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12-1
Project Management from Simple to Complex
12-2
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12-3
Chapter 12Project Procurement and
Closure
12-4
Learning Objectives
• Identify the factors that are considered when deciding whether to buy goods from within the organization or to obtain them from outsiders
• Identify what factors are considered when deciding to outsource or perform the work within the organization
• Describe the role of suppliers
• Describe the role of vendors
12-5
Learning Objectives
• Describe the role of partners
• Identify factors that determine which type of contract to select
• Describe the types of fixed-cost contracts
• Describe the types of cost reimbursable contracts
• Describe the components of the procurement plan
• Identify the decisions made when selecting the type of contract
12-6
Learning Objectives
• Describe how bidders are qualified, solicited, and chosen
• Identify the methods used to manage the contracts
• Describe the procedures for closing out contracts
• Describe the elements and purpose of the postproject review process
• Identify the types of documents that should be archived
• Identify the objectives of the project closeout celebration
12-7
Identifying the Need for Resources Outside the Organization
• The project team decides what work that will be self-performed and what will be outsourced
• Primary factors that influence procurement are:
– Cost (Budget)
– Schedule
• Other factors that influence procurement are:
– Risk
– Quality
– Flexibility
12-8
Identifying the Need for Resources Outside the Organization
• To determine whether to outsource or do the work within the organization, consider:
– Which option is less costly
– Which option can deliver the work on time
12-9
Procurement Plan
• Suppliers: Source of commodities
• Commodities: Items that can be bought off the shelf with no special modification for the project
• Purchasing commodities from suppliers focuses on achieving the lowest cost
• On smaller, less complex projects — Supplies can be purchased from the supplier’s catalog
12-10
Procurement Plan
• On larger, more complex projects — List of materials and supplies is developed from the project cost estimate
• The list is provided to suppliers as a request for quote
– Request for quote (RFQ): Requires a bidder to provide a price and additional information for a defined scope of work
• Organizations maintain a list of suppliers that meet the organization’s requirements
12-11
Procurement Plan
• Bid: An offer to provide something of value for compensation
– Can be written or verbal and can be in response to a solicitation or unsolicited
• Key supplier: A person or organization supplying goods or services to the project that has a special relationship with the project or parent organization and might bypass the bidding process
12-12
Procurement Plan
• Vendor: Provider of problem solutions
• They provide a unique product or service required for project, which cannot be readily purchased in the marketplace
• The project team issues a request for proposal
– Request for proposal (RFP): Requires a bidder to offer solutions and ideas on how to perform the scope of work and a price for performing that work
12-13
Procurement Plan
• Vendors are encouraged to submit suggestions that will:
– Reduce total project cost
– Shorten the schedule
– Improve the performance
• A team member is assigned to:
– Monitor the relationship
– Provide support from project resources to help assure vendor success
12-14
Procurement Plan
• Partnership: Formal arrangement to execute the project with each party contributing resources
• It is formed when the parent organization lacks key skills or relationships
• Factors critical to the success of a partnership
– Clear definition of roles and responsibilities on the project
– Common understanding of the project goals
– Scope of work for each partner
Procurement Plan — Exercise
12-15Level of Specification
Level of Complexity of
the Procurement
High
Low
Very Specific
Very General
?
?
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Fill in the gaps with the appropriate providers of outsourced goods or services — Suppliers, Vendors, and Partners
1
2
3
12-16
Selecting the Type of Contract
• Contract: An agreement that is legally enforceable
• Contracting plan: Defines the relationship between the project and the subcontractors and defines a process for making changes in the agreement
• Factors to consider when selecting the type of contract:
– Uncertainty of the scope of the work needed
– Which party assumes the risk of unexpected cost increases
– The importance of meeting the scheduled milestone dates
– The need for predictable project costs
12-17
Selecting the Type of Contract
• The legal contracts that support the procurement plan consist of two general types of contract:
– Fixed price: A type of contract that pays a contractor an amount that is agreed upon at the start of the project
– Cost reimbursable: A contract in which the organization agrees to pay the contractor for the cost of performing the service or providing the goods
12-18
Figure 12.7 - Table of Fixed Price Contracts and Characteristics
Table of Contract Types and Characteristics.PNG
Click below toview full-size
12-19
Figure 12.9 - Table of Contract Types and Characteristics
Table of Contract Types.PNG
Click below toview full-size
12-20
Procurement Process
• Components of the procurement plan:
– Selecting the appropriate relationships and contract approaches for each outsourced service or type of materials
– Preparing RFQs and RFPs and evaluating partnership opportunities
– Evaluating RFQs, RFPs, and partnerships
– Awarding and signing contracts
– Managing quality, timely performance, and contract changes
– Closing contracts
12-21
Procurement Process
• Factors to be considered when determining the contracting approach
– Whether the required work/materials is a commodity, customized product or service, or unique skill or relationship
– Type of relationship required — Supplier, vendor, or partnership
– Type of approach required — RFQ, RFP, or personal contact
– Scope of work
– The risks involved and which party should assume which types of risk
– Affect of procurement on activities on the project schedule’s critical path and the amount of float on those activities
– The need for certainty of the cost
12-22
Procurement Process
• Solicitation: Process of requesting a price and supporting information from bidders
• The eligibility of a supplier is determined by the ability to meet project requirements and demonstrate financial stability
– Quality specifications
– Project schedule
• RFQs and RFPs are sent to eligible suppliers
12-23
Procurement Process
• Evaluation of bids in response to RFQs — The lowest total price will win the contract
• Evaluation of bids in response to RFPs — Includes the price and an evaluation of the technical approach chosen by the bidder
12-24
Procurement Process
• A project representative validates all conditions of the bid and the contract with the potential contractor
• Less complex awards requires a reading and signing of the contract to ensure the supplier understands the contract terms and requirements of the project schedule
12-25
Procurement Process
• More complex projects require detailed discussion of:
– Goals
– Potential barriers to accomplishing those goals
– Project schedule and critical dates for the contract to make
– Processes for resolving conflicts and improving work processes
12-26
Procurement Process
• The manager of supplier contracts develops detailed specifications and assures compliance to these specifications
• The manager of vendor contracts:
– Assures the contractors have the skills and capacity to accomplish the work
– Tracks the vendor’s performance against the project needs
– Provides support and direction when needed
12-27
Procurement Process
• The manager of partnering arrangements develops alignment around common goals and work processes
• Long lead items: Equipment or materials that will require a long time to acquire or build
• Logistics: Managing procurement, distribution, maintenance, and replacement of goods and services
12-28
Project Closure
• To close contracts:
– Systems are tested
– Materials are inspected
– Punch lists of work to be completed are made
– Final payments are made
12-29
Project Closure
• Postproject evaluations — To capture the lessons learnt which can be transferred to future projects
– Project profile evaluation
– Trust and alignment effectiveness
– Schedule management
– Budget management
– Risk mitigation
– Procurement contracts
– Customer satisfaction
12-30
Project Closure
• The results of the postproject evaluations are summarized in reports for external (stakeholders) and internal (senior management) use
• The documents to be archived:
– Charter documents
– Scope statement
– Original budget
– Change documents
– DPCI ratings
– Manager’s summary
– Final DPCI rating
12-31
Project Closure
• Project celebration is an opportunity to improve customer and team member satisfaction
• Awards may be given to individuals who made outstanding contributions to the project
• Celebration creates a positive memory of the project and reinforces the learning that can be transferred to future projects
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