11 Procurement Flashcards
Define procurement
-Process by which products and services are acquired for an external provider
-Incorporation into the project, programme or portfolio
What is the procurement strategy and what 3 things does it include?
Process of acquiring goods and services
-Make or buy decisions
- supplier selection
- decision on contractual relationships
What does the procurement strategy describe and what document is it a part of?
-How the project will go about procuring and managing services and goods
-PMP
What should the procurement strategy be developed alongside?
The business case
What are the 2 decisions for procurement and the 4 considerations?
Make or buy
-Understand functional and technical specification to understand the cost and time
-Understanding of capacity, speed and availability
-Defined required quality aspirations
-Engagement with relevant stakeholders
What are the main objectives of a competitive tender?
Achieve best VfM and ensure the process is transparent and fair
What are the 7 stages of the tender process?
-Research the market
-Pre-qualify suppliers
-ITT
-Respond to queries from bidders (seek clarification)
-Receive and evaluate bids
-Award contract
-Enter contract
What are the 3 supplier makeups?
-Single supplier
-Integrated supplier
-Multiple suppliers
Explain single supplier and give a benefit and drawback
Preferred supplier with strong existing relationship used for all requirements
-Less time and cost for procurement
-Risk of over-reliance (disruption etc.)
Explain integrated supplier and give a benefit and drawback
Supplier in the project team
-Optimum delivery (greater transparency and communication)
-Difficulty in feeding back issues and maintaining confidentiality
Explain multiple suppliers and give a benefit and drawback
Price competition between suppliers
-Reduced risk of supply shortage/disruption
-Increased cost in contract negotiations
What are the 3 negotiation techniques used?
-BATNA (Best Alternative to a Negotiated Agreement)
-ZOPA (Zone of Possible Agreement)
-Win Win
Explain BATNA and a benefit
Best fallback position
Useful to understand for both parties
Explain ZOPA and a benefit
Bargaining range where both parties’ minimum targets overlap
Successful outcome when the final agreement takes place anywhere within ZOPA range
List the 4 types of payment option and their suitability
-Time and materials price - client pays per unit (when specification is vague)
-Cost plus - client pays actual cost of work plus % profit (when work is urgent)
-Contract target cost - cost agreed upfront, supplier and client work together to achieve it (when relationships are collaborative)
-Fixed price - price based on scope of work (when scope is clearly defined)
Pros and cons of Time and materials/unit price
Pros:
Flexibility: Allows for adjustments as the project evolves.
Transparency: The business can see exactly what it’s paying for.
Cons:
Potential for budget overruns: If not carefully managed, costs can escalate.
Requires close monitoring: Both parties need to closely track time and materials to avoid disputes.
Pros and cons of Cost plus Fee
Pros:
Quick start: Work can begin without a fully detailed project scope.
Fair compensation: The supplier is assured of covering their costs plus a profit margin.
Cons:
Risk of cost escalation: The client company might face higher costs if the project scope expands or becomes more complex.
Less incentive for efficiency: Since costs are covered, the supplier may not be as motivated to control expenses.
Pros and cons of Target Cost/Price
Pros:
Encourages collaboration: Both sides have a vested interest in working together efficiently.
Shared risk: Both parties share the financial risk, incentivising cost control.
Cons:
Requires strong partnership: Success depends on a high level of trust and communication.
Complexity: Establishing and managing target costs can be complex.
pros and cons of fixed price
Pros:
Budget certainty: The client knows the total cost upfront, which is easier for financial planning.
Incentive for efficiency: The supplier is motivated to complete the project within budget to maximise profit.
Cons:
Limited flexibility: Any changes to the scope can be costly and require renegotiation.
Higher initial cost: The price might be higher to account for potential risks endured by the supplier.
Four stages of negotiation process
Plan - dentify your desired goals (MoSCoW)
Discussion
Agreement
Review
