Project Management Professional (PMP) Exam Review

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1 Project Management Professional (PMP) Exam Review Unauthorized distribution is strictly prohibited. These resources are for 3FOLD Education Centre students. PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc.

2 Chapter 12 PROJECT PROCUREMENT MANAGEMENT

3 PROJECT PROCUREMENT MANAGEMENT Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. The organization can be either the buyer or seller of the products, services, or results of a project.*

4 PROJECT PROCUREMENT MANAGEMENT 12.1 Plan Procurement Management The process of documenting project procurement decisions, specifying the approach, and identifying potential sellers.* 12.2 Conduct Procurements The process of obtaining seller responses, selecting a seller, and awarding a contract.* 12.3 Control Procurements The process of managing procurement relationships, monitoring contract performance, and making changes and corrections as appropriate.* 12.4 Close Procurements The process of completing each project procurement.*

5 Terminologies Contract. A contract is a mutually binding agreement that obligates the seller to provide the specified product or service or result and obligates the buyer to pay for it.* Agreements. Any document or communication that defines the initial intentions of a project. This can take the form of a contract, memorandum of understanding (MOU), letters of agreement, verbal agreements, , etc.*

6 Market Structures Monopoly Oligopoly Monopolistic Competition Perfect Competition Sole / Single Source Designating a company contracted, without competition, to be the sole supplier of a product or service.

7 MARKET STRUCTURE Characteristic Number of firms Perfect Competition Many Monopolistic Competition Oligopoly Monopoly Many Few One Type of product Identical Differentiated Identical or differentiated Unique Ease of entry High High Low Entry blocked Examples of industries Wheat Apples Selling DVDs Restaurants Manufacturing computers Manufacturing automobiles First-class mail delivery Tap water

8 Seller & Buyer Seller - A provider or supplier of products, services, or results to an organization.* Buyer - The acquirer of products, services, or results for an organization.*

9 Project Procurement Management 12.1 PLAN PROCUREMENT MANAGEMENT

10 12.1 Plan Procurement Management Plan Procurement Management is the process of documenting project procurement decisions, specifying the approach, and identifying potential sellers.*

11 Plan Procurement Management Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

12 Plan Procurement Management : Inputs 1. Project Management Plan 2. Requirements Documentation 3. Risk Register 4. Activity Resource Requirements 5. Project Schedule 6. Activity Cost Estimates 7. Stakeholder Register 8. Enterprise Environmental Factors 9. Organizational Process Assets Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

13 Organizational Process Assets The various types of contracts used by the organization will influence this process. Some of the most popular contracts types are: Fixed- Price Contracts Cost-reimbursable Contracts Time and Material Contracts Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

14 Fixed Price Contract An agreement that sets the fee that will be paid for a defined scope of work regardless of the cost or effort to deliver it. Different Types of Fixed Price Contracts: 1. Firm-Fixed-Price Contract (FFP) 2. Fixed Price Incentive Fee Contract (FPIF) 3. Fixed-Price with Economic Price Adjustment Contracts (FP- EPA)

15 Fixed Price Contract 1. Firm-Fixed-Price Contract (FFP) A type of fixed price contract where the buyer pays the seller a set amount (as defi ed y the o tra t, regardless of the seller s osts.* 2. Fixed Price Incentive Fee Contract (FPIF) A type of contract where the buyer pays the seller a set amount (as defined by the contract), and the seller can earn an additional amount if the seller meets defined performance criteria.* 3. Fixed-Price with Economic Price Adjustment Contracts (FP- EPA) A fixed-price contract, but with a special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes, or cost increases (or decreases) for specific commodities.*

16 Cost-reimbursable Contract A type of o tra t i ol i g pay e t to the seller for the seller s actual costs, plus a fee typi ally represe ti g seller s profit. Costreimbursable contracts often include incentive clauses where, if the seller meets or exceeds selected project objectives, such as schedule targets or total cost, then the seller receives from the buyer an incentive or bonus payment.* Different types of Cost Plus contracts 1. Cost Plus Fixed Fee (CPFF) 2. Cost Plus Incentive Fee (CPIF) 3. Cost Plus Award Fee (CPAF)

17 Cost-reimbursable Contract 1. Cost Plus Fixed Fee Contract (CPFF). A type of cost-reimbursable contract where the buyer reimburses the seller for the seller s allo a le osts allo a le osts are defined by the contract) plus a fixed amount of profit (fee).* 2. Cost Plus Incentive Fee Contract (CPIF). A type of cost-reimbursable contract where the buyer reimburses the seller for the seller s allo a le osts allo a le osts are defined by the contract), and the seller earns its profit if it meets defined performance criteria.*

18 Cost-reimbursable Contract 3. Cost Plus Award Fee Contracts (CPAF). A category of contract that involves payments to the seller for all legitimate actual costs incurred for completed work, plus an award fee representing seller profit.*

19 Time and Material Contracts (T&M) A type of contract that is a hybrid contractual arrangement containing aspects of both cost-reimbursable and fixed-price contracts. * Time and material contracts resemble cost-reimbursable type arrangements in that they have no definitive end, because the full value of the arrangement is not defined at the time of the award. * Thus, time and material contracts can grow in contract value as if they were costreimbursable type arrangements. * Conversely, time and material arrangements can also resemble fixed-price arrangements. * For example, the unit rates are preset by the buyer and seller, when both parties agree on the rates for the category of senior engineers.*

20 Plan Procurement Management : T&T 1. Make-or-buy Analysis 2. Expert Judgment 3. Market Research 4. Meetings Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

21 Plan Procurement Management : T&T 1. Make-or-buy Analysis The process of gathering and organizing data about product requirements and analyzing them against available alternatives including the purchase or internal manufacture of the product.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

22 Plan Procurement Management : T&T 3. Market Research The process of gathering information at conferences, online reviews, and a variety of sources to identify market capabilities.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

23 Plan Procurement Management: Outputs 1. Procurement Management Plan 2. Procurement Statement Of Work 3. Procurement Documents 4. Source Selection Criteria 5. Make-or-buy Decisions 6. Change Requests 7. Project Documents Updates Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

24 Plan Procurement Management: Outputs 1. Procurement Management Plan A component of the project or program management plan that describes how a project team will acquire goods and services from outside the performing organization.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

25 Plan Procurement Management: Outputs 2. Procurement Statement Of Work Describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

26 Plan Procurement Management: Outputs 3. Procurement Documents The documents utilized in bid and proposal activities, which include the uyer s I itatio for Bid, Invitation for Negotiations, Request for Information, Request for Quotation, Request for Proposal, and seller s respo ses.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

27 Plan Procurement Management: Outputs 4. Source Selection Criteria A set of attributes desired by the buyer which a seller is required to meet or exceed to be selected for a contract.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

28 Plan Procurement Management: Outputs 5. Make-or-buy Decisions Decisions made regarding the external purchase or internal manufacture of a product.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-2, Page 358

29 Project Procurement Management 12.2 CONDUCT PROCUREMENTS

30 12.2 Conduct Procurements Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract.*

31 Conduct Procurements Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

32 Conduct Procurements : Inputs 1. Procurement Management Plan 2. Procurement Documents 3. Source Selection Criteria 4. Seller Proposals 5. Project Documents 6. Make-or-buy Decisions 7. Procurement Statement Of Work 8. Organizational Process Assets Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

33 Conduct Procurements: T&T 1. Bidder conference 2. Proposal evaluation techniques 3. Independent estimates 4. Expert judgment 5. Advertising 6. Analytical techniques 7. Procurement negotiations Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

34 Conduct Procurements: T&T 1. Bidder conference The meetings with prospective sellers prior to the preparation of a bid or proposal to ensure all prospective vendors have a clear and common understanding of the procurement. Also known as contractor conferences, vendor conferences, or prebid conferences.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

35 Conduct Procurements: T&T 2. Proposal Evaluation Techniques The process of reviewing proposals provided by suppliers to support contract award decisions.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

36 Conduct Procurements: T&T 3. Independent Estimates A process of using a third party to obtain and analyze information to support prediction of cost, schedule, or other items.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

37 Conduct Procurements: T&T 5. Advertising The process of calling public attention to a project or effort.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

38 Conduct Procurements: T&T 7. Procurement negotiations Procurement negotiations clarify the structure, requirements, and other terms of the purchases so that mutual agreement can be reached prior to signing the contract.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

39 Conduct Procurements: Outputs 1. Selected Sellers 2. Agreements 3. Resource Calendars 4. Change Requests 5. Project Management Plan Updates 6. Project Documents Updates Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

40 Conduct Procurements: Outputs 1. Selected Sellers The sellers which have been selected to provide a contracted set of services or products.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 12-4, Page 371

41 Project Procurement Management 12.3 CONTROL PROCUREMENTS

42 12.3 Control Procurements Control Procurements is the process of managing procurement relationships, monitoring contract performance, and making changes and corrections to contracts as appropriate. *

43 Control Procurements Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

44 Control Procurements : Inputs 1. Project Management Plan 2. Procurement Documents 3. Agreements 4. Approved Change Requests 5. Work Performance Reports 6. Work Performance Data Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

45 Control Procurements : T&T 1. Contract Change Control System 2. Procurement Performance Reviews 3. Inspections and Audits 4. Performance Reporting 5. Payment Systems 6. Claims Administration 7. Records Management System Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

46 Control Procurements : T&T 1. Contract Change Control System The system used to collect, track, adjudicate, and communicate changes to a contract.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

47 Control Procurements : T&T 2. Procurement Performance Reviews A stru tured re ie of the seller s progress to deli er proje t s ope and quality, within cost and on schedule, as compared to the contract.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

48 Control Procurements : T&T 3. Inspections and Audits A process to observe performance of contracted work or a promised product against agreed-upon requirements.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

49 Control Procurements : T&T 4. Performance Reporting Work performance data and reports supplied by sellers are evaluated against the agreement requirements.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

50 Control Procurements : T&T 5. Payment Systems The syste used to pro ide a d tra k supplier s i oi es a d payments for services and products.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

51 Control Procurements : T&T 7. Claims Administration The process of processing, adjudicating, and communicating contract claims.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

52 Control Procurements : T&T 7. Records Management System A specific set of processes, related control functions, and tools that are consolidated and combined to record and retain information about the project.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

53 Control Procurements : Outputs 1. Work Performance Information 2. Change Requests 3. Project Management Plan Updates 4. Project Documents Updates 5. Organizational Process Assets Updates Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-6, Page 379.

54 Project Procurement Management 12.4 CLOSE PROCUREMENTS

55 12.4 Close Procurements Close Procurements is the process of completing each procurement.*

56 Close Procurements Administrative activities such as finalizing claims, updating final results and archiving will take place in this process. This process needs to be performed even for early termination of contracts. Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute Inc., 2013, Page 387.

57 Close Procurements Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

58 Close Procurements: Inputs 1. Project Management Plan 2. Procurement Documents Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

59 Close Procurements: T&T 1. Procurement Audits 2. Procurement Negotiations 3. Records Management System Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

60 Close Procurements: T&T 1. Procurement Audits The review of contracts and contracting processes for completeness, accuracy, and effectiveness.* Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

61 Close Procurements: T&T 2. Procurement Negotiations Negotiation Mediation Arbitration Litigation Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

62 Close Procurements: Outputs 1. Closed Procurements Project contracts or other procurement agreements that have been formally acknowledged by the proper authorizing agent as being finalized and signed off.* 2. Organizational Process Assets Updates Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 12-8, Page 386.

63 END OF CHAPTER 12 PROJECT PROCUREMENT MANAGEMENT

Connoisseur Solutions Project Procurement Management

Connoisseur Solutions Project Procurement Management Project Procurement Management Project Procurement Management Processes necessary to purchase or acquire products, services or results needed from outside the project team. Procurement Management Processes