Chapter 12. Procurement Management

Question 1

What is procurement management?

Answer 1

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.

Question 2

What are the processes and outputs associated with Procurement Management?

Answer 2

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

Question 3

What are the two primary roles of Procurement Management?

Answer 3

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.

Question 4

What are the 4 contract types:

Answer 4

Fixed Price
Cost Plus Fixed Fee
Cost Plus Incentive Fee
Time and Materials

Question 5

Fixed Price (aka Lump Sum) Contract

Answer 5

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.

Question 6

Cost Plus Fixed Fee

Answer 6

Buyer bears the risk - since all costs must be reimbersed to the seller, the buyer bears the risk of cost overruns.

Question 7

Cost Plus Incentive Fee

Answer 7

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.

Question 8

Time and Materials

Answer 8

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.

Question 9

What are the 3 types of fixed price (lump sum) contracts?

Answer 9

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.

Question 10

What are cost reimbursable contracts and the most common types?

Answer 10

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.

Question 11

Time and Materials Contract:

Answer 11

Seller charges for time plus the cost of any materials needed to complete the work.

Question 12

Point of Total Assumptions is what?

important to know

Answer 12

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.

Question 13

In Plan Procurement Management, which is typically favored (all other things equal) - buying externally or building internally?

Answer 13

Buying externally`

Question 14

What are the inputs in Plan Procurement Management?

Answer 14

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

Question 15

What are the tools used in Plan Procurement Management?

Answer 15

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

Question 16

What are the outputs of Plan Procurement Management?

Answer 16

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

Question 17

What is conduct procurements?

Answer 17

Carries out the procurement management plan, selects one or more sellers, and awards the procurement, usually in the form of a contract.

Question 18

What are the inputs for Conduct Procurements?

Answer 18

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

Question 19

What are the tools for Conduct Procurements?

Answer 19

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

Question 20

What are the outputs of Conduct Procurements?

Answer 20

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

Question 21

On exam, agreement always means ?

Answer 21

Contract

A project manager should not attempt to write, negotiate, or change the contract on his own.

Question 22

What are the inputs for Control Procurement?

Answer 22

Project Management Plan
Project Documents
Agreements
Procurement Documentation
Approved Change Requests
Work Performance Data
Enterprise Environmental Factors
Organizational Process Assets

Question 23

What are the tools use in Control Procurement?

Answer 23

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)

Question 24

What are claims?

Answer 24

Disagreements, which may be over scope, impact of a change, interpretation of some piece of the contract that is legally binding, etc.

Question 25

What are mediation and arbitration?

Answer 25

Forms of Alternative Dispute Resolution (ADR)

Question 26

What are the outputs of Control Procurement?

Answer 26

Close Procurements
Work Performance Information
Procurement Documentation Updates
Change Requests
Project Management Plan Updates
Project Documents Updates
Organizational process Assets Updates

Question 27

Agile Perspective on Procurement Management:

Answer 27

• 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.