Chapter 11: Project Procurement Management,2019/4/22,2,Learning Objectives,Understand the importance of good procurement management and the increasing use of outsourcing for IT projects Describe the main processes and deliverables of procurement management Perform a simple make-or-buy analysis Explain the various types of contracts, the risks involved in using each Describe the basic contents of a Request for Proposal Create and use a proposal evaluation worksheet Understand the importance of having good contracts and managing them well,2019/4/22,3,Chapter Outline,Importance of Project Procurement Management Procurement Planning Solicitation Planning Solicitation Source Selection Contract Administration Contract Close-out,11.1 Importance of Project Procurement Management,2019/4/22,5,Importance of Project Procurement Management,Procurement means acquiring goods and/or services from an outside source Other terms include purchasing and outsourcing Experts predict that by the year 2003 the worldwide IT outsourcing market will grow to over $110 billion,2019/4/22,6,Why Outsource?,To reduce both fixed and recurrent costs To allow the client organization to focus on its core business To access skills and technologies To provide flexibility To increase accountability,2019/4/22,7,Project Procurement Management Processes,Procurement planning: determining what to procure and when Solicitation planning: documenting product requirements and identifying potential sources Solicitation: obtaining quotations, bids, offers, or proposals as appropriate Source selection: choosing from among potential vendors Contract administration: managing the relationship with the vendor Contract close-out: completion and settlement of the contract,2019/4/22,8,Project Procurement Management Processes and Key Outputs,11.2 Procurement Planning,2019/4/22,10,Procurement Planning,Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding whether to procure how to procure what to procure how much to procure when to procure,2019/4/22,11,Collaborative Procurement,Several organizations, even competitors, have found that it makes sense to collaborate on procurement for some projects,2019/4/22,12,1.Procurement Planning Tools and Techniques,Make-or-buy analysis: determining whether a particular product or service should be made or performed inside the organization or purchased from someone else. Often involves financial analysis Experts, both internal and external, can provide valuable inputs in procurement decisions,2019/4/22,13,Make-or Buy Example,Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day. How long will it take for the lease cost to be the same as the purchase cost? If you need the item for 12 days, should you lease it or purchase it?,2019/4/22,14,Make-or Buy Solution,Set up an equation so the “make” is equal to the “buy” In this example, use the following equation. Let d be the number of days to use the item. $150d = $1,000 + $50d Solve for d as follows: Subtract $50d from the right side of the equation to get $100d = $1,000 Divide both sides of the equation by $100 d = 10 days The lease cost is the same as the purchase cost at 10 days If you need the item for 12 days, it would be more economical to purchase it,2019/4/22,15,2.Types of Contracts,Fixed-price or lump-sum contract or Firm Fixed Price: involve a fixed total price for a well-defined product or service Cost-reimbursable contract: involve payment to the seller for direct and indirect costs Unit-price contracts or Time and material contracts: require the buyer to pay the seller a predetermined amount per unit of service,2019/4/22,16,Cost Reimbursable Contracts,Cost plus percentage of costs (CPPC): the buyer pays the seller for allowable performance costs plus a predetermined percentage based on total costs Cost plus fixed fee (CPFF): the buyer pays the seller for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs Cost plus incentive fee (CPIF): the buyer pays the seller for allowable performance costs plus a predetermined fee and an incentive bonus,2019/4/22,17,Cost plus percentage of costs,2019/4/22,18,Cost plus Fixed Fee,EC:Estimated cost,AC:Actual cost,2019/4/22,19,Cost plus Incentive Fee,2019/4/22,20,Fixed Price Plus Incentive Fee,2019/4/22,21,Contract Types Versus Risk,2019/4/22,22,3.Statement of Work (SOW),A statement of work is a description of the work required for the procurement A good SOW gives bidders a better understanding of the buyers expectations,2019/4/22,23,Statement of Work (SOW) Template,11.3 Solicitation Planning,2019/4/22,25,Solicitation Planning,Solicitation planning involves preparing several documents: Request for Proposals(RFP): used to solicit proposals from prospective sellers where there are several