pmp exam preparation course: 11 project procurement management
TRANSCRIPT
www.wizardea.com | [email protected]
Learning Objectives
Upon completion of this topic you will learn about
– The processes, activities and documentation items for Project Procurement Management
– Elements (and deliverables) for Project Procurement Management
– Tools and techniques of the key activities of the Project Procurement Management
3
www.wizardea.com | [email protected]
Procurement Management
Includes the processes necessary to purchase or acquire products,
services or results needed from outside the project team.
4
www.wizardea.com | [email protected]
Key Activities of Procurement Management
Plan Procurements: The process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers.
Conduct Procurements: The process of obtaining seller responses, selecting a seller, and awarding a contract.
Administer Procurements: The process of managing procurement relationship, monitoring contract performance, and making changes, and corrections as needed.
Close Procurements: The process of completing each project procurement.
5
www.wizardea.com | [email protected]
Plan Procurements
Inputs Tools & Techniques Outputs
Scope baselineRequirement documentationTeaming agreementRisk registerRisk related contract decisionsActivity resource requirementsProject scheduleActivity cost estimatesCost performance baselineEnterprise environmental factorsOrganizational process assets
Make-or-buy analysisExpert judgmentContract types
Procurement management planProcurement statement of workMake-or-buy decisionsProcurement documentsSource selection criteriaChange requests
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
• Make-or-buy Analysis
• Is a general management technique used to determine
whether particular work can be best be accomplished by the
project team or must be purchased from outside sources.
• Budget constrains may influence make-or-buy decisions.
• Example: You are trying to decide whether to lease or buy an item
for your project. The daily leas cost is $100. To purchase the item,
the investment cost is $1000 and daily cost is $20. How long will it
take for the leas cost to be the same as the purchase cost?
8
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
• Answer
Let D equal the number of days when the purchase and leas cost are equal.$100D = $1000 + 20D$100D – 20D = $1000$80D = $1000D = 12.5This calculation helps a project manager decide whether it is better to lease or buy. The calculation says that the costs are the same after 12.5 days. Therefore, if you are planning to use the item for fewer than 12.5 days, you should lease. If you are planning to use it for more than 12.5 days, it would be cheaper to buy the item.
9
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
• Contract Types
Mainly 3 categories of contract types:
• Fixed priced contract (FP)
• Cost reimbursable contract (CR)
• Time and material contract (T&M)
10
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
Fixed Price Contract– Fixed Price Contract is inappropriate, if
• Seller may not have the details accounting records of past project activities required to accurately estimate future projects.
• Buyers may not have the expertise to prepare a complete procurement statement of work.
– If Statement of work is incomplete in FP• The seller is forced to accept a high level of risks• The seller would need to add a huge amount of services to
their price to cover their risks and the buyer, therefore, pays more than they might otherwise have
• The seller can more easily try to increase profits by cutting scope or claiming that work the buyer wants is outside the contract and thus requires a change.
11
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
Fixed Price Contract– Fixed Price Incentive Fee (FPIF)
• Example: Contract is $1,000,000. For every month the early the project is finished, an additional $5,000 will be paid to the seller.
– Fixed Price Award Fee (FPAF)• Example: Contract is $1,000,000. For every month
performance exceeds the planned level by more than 15% an additional $5,000 will be awarded to the seller, with a maximum award of $50,000.
– Fixed Price Economic Price Adjustment (FPEPA)• Example: Contract price is $1,000,000 but a price increase will
be allowed in year two to account for increase in specific material cost.
12
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
Cost Reimbursable Contract– Cost Price (CP)
• Contract = Cost. There is no profit.• Appropriate for non-profit organization
– Cost Plus Fee (CPF)• Contract = Cost plus 10% of cost as fee
– Cost Plus Fixed Fee (CPFF)• Contract = Cost plus a fee of $10,000
– Cost Plus Award Fee (CPAF)• Contract = Cost plus $5,000 for every month production
exceeds 10,000 units with maximum award of $50,000.
13
www.wizardea.com | [email protected]
Plan Procurements > Tools and Techniques
Time and Material Price Contract
• The buyer pays per item or per hour basis
• Example: Contract is $100 per hour plus expenses or
materials at cost.
14
www.wizardea.com | [email protected]
Plan Procurements > Outputs
• Procurement management Plan• Types of contracts to be used• Risk management issues• Evaluation criteria• Standardize procurement document• Any constrain and assumption• Identifying prequalified sellers
• Procurement Documents• Request for Information (RFI)• Invitation for Bid (IFD)• Request for Proposal (RFP)• Request for Quotation (RFQ)
16
www.wizardea.com | [email protected]
Conduct Procurements
Inputs Tools & Techniques Outputs
Project management planProcurement documentsSource selection criteriaQualified seller listSeller proposalsProject documentsMake-or-buy decisionsTeaming agreementOrganizational process assets
Bidder conference Proposal evaluation techniquesIndependent estimatesExpert judgmentAdvertisingInternet searchProcurement negotiations
Selected sellersProcurement contract awardResource calendarsChange requestsProject management plan updatesProject document updates
www.wizardea.com | [email protected]
Contract Procurements > Outputs
• Procurement Contract Award• Statement of work or
deliverables• Schedule baseline• Performance reporting• Roles and
responsibilities• Pricing• Payment terms• Place of delivery• Acceptance criteria• Warranty• Product support
• Insurance and performance bond
• Penalties• Change request
handling• Termination and
alternative dispute resolution mechanism
19
www.wizardea.com | [email protected]
Administer Procurement
Inputs Tools & Techniques Outputs
Procurement documentsProject management planContractPerformance reportsApproved change requestsWork performance information
Contract change control system Procurement performance reviewInspections and auditsPerformance reportingPayment systemClaims administrationRecord management system
Procurement documentationOrganizational process assets updatesChange requestsProject management plan updates
www.wizardea.com | [email protected]
Close Procurements
Inputs Tools & Techniques Outputs
Project management planProcurement documents
Procurement auditNegotiated settlementsRecord management system
Closed procurementsOrganizational process assets updates
