Chapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management2Importance of Project Procurement ManagementProcurement means acquiring goods and/or services from an outside source.Other terms include purchasing and outsourcing.Experts predict that global spending on computer software and services will continue to grow.People continue to debate whether offshore outsourcing helps their own country or not.3Debates on OutsourcingSome companies, such as Wal-Mart, prefer to do no outsourcing at all, while others do a lot of outsourcing. GM recently announced plans to switch from outsourcing 90% of IT service to only 10%.Most organizations do some form of outsourcing to meet their IT needs and spend most money within their own country.4IT Outsourcing Market Continues to GrowU.S. companies are transferring more work abroad, especially in the areas of IT infrastructure, application development and maintenance, and innovation processesIndia, China, and the Philippines are the preferred locations for outsourcing, and Latin America is growing in popularityA shortage of qualified personnel, not cost savings, is the top reason for global outsourcing of IT services5Why 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.6Project Procurement Management ProcessesProject procurement management: Acquiring goods and services for a project from outside the performing organization.Processes include:Planning procurement involves determining what to procure, when, and how.Conducting procurement involves obtaining seller responses, selecting sellers, and awarding contracts. Administering procurements involves managing relationships with sellers, monitoring contract performance, and making changes as needed.Closing procurements involves completion and settlement of each contract, including resolution of any open items. Project procurement management summary7Chapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management9Planning Procurement ManagementIdentifying which project needs can best be met by using products or services outside the organizationIf there is no need to buy any products or services from outside the organization, then there is no need to perform any of the other procurement management processes10ContractsA contract is a mutually binding agreement that obligates the seller to provide the specified products or services and obligates the buyer to pay for themContracts can clarify responsibilities and sharpen focus on key deliverables of a projectBecause contracts are legally binding, there is more accountability for delivering the work as stated in the contractA recent trend in outsourcing is the increasing size of contracts.11Types of ContractsDifferent types of contracts can be used in different situations:Fixed price or lump sum contracts: Involve a fixed total price for a well-defined product or serviceCost reimbursable contracts: Involve payment to the seller for direct and indirect costsTime and material contracts: Hybrid of both fixed price and cost reimbursable contracts, often used by consultantsUnit price contracts: Require the buyer to pay the seller a predetermined amount per unit of serviceA single contract can actually include all four of these categories, if it makes sense for that particular procurementTools and Techniques for Planning Purchases and AcquisitionsMake-or-buy analysis: General management technique used to determine whether an organization should make or perform a particular product or service inside the organization or buy from someone elseExpert judgmentMarket research12Procurement Management PlanDescribes how the procurement processes will be managed, from developing documentation for making outside purchases or acquisitions to contract closureContents varies based on project needs13Procurement Management PlanGuidelines on types of contracts to be used in different situations Standard procurement documents or templates to be used, if applicable Guidelines for creating contract work breakdown structures, statements of work, and other procurement documents Roles and responsibilities of the project team and related departments, such as the purchasing or legal department Guidelines on using independent estimates for evaluating sellers Suggestions on managing multiple providers Processes for coordinating procurement decisions, such as make-or-buy decisions, with other project areas, such as scheduling and performance reporting Constraints and assumptions related to purchases and acquisitions Lead times for purchases and acquisitions Risk mitigation strategies for purchases and acquisitions, such as insurance contracts and bonds Guidelines for identifying prequalified sellers and organizational lists of preferred sellers Procurement metrics to assist in evaluating sellers and managing contracts 1415Statement of Work (SOW)A statement of work is a description of the work required for the procurementIf a SOW is used as part of a contract to describe only the work required for that particular contract, it is called a contract statement of workA SOW is a type of scope statementA good SOW gives bidders a better understanding of the buyers expectations16Statement of Work (SOW) Template17Procurement DocumentsPreparing several documents needed for potential sellers to prepare their responses Request for Proposals: Used to solicit proposals from prospective sellersA proposal is a document prepared by a seller when there are different approaches for meeting buyer needs Requests for Quotes: Used to solicit quotes or bids from prospective suppliersA bid, also called a tender or quote (short for quotation), is a document prepared by sellers providing pricing for standard items that have been clearly defined by the buyer 18Request for Proposal (RFP) TemplateSource Selection Criteria Its important to prepare some form of evaluation criteria, preferably before issuing a formal RFP or RFQ.Beware of proposals that look good on paper; be sure to evaluate factors, such as past performance and management approach.Can require a technical presentation as part of a proposal.19Chapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management21Conducting ProcurementsDeciding whom to ask to do the workSending appropriate documentation to potential sellersObtaining proposals or bidsSelecting a sellerAwarding a contractApproaches for ProcurementOrganizations can advertise to procure goods and services in several ways:Approaching the preferred vendorApproaching several potential vendorsAdvertising to anyone interestedA bidders conference can help clarify the buyers expectations2223Selecting SellersOrganizations often do an initial evaluation of all proposals and bids and then develop a short list of potential sellers for further evaluationSellers on the short list often prepare a best and final offer (BAFO)Final output is a contract signed by the buyer and the selected sellerSample proposal evaluation sheet 24Chapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management26Administering ProcurementsEnsures that the sellers performance meets contractual requirementsContracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contractsIt is critical that project managers and team members watch for constructive change orders, which are oral or written acts or omissions by someone with actual or apparent authority that can be construed to have the same effect as a written change order.27Suggestions for Change Control in ContractsChanges to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approvedEvaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided? Changes must be documented in writing. Project team members should also document all important meetings and telephone phone callsProject managers and teams should stay closely involved to make sure the new system will meet business needs and work in an operational environmentHave backup plansUse tools and techniques, such as a contract change control system, buyer-conducted performance reviews, inspections and audits, and so onChapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management29Closing ProcurementsInvolves completing and settling contracts and resolving any open itemsThe project team should:Determine if all work was completed correctly and satisfactorilyUpdate records to reflect final resultsArchive information for future useThe contract itself should include requirements for formal acceptance and closure30Tools to Assist in Contract ClosureProcurement audits identify lessons learned in the procurement processNegotiated settlements help close contracts more smoothlyA records management system provides the ability to easily organize, find, and archive procurement-related documentsChapter 12:Project Procurement ManagementImportance of Project Procurement ManagementPlanning ProcurementsConducting ProcurementsAdministering ProcurementsClosing ProcurementsUsing Software to Assist in Project Procurement Management32Using Software to Assist in Project Procurement ManagementWord processing software helps write proposals and contracts, spreadsheets help evaluate suppliers, databases help track suppliers, and presentation software helps present procurement-related information.E-procurement software does many procurement functions electronically.Organizations also use other Internet tools to find information on suppliers or auction goods and services.