Chapter 12. Procurement Management Flashcards
What is procurement management?
The set of processes that are used to obtain goods, services, or scope from outside of the organization.
Study Chp 12 Project Procurement Management in the 6th Edition PMBOK Guide for additional studying on this topic.
What are the processes and outputs associated with Procurement Management?
Plan Procurement Management:
- Bid Documents
- Source Selection Criteria
- Procurement Strategy
- Make or Buy Decisions
- Procurement Management Plan
- Independent Cost Estimates
- Procurement Statement of Work
Conduct Procurements - Selected Sellers Agreements
Control Procurements - Close Procurements, Work Performance Information
What are the two primary roles of Procurement Management?
Buyer - The organization or party purchasing (procuring) the goods or services
Seller - The organization or party providing or delivering the goods or services to the buyer.
The project manager can play either and/or both of these roles on the same project.
What are the 4 contract types:
Fixed Price
Cost Plus Fixed Fee
Cost Plus Incentive Fee
Time and Materials
Fixed Price (aka Lump Sum) Contract
Seller bears the risk - since the price is fixed, cost overruns may not be passed on to the buyer and must be borne by the seller.
Cost Plus Fixed Fee
Buyer bears the risk - since all costs must be reimbersed to the seller, the buyer bears the risk of cost overruns.
Cost Plus Incentive Fee
Buyer and Seller bear the risk - The buyer bears most of the risk, but the incentive fee for the seller motivates that seller to keep costs down.
Time and Materials
Buyer bears the risk - The buyer pays the seller for all time and materials the seller applies to the project. Thus, the buyer bears the most risk of cost overruns.
What are the 3 types of fixed price (lump sum) contracts?
Firm Fixed Price (FFP) - Price is fixed, with no provision for cost or performance overruns.
Fixed Price Icentive Fee (FPIF) - Price is fixed, with an incentive fee for meeting a target specified in the contract (such as finishing the work ahead of schedule). Both parties agree to a price ceiling and all costs above the cost ceiling must be covered by the seller. For this type of Fixed Price contract, Point of Total Assumption should be carefully considered.
Fixed Price Enconomic Price Adjustment (EP-EPA) - Popular when fluctuations in the exchange or interest rates may impact a project. An economic stipulation is included to protect the seller or buyer. The economic stipulation may be based on interest rates, consumer price index, cost of living adjustments, currency exchange rates, or other indices.
What are cost reimbursable contracts and the most common types?
Buyer agress to pay the seller for actual costs plus a fee that is actually the seller’s profit.
3 types:
Cost Plus Fixed Fee (CPFF) - Seller passes the cost back to the buyer and receives an additional fixed fee upon completin of the project. Fee is calculated as a % of the planned costs.
Cost Plus Incentive Fee (CPIF) - Seller passes the cost back to teh buyer and gets an incentive fee fro meeting a target (usually tied back to keeping costs low) specified in the contract.
Cost Plus Award Fee (CPAF) - Seller passes the costs back to the buyer, but the seller’s profit (award fee) comes from a deciion on whether or not to grant it, made subjectively by the buyer based on teh seller’s performance. The decision may not be appealed by the seller.
Time and Materials Contract:
Seller charges for time plus the cost of any materials needed to complete the work.
Point of Total Assumptions is what?
important to know
Point of Total Assumption is the cost point in the contract where a subcontractor assumes responsibility for all additional costs.
The formula for Point of Total Assumption is:
Target Cost + (Ceiling Price - Target Price) / ABC’s % share of cost overrun.
In Plan Procurement Management, which is typically favored (all other things equal) - buying externally or building internally?
Buying externally`
What are the inputs in Plan Procurement Management?
Project Charter
Business Documents > Business Case & Benefits Management Plan
Project Management Plan
Project Documents > Requirements Documentation (lists legal/contractual obligations that may impact procurements)
Enterprise Environmental Factors
Organizational Process Assets
What are the tools used in Plan Procurement Management?
Expert Judgement
Data Gathering
Data Analysis > Make or Buy Analysis
Source Selection Analysis (how you will select a seller)
- Least Cost
- Qualifications Only
- Quality-Based (Technical Score)
- Quality and Cost-Based
- Sole Source (no competition, one seller considered)
- Fixed Budget (budget given to seller; scope, quality and schedule negotiated)
Meetings
What are the outputs of Plan Procurement Management?
Procurement Management Plan
Procurement Strategy
Bid Documents - Written by the buyer, provided to the seller(s). They provide a narrative description of the work to be performed.
*Procurement Statement of Work - very different than the Project Scope Statement produced as part of Define Scope. Explains a section of the scope to potential sellers in enough detail so that they can decide whether or not they want to (or are qualiied to) pursue the work in question.
Source Selection Criteria
Make-or-Buy Decisions
Independent Cost Estimates - Procurement Sanity Check, to ensure costs are in line with what they should be
Change Requests
Project Documents Updates
Organizational Process Assets Updates
What is conduct procurements?
Carries out the procurement management plan, selects one or more sellers, and awards the procurement, usually in the form of a contract.
What are the inputs for Conduct Procurements?
Project Management Plan
Project Documents
Procurement Documentation
Seller Proposals - how they intend to satisfy the bid request, the technical aspects of their proposal, the price and the terms. Ideally, price is separated from other proposal components to allow for evaluation on technical merit and then on price.
Enterprise Environmental Factors
Organizational Process Assets
What are the tools for Conduct Procurements?
Expert Judgement
Advertising (trade publications, online sources, even newspapers) *sometimes required for compliance with law or regulations
Bidder Conferences - to convey info to all sellers, while keeping them on a level playing field
Data Analysis
Interpersonal and Team Skills, i.e. Negotiation
What are the outputs of Conduct Procurements?
Selected Sellers
Agreements, i.e. contracts that govern the relationship between the buyer and seller, as well as how and where disputes (aka claims) will be resolved
Change Requests
Project Management Plan Updates
Project Documents Updates
Organizational Process Assets Updates
On exam, agreement always means ?
Contract
A project manager should not attempt to write, negotiate, or change the contract on his own.
What are the inputs for Control Procurement?
Project Management Plan Project Documents Agreements Procurement Documentation Approved Change Requests Work Performance Data Enterprise Environmental Factors Organizational Process Assets
What are the tools use in Control Procurement?
Expert Judgement
Claims Administration - Ideally agreement is made but it may sometimes require mediation, arbitration or litigation (least desirable & should only be used as a last resort).
Data Analysis
Inspection (of product, not performance)
Audits (of the procurements/procurement process)
What are claims?
Disagreements, which may be over scope, impact of a change, interpretation of some piece of the contract that is legally binding, etc.
What are mediation and arbitration?
Forms of Alternative Dispute Resolution (ADR)
What are the outputs of Control Procurement?
Close Procurements Work Performance Information Procurement Documentation Updates Change Requests Project Management Plan Updates Project Documents Updates Organizational process Assets Updates
Agile Perspective on Procurement Management:
- Vendor relationships seen as opportunities for collaboration
- Procurement activities performed in adaptive way, without changing procurement process
Plan Procurement Management - Understanding framework of procurement policies and mapping out how they would be implemented. No set way, adaptive solutions.
Conduct Procurements - May involve the team selecting a seller and, where advantageous and possible, adding them to the team.
Control Procurements - Periodic review of performancing to ensure meeting obligations, taking corrective action as needed.
