Procurement Management Processes

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1 Procurement Management Processes Olga Botero PM A-01 Contracting and procurement in project management Dr. Tony Prensa October 8 th 2010

2 Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team (PMBOK, 2008, p.313) Processes Plan procurement, document requirements and identify potential vendors Conduct procurement, choose vendor, award contract Administer contract performance, monitor progress and administer change management Close procurement, document outcome, close contract and Procurement Management Definitions adjust finances Products ADC project-scheduling tool for the entire company eliminating duplicate software and obtaining quality suppliers, quantity discounts, lower paperwork cost and standardized practices (Kerzner, 2004, p. 840)

Procurement Close Procurement Contract Types Fix price Lump sum Cost plus fixed fee

3 Executive Summary Project Integration Procurement Management Processes SOW - Statement of Work SOO - Statement of Objectives Plan Procurement Conduct Procurement Administer Procurement Close Procurement Contract Types Fix price Lump sum Cost plus fixed fee Guarantee Max. Share Savings Project management knowledge area part of process groups From the Project Plan

4 Procurement Process and Project Success Cost effectiveness Keep project budget under control Buyer expertise eliminates mistakes Quantity discounts Streamline Work force One expert buyer according to product Eliminate duplicate effort Shared responsibilities PM will share responsibilities with Procurement Managers Seller choice could be more fair Risk mitigation The expertise of the buyer will result in a more reliable product or service Procurement administration in the product lifecycle of each phase will reduce the risk of the following phases (Kerzner, 2009, p. 841)

Project Procurement Processes To be used at ADC Planning procurement Procurement Specifications Find vendors Perform product analysis Develop SOO (Statement of Objectives) Develop plan Analyze SOWs

5 Project Procurement Processes To be used at ADC Planning procurement Procurement Specifications Find vendors Perform product analysis Develop SOO (Statement of Objectives) Develop plan Analyze SOWs and select best candidate Obtain approval Conduct Procurement Review winning bid specifications Check references Develop contract agreement Compare methodologies Execute software acquisition contract Or Service acquisition contract Execute Hardware acquisition contract

6 Project Procurement Processes To be used at ADC (Cont.) Administer procurement Procurement change management Review performance Analyze audit reports Administer claims Update procurement plan Integrate changes in project plan Close procurement Review end result according to SOO Project sign off by stakeholders and sponsors Close financial transactions Resolve inconsistencies Negotiate and mediate if possible Litigate if necessary

7 Contract Selection Criteria Cost of buying versus a SaaS Guarantee maximum share Fix cost plus subscription fee per user Technical requirements of each List from project managers 90 Day project time line Eliminates several contract types Contractor responsibilities Contractor SOW Contractor internal expertise

8 Fix price or lump sum contract Advantages Buyer has control on price Buyer will have advance notice on changes Buyer involvement is limited Seller will try to finish contract the earliest possible to maximize profit The vendor expertise will eliminate expensive training and time Disadvantages Too much time to develop specifications Requires exact knowledge of requirements Seller may inflate prices to cover contingencies Buyer may not get a quality product if seller cuts corners to finish earlier ADC will not have expertise in-house unless they are trained by the vendor A well-written contract offers three benefits. One, it prevents miscommunication between the major parties. Two, it prevents rework that results from misunderstandings. Three, it reduces the cost impact of fixes since the opportunity for rework has lessened. (Kliem, 1999)

9 Guarantee maximum share savings contract Advantages Firm cost at earliest possible completion Buyer and seller share same risk Advance notice for changes Incentive for project completion Buyer and seller form a team producing trained personnel Disadvantages Complete requirements before contract start date Buyer is permanently involved Buyer will provide auditing Buyer will use more resources The Owner who awards the contract should ask the contractor: "How much fee (or profit) do you want in this project? (Gogulski, 2002)

10 Summary We will use all the procurement processes: plan, execute, administer and close We will use a Request for Quotation (RFP) and require SOW from each vendor The Guarantee maximum share savings is our contract of choice The project success depends on the contract detail, clarity and fairness.

11 References Gogulski, P, (2002, December), Avoiding Construction Claims through Guaranteed Maximum Contracts, Retrieved October 7 th 2010 from entransit/gmax.pdf Kerzner, H. (2009). Project Management: A systems approach to planning, scheduling, and controlling. Hoboken, New Jersey: John Wiley & Sons Inc. Kliem, R, Ludin, R, (1999), Tools and Tips for Today s Project Manager, Colorado Technical University, Safari Books Online Project Management Institute, Inc. 2008, A Guide to the Project Management Body of Knowledge Fourth Edition Procurement Management, (2010) Retrieved October 7 th 2010 from Procurement-Management.htm

Contract Finalization

Contract Finalization Olga Botero PM630-1004A-01 Contracting and procurement in project management Dr. Tony Prensa Where do you want to be? Procurement Management Be part of the team Bidding Techniques