CHAPTER 12

OUTSOURCING:MANAGING INTERORGANIZATIONAL RELATIONS

PROJECT PROCUREMENT MANAGEMENT

PROJECT PROCUREMENT MANAGEMENT

Necessity for outsourcing – benefits and limitations of project procurements

Difference between project and operating procurements Types of procurement contracts Project procurement processes Plan procurements ( Planning) Conduct procurements (Executing) Administer procurements ( Monitoring & Controlling) Close procurements (Closing)

NECESSITY FOR OUTSOURCING

Supplementing organization’s own capacity Contracting out work to a specialized agency –

to improve quality and cut costs Transferring the overall risk of delivering the

product or service of acceptable quality as per project schedule

Availing the technology, expertise, or other

resource which the organization lacks

DIFFERENCE BETWEEN PROJECT AND OPERATING PROCUREMENTS

Project procurement is transient in nature and delivery of satisfactory product or service is under severe cost and schedule constraints. Effective project procurement practice should require following the guidelines shown below:

1. Precision in formulating technical and performance

specifications 2. Skills for negotiating contracts 3. Selection of the right type of contract 4. Selection of the right type of supplier 5. Contract drafting 6. Contract administration – close follow up on work quality and

schedule, adherence to payment terms, and maintaining relationship

PROCUREMENT CONTRACTS A formal legal agreement between a supplier to

provide a product or service of agreed specifications at an agreed schedule in return for usually a cash payment consideration from the buyer.

Fixed Price Contracts Firm Fixed Price Contracts (FFP) Fixed Price Incentive Fee Contract (FPIF) Fixed Price – with Economic Price Adjustment Contract Cost Reimbursable Contracts Cost Plus Fixed Fee Contract (CPFF) Cost Plus Incentive Fees Contract (CPIF) Costs Plus Award Fees Contract (CPAF) Time and material Contracts (T &M)

PLAN PROCUREMENTS

Process requires reviewing which products or services required for work packages should be outsourced and deciding on what terms and from whom. This process has to come up with all decisions and procedures and policies for project procurements.

Inputs: Scope baseline - (scope statement, WBS and WBS dictionary) Requirements documentation Project schedule Risk Register and risk-related contracts decisions Activity cost estimates and cost baseline Quality management Plan Organizational process assets Enterprise environmental factors Techniques: Contract types Make vs. Buy decisions Expert judgment

PLAN PROCUREMENTS ( CONTD.)

Outputs: Procurement Management Plan Types of contracts Risk management issues Managing the interface between

operating and project procurements Procedures for pre-qualification of suppliers Procedures for evaluating vendor offers Statement of Works (SOW) Procurement Documents Make vs. Buy Decision Source selection criteria

CONDUCT PROCUREMENTS

The process of obtaining seller responses, selecting the seller and awarding the contract.

Inputs: Project management plan Procurement documents Qualified sellers’ list Make vs Buy decisions Teaming or collaboration agreement Techniques: Evaluating sellers’ proposals Negotiation of contracts Expert judgment Bidders conferences Advertising – Internet search

CONDUCT PROCUREMENTS( CONTD.)

Outputs: List of selected sellers Award of purchase orders and contracts Resource calendars Change requests Updates of project plan

ADMINISTER PROCUREMENTS

The process of managing procurement relationships, monitoring contract and managing changes to ensure delivery of desired quality product or service as per project schedule.

Inputs: Procurement documents Project management plan Contract Performance reports Approved change requests Techniques: Inspection and audits Payment authorization Change requests approval system Claims administration Contract records maintenance

CLOSE PROCUREMENTS

The process of bringing to a formal close the contract by acceptance of the contracted product or service after final testing and inspection, settling all dues, maintaining all records and technical documentation.

Inputs: Procurement documentation Project management plan Techniques: Procurement audits – inspection and testing Negotiated settlements Records management Outputs: Closed contracts/procurements Lessons learned