 9 – Project Risk
• “…an uncertain event or condition that, if it
occurs, has a positive or a negative effect
on a project objective.”
• Risks: positive and negative
• Top risks in IT projects:
• Lack of top management commitment to the
project
• Failure to gain user commitment
• Misunderstanding the requirements
• Lack of adequate user involvement
• Failure to manage end user expectations
• Risk Management Planning
• Methodology or approach to risk management
• Roles and responsibilities of project members
• Risk management budget
• Integration of risk management activities into project life cycle
• Scoring and interpretation of risk analysis
• Risk thresholds
• Reporting formats
• Tracking
• Risk Identification – risk register
• Risk response planning – project management
plan
Lecture 10
Managing Project Procurement
Two Perspectives
• Choices for information systems development
• Procurement process
Systems Development History
• First wave
–
–
–
–
–
In-house information systems development
More art than science
Limited talent pool
Most systems were custom-designed in-house
Slow and costly
• Second wave
– Art became a science through better defined processes
(planning and documentation)
– Technology assisted in development effort
– Off-the-shelf software becomes an option
• Third wave
– Need for faster development
– Move to agile methodologies
– Software development acquired outside the organization
Sources of Application Software
Five External Sources for
Software Development
1. Information Technology Services Firms
•
Lack of internal expertise
•
Package software solution not feasible
•
Service firm may also host hardware
•
IBM/Computer Sciences Corp./Accenture
Five External Sources for
Software Development (cont.)
2. Packaged Software Producers
•
General to niche software package development
•
Focus on business functions
•
Hardware platform varies
•
Office 2007/MS-Project/Quickbooks/Turnkey
•
Microsoft/Oracle/SAP
Five External Sources for
Software Development (cont.)
3. Enterprise Solutions Software or Enterprise
Resource Planning (ERP)
•
Integrated modules
•
Business process focus
•
Single data repository
•
Expensive and complex solution
•
Sometimes required organization to change their
business processes
•
SAP/Oracle
Five External Sources for
Software Development (cont.)
4. On-Demand Computing Providers
•
Rent or license software
•
“Pay as you go”
•
Could be the future trend
•
IBM/HP
Five External Sources for
Software Development (cont.)
5. Open Source Software
•
Software for free
•
Maintained by independent members of the
computing community
•
Linux/mySQL
Outsourcing
• Outside organization develops or runs a
computer application 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 welldefined
• 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?