Introduction to Project
Management
Chapter 10
Managing Project Procurement
Information Systems Project Management: A Process and Team Approach, 1e
Fuller/Valacich/George
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Two Perspectives
• Choices for information systems development
• Procurement process
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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
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Sources of Application Software
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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
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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
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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
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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
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Five External Sources for
Software Development (cont.)
5. Open Source Software
•
Software for free
•
Maintained by independent members of the
computing community
•
Linux/mySQL
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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
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Outsourcing to Offshore
• Security issues
• Potential language/legal/cultural barriers
• 24/7 development
• Requires close monitoring
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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
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1. Plan Purchases and Acquisitions
• Determination of which projects needs can best
be met by obtaining services or products from
outside organizations
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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
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Plan Purchases and Acquisitions
Techniques
• Make or buy
• Expert judgment
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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
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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
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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
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2. Plan Contracting
• Creation of documents required to support the
Request Seller Responses and Select Sellers
processes
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Plan Contracting – Inputs
• Statement of Work
• Make-or-by decisions
• Procurement management plan
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Plan Contracting –
Tools & Techniques
• Standard forms/templates
• Expert judgment
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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
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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
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3. Request Seller Responses
• The process of obtaining responses to
procurement documents produced during Plan
Contracting
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Request Seller Responses – Inputs
• Procurement documents
– RFP
• Organizational process assets
– List of qualified sellers
• Procurement management plan
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Request Seller Responses – Outputs
• List of qualified vendors requested to submit a
RFP
• Formal procurement documents
• Proposals
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4. Select Sellers
• Contract with a vendor to supply the desired
product or service
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Select Sellers – Inputs
• Organizational process assets
• Procurement management plan
• Evaluation criteria
• Procurement document package
• Qualified seller list
• Project management plan
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Select Sellers – Tools & Techniques
• Weighing system
• Independent estimates
• Screening system
• Contract negotiations
• Seller rating systems
• Expert judgment
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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
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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
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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
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5. Contract Administration
• Procedures that enable the organization to
compare what was contracted for and what has
been delivered
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Contract Administration – Inputs
• Selected sellers
• Contract management plan
• Performance reports
• Work performance information
• Approved change requests
– Contract terms
– Descriptions of work
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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
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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
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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
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Contract Administration – Outputs
• Contract documentation
• Organizational process asset updates
• Recommended correction actions
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6. Contract Closure
• Verification that all products and services
contracted for are acceptable
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Contract Closure – Inputs
• Procurement management plan
• Contract management plan
• Contract documentation of work performed
• Contract closure procedure
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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
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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
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Questions?
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