Procurment Management

PMP
Procurement
Management

Presenter: Hazem Soliman, PMP.

Emak International Academy 1

Procurement weighs 7% in the
PMP exam = 15 Questions!


What is Procurement Management?

 Includes the processes required to acquire
goods or services from outside the project
team.
 It also includes Contract Management and
Change Control Processes.


Project Procurement Management

Plan Procurements
Plan Procurements Administer Procurements
Administer Procurements

Conduct Procurements Close Procurements


1. PLAN PROCUREMENTS
INPUTS TOOLS & TECHNIQUES
1. Scope Baseline
2. Requirements Documentation 1. Make or Buy Analysis
3. Teaming Agreements 2. Expert Judgment
4. Risk Register 3. Contract Types
5. Risk Related Contract Decisions
6. Activity Resource Requirements
7. Project Schedule
8. Activity Cost Estimates
9. Cost Performance Baseline
10. Enterprise Environmental Factors
11. Organizational Process Assets

OUTPUTS
1. Procurement Management Plan
2. Procurement SOW
3. Make or Buy Decisions
4. Procurement Documents
5. Selection Criteria
6. Change Requests

1. PLAN PROCUREMENTS - Inputs

 Identifies products or services that can be
acquired from outside the project organization Vs
needs that can be accomplished by the project
team.

 Involves consideration of potential sellers.

 Can influence project schedule, resource
estimating and make or buy decisions.

 Includes reviewing the risks involved and type of
contract to be used.


1. Scope Baseline
2. Requirements Documentation
 Project Requirements
 Legal and Contractual Requirements; health,
safety, warrantees, insurance, IPR, terms and
conditions, KPIs, SLAs…etc.
3. Teaming Agreements (Contractual Agreements)


4. Risk Register
5. Risk Related Contract Decisions
6. Activity Resource Requirements (People,
equipment or location)
7. Project Schedule
8. Activity Cost Estimates (Internal Cost
Estimates for activities being procured)
9. Cost Performance Baseline (Planned Budget)


10. Enterprise Environmental Factors:
 Market place conditions: (Products and
services available in the market, from whom
and under what terms and conditions.)
 Suppliers and typical terms and conditions?

11. Organizational Process Assets:
Procurement related policies and guidelines.
Centralized or Decentralized?


1. PLAN PROCUREMENTS – Tools &
Techniques
1. Make or Buy Analysis:

 Determine whether a product or service
needs to be procured or can be produced
by the project team.
 Purchase or make - Purchase or
renting/leasing
Reasons to Buy:
 Capacity and Capability
 Exploit Opportunity
 Shift risk (cost, time, or scope)
Reasons to Make:
 Idle resources
 Want to control
 Confidential information Academy
Emak International 10

1. PLAN PROCUREMENTS – Tools
& Techniques
2. Expert Judgment

3. Contract types

 The primary aim of considering which contract
type is most suitable for the procurement
situation is to distribute the risk between
buyer and seller.

 The three major types of contracts are:
 Fixed-Price
 Cost-Reimbursable
 Time and Material

1. PLAN PROCUREMENTS –
Tools & Techniques
A. Fixed Price:
FFP
- Well defined scope/ product.
- Fixed total Price. FPIF
- Risk is on the seller.
FP-EPA

B. Cost Reimbursable
CPFF
Contract:
- Scope and Product aren’t CPIF
exactly defined.
- Price is open based on the CPAF
final costs the product will incur.
- Risk is on the buyer.

1. PLAN PROCUREMENTS – Tools &
Techniques
C. Time and Material:
- Cost is charged to identified tasks of an on
going activity, ex. research.
- Scope per unit is defined.
- Risk is on the buyer. (seller has no incentive to
control costs)


1. PLAN PROCUREMENTS –Outputs

1. Procurement Management Plan: It includes;

 Procurement Processes
 Risk Management
 Standardized Procurement Documents
 Types of contracts used
 Responsibilities
 Pre-qualified sellers
 Scheduled dates for deliverables
 Managing multiple providers



2.Procurement Statement of Work: includes
 Specifications, quality levels, quantity desired
and other requirements.
 Describes the procurement item in sufficient
detail to allow sellers to determine if they are
capable of providing the item.
3. Make or Buy Decisions: documented
decisions.
4. Change Requests


1. PLAN PROCUREMENTS – Outputs

5. Procurement Documents: are used to solicit
proposals, quotes, and bids from sellers

 Bid / Tender / Quotation (IRB – RFT –
RFQ)
• Selection is mainly based on price.
 Proposal
• Selection will be based on price and other
factors; as technical capability, technical
approach…etc.

 Terminology may vary by industry.

6. Source Selection Criteria:
 The project team must be prepared to compare
the proposals received in an unbiased manner
based on identified and documented selection
criteria to rate or score proposals.
 Includes:
 Past performance
 Understanding of need
 Overall or life cycle cost
 References
 Technical capability and approach
 Risk
 Management approach
 Financial stability and capacity

Q: With a clear scope of work a seller completes work
as specified, but the buyer is not pleased with the
results. The contract is considered to be:

a. Null and void
b. Incomplete
c. Complete
d. Waived

C. Complete


Q. In a fixed price contract, the fee or profit is:

a. Unknown
b. Part of the negotiation involved in paying every invoice
c. Applied as a line item in every invoice
d. Determined at the end of the project

a. unknown


2. CONDUCT PROCUREMENTS

1. Bidder Conferences
1. Project Management Plan
2. Proposal Evaluation Techniques
3. Independent Estimates
3. Source Selection Criteria
4. Expert Judgment
4. Qualified Seller List
5. Advertising
5. Seller Proposals
6. Internet Search
6. Project Documents
7. Procurement Negotiations
8. Teaming Agreements
9. Organizational Process Assets

OUTPUTS
1. Selected Sellers
2. Procurement Contract Award
3. Resource Calendars
4. Change Requests
5. Project Management Plan Updates
6. Project Documents Updates Emak International Academy 20

2. CONDUCT PROCUREMENTS

 Obtain sellers’ responses, select sellers and
award contracts.


2. CONDUCT PROCUREMENTS - Inputs
3. Source Selection Criteria
4. Qualified Seller List (Approved Bidders List and
new pre-qualified sellers)

5. Seller Proposals (obtained from sellers)
6. Project Documents (Scope, Schedule, Cost, Risk)
8. Teaming Agreements
9. Organizational Process Assets (Past Experience,
Bidders List)

2. CONDUCT PROCUREMENTS –
Tools & Techniques
1. Bidder Conferences
 Are also known as contractor, vendor, or pre-
bid conferences.
 The purpose of these conferences is to clarify
any of the information not clearly stated in
the RFP.
 Creates a clear and common understanding
of the procurement.
 Proposals received will be more clearly
aligned with project requirements, due to the
fact that bidder conferences make the
requirements clear.

Tools & Techniques
2. Proposal Evaluation Techniques (agreed by
Evaluation Committee)
3. Independent Estimates (serves as a
benchmark and help uncover SOW deficiencies
and ambiguities misunderstanding of Scope)
4. Expert Judgment
5. Advertising
- Is a tool that may be used to increase the
number of potential sellers contacted via
Newspapers, Professional journals or Websites


Tools & Techniques
6. Internet Search
7. Procurement Negotiations (Team)

 Negotiations can cover the following
areas:
 Responsibilities and authorities
 Applicable terms and law
 Scope, technical and business management
approaches
 Contract financing (Payment Schedule)
 Price

Outputs
1. Selected Sellers
2. Procurement contract Award
A mutually binding agreement that obligates the seller to
provide the specified product and obligates the buyer to
pay for it.

 Major components:
SOW Schedule Roles and responsibilities
Pricing Payment Acceptance criteria
Warranty product support Incentives
Penalties Insurance Performance bonds
Change requests Termination mechanisms


2. CONDUCT PROCUREMENTS Outputs

3. Resource Calendars
4. Change Requests
5. Project Management Plan Updates (Scope,
Cost, Schedule, Procurement Management
Plan…etc.)
6. Project Document Updates (SOW and
Requirements Documentation)


Q: Bidder Conferences are part of :

a. Plan Procurements
b. Conduct Procurements
c. Administer Procurements
d. Conduct Purchasing

Answer B


Q. The project team is arguing about whether they
should complete a work package themselves or
outsource the work. What part of the procurement
process are they in:

a. Contract administration
b. Plan Procurements
c. Conduct Procurements
d. Select sellers

Answer B


3. ADMINISTER PROCUREMENTS

1. Procurement Documents 1. Contract Change Control System
2. Project Management Plan 2. Procurement Performance Reviews
3. Contract 3. Inspections and Audits
4. Performance Reports 4. Performance Reporting
5. Approved Change Requests 5. Payment Systems
6. Work Performance Information 6. Claims Administration
7. Records Management System

OUTPUTS
1. Procurement Documentation
2. Organizational Process Assets Updates
3. Change Requests
4. Project Management Plan Updates

3. ADMINISTER PROCUREMENTS

Manage procurements relationships,
monitor contract performance and make
changes and corrections as needed.


3. ADMINISTER PROCUREMENTS -Inputs

3. Contract
4. Performance Reports
 Technical documentation and other
deliverables information developed by the
seller.
 Seller Performance Reports.


3. ADMINISTER PROCUREMENTS -
Inputs
5. Approved Change Request.

6. Work Performance Information: Includes;
 The extent to which quality standards are
being met.
 Indicates which deliverables have been
completed.
 Identifies which costs have been incurred.
 Seller invoices: submitted from time to time
to request payment for work performed.


3. ADMINISTER PROCUREMENTS –
Tools and Techniques
1. Contract Change Control System
 Defines the process by which the contract
may be modified.
 It includes the paperwork, tracking systems,
dispute resolution procedures, and approval
levels necessary for authorizing changes.
 Should be integrated with the integrated
change control system.

2. Procurement Performance
Review; A structured review on the
sellers’ progress to deliver as per planned
scope – quality – schedule – quality, etc..


3. Inspections and Audits; required by the buyer
and supported by the seller to identify any
weaknesses in the seller’s work performance or
deliverables.
4. Performance Reporting: Provides information to
management about how effectively the seller is
achieving the contractual objectives.
5. Payment System: Handled by the accounts
payable department of the performing organization.
Must include reviews and approvals of seller invoices
by the project team prior to issuing a payment to a
seller.


6. Claims Administration: (disputes or appeals)
 Where buyer and seller cannot agree on
compensation for the change, or that a change has
even occurred.
 Should be documented and managed in accordance
with the terms of the contract.
 Might involve arbitration or litigation.

7. Record Management System:
 A set of processes and automation tools
consolidated into the project Management
Information System to manage contract
documentation and records.
 To maintain an index of contract records, and
correspondences for archiving and future use.

Outputs
1. Procurement Documentation: A complete
set of indexed records regarding the contract.
Includes;
 Schedules
 Approved and unapproved change requests
 Technical documentation
 Work performance information
 Performance reports
 Financial docs (invoices ad payment records)

2. Change Requests


Outputs
3. Updated Organizational Process Assets:
including
 Correspondence: communication between buyer
and seller.
 Payment Schedules and requests; if the project
is using an external payment system.
 Seller performance Evaluation documentation:
performed by the buyer to document seller’s
ability to continue to perform work on the
project or to be allowed to work on future
projects.
Basis for early termination
Can be included in qualified seller lists in the
organization.
4.Updated Project Management Plan

Q. All of the following statements about change control are
incorrect EXCEPT:

a. A fixed price contract will minimize the need for change
control.
b. Changes seldom provide real benefits to the project
c. Contracts should include procedures to accommodate
changes.
d. More detailed specifications eliminate the causes of
changes.

Answer C

4. CLOSE PROCUREMENTS


1. Procurement Documentation 1. Procurement Audits
2. Project Management Plan 2. Negotiated Settlements
3. Records Management System

OUTPUTS

1. Closed Procurement
2. Organizational Process Assets Updates


4. CLOSE PROCUREMENTS

The process of completing each project procurement.

Involves verification that all of the procurement work
was completed and accepted. (Product Verification)


4. CLOSE PROCUREMENTS - Inputs

2. Procurement Documentation
 The contract.
 Supporting schedules
 Requested and approved changes
 Technical documentation
 Performance reports
 Financial reports


4. CLOSE PROCUREMENTS – Tools
and Techniques
1. Procurement Audits:
 A structured review of the procurement
process from Plan Procurements to Administer
Procurements.
 The objective is to identify the successes and
failures that warrant recognition.
2. Negotiated Settlements
3. Records Management System.


4. CLOSE PROCUREMENTS – outputs

1. Closed Procurements: Formal written notice
that the contract has been completed.
2. Updated Organizational Process Assets:
 Contract File:
 A complete set of indexed contract documentation.
 Deliverable Acceptance:
 A formal written notice from the buyer that the
contract has been accepted.
 Requirements should be defined in the contract.
 Lessons Learned documentation


R

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Procurment Management

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