Deck 3 Flashcards
Quality Planning should be performed parallel with the other planning processes. True or False?
TRUE
Cost of Quality (COQ) can be defined as?
- Includes all costs incurred over the life of the product A. Investment in preventing nonconformance to requirements B. Appraising product for conformance to requirements C. Failing to meet requirements (rework)
Cost of conformance includes?
Not found in PMBOK version 4. May be a version 3 thing.1. Prevention costs (build a quality product) 2. Appraisal costs (assess the quality)
Cost of non-conformance includes?
- Internal failure costs (failures found by project) 2. External Failure Costs (failures found by customer)
Design of experiments can be described as?
- A statistical method for identifying which factors may influence specific variables of a product or process 2. used during Plan Quality process to determine the number and types of tests and their impact on quality 3. plays a role in the optimization of products/processes 4. used to reduce the sensitivity of product performance to sources of variations by environ/manufact. differences 5. systematically changes all the factors at once, rather than one at a time
What part of the quality process is iterative?
Perform Quality Assurance. Provides an umbrella for continuous improvement
How often is Perform Quality Control done throughout the project?
It is done throughout the project
Looking at the project practices of comparable projects refers to what Tool/Technique?
Benchmarking
Looking at the project practices of comparable projects refers to what part of the Quality Management process?
Plan Quality
Measuring 4 of the 400 doors produced is called what (Tool/Technique)?
Statistical Sampling
What part of the Quality Management process are you in if you are measuring 4 of 400 doors produced?
Perform Quality Control
What tools/techniques is being used when identifying the factors that influence particular variables of a product or process?
Design of Experiments
When identifying the factors that influence particular variables of a product or process, what part of the Quality Management process is this?
Plan Quality
What tools/techniques is being used when analyzing a chart of problems to find the most frequent to see which one should be improved?
Pareto Chart
What tools/techniques is being used when comparing the expense of quality efforts to the ROI?
Cost benefits analysis
What part of the Quality Management process are you in when comparing the expense of quality efforts to the ROI?
Plan Quality
What tools/techniques is being used when determining acceptable lower and upper variance thresholds?
Control Chart
What part of the Quality Management process are you in when determining acceptable lower and upper variance thresholds?
Plan Quality
What tool is being used when comparing what was done to what was documented as needing to be done?
Checklists
What part of the Quality Management process are you in when comparing what was done to what was documented as needing to be done?
Perform Quality Control
What tools is being used you estimate based on a subset of individuals from within a larger population?
Statistical Sampling
What part of the Quality Management process are you in when selecting 3 projects to refer to out of 12?
Plan Quality
What tools/techniques is being used when graphically representing a process to determine where a process is achieveing low-quality results might be failing?
Flowcharting
What part of the Quality Management process are you in when graphically representing a process to determine where a process is achieveing low-quality results might be failing?
Perform Quality Control
What tools/techniques is being used when comparing measurements to the upper/lower limits?
Control Chart
What part of the Quality Management process are you in when comparing measurements to the upper/lower limits?
Perform Quality Control
What tools/techniques is being used when graphically representing a process to determine where quality problems might arise?
Flowcharting
What part of the Quality Management process are you in when graphically representing a process to determine where quality problems might arise?
Plan Quality
What tools/techniques is being used when analyzing a graphic with an organized series of lines displaying issues that might have lead to a defect to examine if the proper process was followed?
Cause and Effect Diagram
What part of the Quality Management process are you in when analyzing a graphic with an organized series of lines displaying issues that might have lead to a defect to examine if the proper process was followed?
Perform Quality Assurance
What tools/techniques is being used when showing data in the form of bars to measure and plot how frequently a problem occurred
Histogram
What part of the Quality Management process are you in when showing data in the form of bars to measure and plot how frequently a problem occurred
Perform Quality Control
What tools/techniques is being used when collecting many data points to look at the pattrn of relationships or correlation between two variables
Scatter Diagram
What part of the Quality Management process are you in when collecting many data points to look at the pattrn of relationships or correlation between two variables
Perform Quality Control
What tools/techniques is being used when using a bar chart to show how many problems occurred for each cause and arranging them according to the frequency in which the problems occurrred
Pareto Chart
What tools/techniques is being used when creating a list of items to be checked during inspections
Checklists
What part of the Quality Management process are you in when creating a list of items to be checked during inspections
Plan Quality
What process group is Plan Quality in?
Planning
What process group is Perform Quality Assurance in?
Executing
What process group is Perform Quality Control in?
Monitoring and Control
Actual Cost (AC) is…?
Actual Cost is the actual cost of work performed during the selected time period; As of today, what are the actual costs incurred to date?
Analogous Estimating has what advantages/disadvantages?
- Quick 2. Activities need not be identified 3.Less costly 4. Gives PM an idea of mgmnt’s expectations 5. Overall project costs will be capped 1. Less accurate 2. Estimates are prepared with limited non-detailed data 3. requires experience 4. infighting to grab biggest piece of budget 5. extremely difficult for projects with uncertainty 6. Does not take into account the differences between projects
Bottom-up Estimating has what advantages/disadvantages?
- More accurate 2. gains buy-in from team 3. based on details analysis of project 4. provides basis for monitoring and controlling, perf measurement, and mgmnt 1. takes time and expense 2. tendency for team to pad 3. requires project be well defined and understood 4. requires time to break the project down into smaller pieces
Bottom-up Estimating is…?
Detailed estimates for each activity to work package; then they are rolled up into control accounts, then into an overall project estimate
Budget At Completion (BAC) is…?
How much did we budget for the total project?
Budget Estimate can be described as?
- Made during planning process 2. typical range of -10 - +25% from actual
Can historical information improve estimate accuracy?
Yes
Changes: When should changes be requested?
When cost problems occur
Constraints: Should a PM just accept constraints from mgmnt?
No; analyze the needs of the project, come up with own estimates, reconcile differences and present realistic objectives
Control Costs Process can be described as?
- The process of monitoring project status to updates project budget and managing changes to the cost baseline 2. This effort includes updating actual costs spent 3. Any increase to the budget must be approved through Perform Integrated Change Control 4. As we monitor costs we also must ensure that we are receiving value for the cost expended. We will find the earned value management technique useful in this context.
Controlling Costs includes what?
- influencing factors that create changes to the cost baseline 2. Ensuring requested changes are acted on timely 3. Managing the actual changes when and as they occur 4. Assuring that expenditures do not exceed the authorized funding by period and in total for the project 5. Monitoring cost performance to detect and understand variances from the cost baseline 6. Monitoring work performance against funds expended 7. Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource use 8. Informing appropriate stakeholders of approved changes 9. Acting to bring expected cost overruns within approved limits.
Control Costs Process has what inputs?
- Project management plan, which contains the cost management plan and the cost performance baseline 2. Project funding requirements from Determine Budget 3. Work performance information which comes from Direct and Manage Project Execution, and provides deliverable status, actual costs and estimates for cmpleted work 4. Organizational process assets, including cost control policies, procedures, and guidelines, as well as tools and monitoring and reporting methods.
Control Costs Process has what outputs?
- Work performance measurements (CV, SV, CPI, and SPI) for WBS components and control accounts. 2. Budget forcasts 3. Organizational process assets updates with historical information and lessons learned 4. Change requests when the baseline must be changed. These are processed through Perform Integrated Change Control process. 5. Project management plan updates, including the cost performance baseline and the cost management plan 6. Project document updates, including cost estimates and basis of cost estimates
Control Costs process TOOLS AND TECHNIQUES are?
- Earned value management 2. Forecasting 3. To complete performance index 4. Performance reviews 5. Variance analysis 6. Project management software
Control Costs: What actions should a PM take to control costs?
- follow the mgmnt cost plan 2. look at org process assets available 3. manage changes 4. measure project progress
Cost Aggregation can be described as?
Note: didn’t find this in PMBOK v.4 appendix, though. Could be version 3 information.1. Activity costs rolled into work packages 2. work packages rolled into control accounts then proj costs.
Cost Baseline is usually graphed as what?
The Cost Baseline is usually displayed as an S curve.
Cost Baseline is?
Contains the contingency reserves - represents the funds authorized
Cost estimating techniques are (4)?
- one-point 2. analogous 3. parametric 4. three -point
Cost Management Plan can be described as?
During the Develop Project Management Plan process the management team develops a cost management plan, included as part of the project management plan. It describes the form and criteria for planning, estimating, budgeting, and controlling project costs. It covers the “How” of cost management for project; 1. Level of accuracy - what rounding is used in cost estimating 2. Units of measure - days, weeks, dollars, Euros 3. Organizational procedure links, particularly through the specification of control accounts in the WBS 4. Control thresholds, to set an agre
Cost Performance Index (CPI) is?
Cost Performance Index (CPI) is the earned value divided by the actual cost (EV/AC).; CPI = EV/AC; We are getting $_____worth of work out of every dollar spent. Funds are or are not being used efficiently
Cost Risk can be described as
Who bears the cost of risk; i.e. for s fixed price contract, the seller bears the risk
Cost Variance (CV) is…?
Cost Variance (CV) is the earned value minus the actual cost (EV - AC); negative = behind schedule; positive = ahead of schedule
Cost: If the question on cost is relating to cost the formula will relate to?
AC
Cost: What are the 4 types of cost?
Direct and indirect costs are referenced in version 4 PMBOK. The other two, variable and fixed, are not.1. Variable 2. Fixed 3. Direct 4. Indirect
Definitive Estimate can be described as?
- Made during later in the project 2. typical range of +/-10 from actual
Depreciation is…?
Depreciation is devaluing an asset in the tax system. There are two kinds: 1. Standard depreciation, where the difference between start value and scrap value is divided by the number of periods 2. Accelerated depreciation, which generally requires tables of data to calculate. Two types are Sum of the Years Digits, and Double Declining Balance (DDB). Depreciates faster than standard. (just recognize these terms)
Determine Budget Process can be described as?
Aggregating the estimated cost of individual schedule activities or work packages to establish a total cost baseline for measuring project performance. It includes all authorized budgets but excludes management reserves.
Determine Budget Process has what outputs?
- Cost performance baseline, an authorized time-phased budget used to measure and monitor project cost performance. Sumss the approved budget expenditures by time period, and is displayed as an S-curve showing accumulated expenditures over time 2. Project funding requirements, which are set in a step function to stay ahead of the cost baseline considering cash flow delays. 3. Project document updates, including cost estimates, project schedule, and the risk register.
Determine Budget process TOOLS AND TECHNIQUES are?
- Cost aggregation, which aggregates by work package, then to higher levels such as control accounts, and ultimately the entire project cost 2. Reserve analysis, to establish contingency and management reserve requirements. 3. Expect judgement, particularly related to the application area of the project 4. Historical relationships for parametric or analogous estimates 5. Funding limit reconciliation, to relate timing of expenditures to any limitations on the commitment of funds during the project.
EAC: What EAC do you use when current variances are thought to be atypical of the future, assuming poor cost performance and a need to hit a firm completion date?
AC + [(BAC - EV) / Cumulative CPI x Cumulative SPI)]
EAC: What EAC do you use when current variances are thought to be atypical of the future?
AC + (BAC - EV)
EAC: What EAC do you use when the original estimate was fundamentally flawed?
EAC = AC + Bottom-up ETC
EAC: What EAC do you use when there are no variances or you will continue at the same rate of spending?
BAC/Cumulative CPI
Earned Value (EV) is…?
Earned Value (EV) is the budgeted value of work completed during the selected time period; As of today, what is the estimated value of the work actually accomplished?; Indicates potential deviation of the project from the scope, cost, and schedule baselines; will lead to budget forecasts, change requests and other items that will need to be communicated
Earned Value Management (EVM) is?
- Earned value is a commonly used method of measuring project performance. It integrates scope, cost, and schedule measures 2. The focus is the accurate measurement of physical performance against a detailed plan 3. It also allows for accurate prediction 1. EVM measures true cost performance “what we got for what we spent.” 2. It has three dimensions of data:A. The Planned Value (PV) of the work B. The Earned Value (EV) of the physical work accomplishedC. The Actual Costs (AC) incurred to accomplish the project
Estimate at Completion (EAC) is?
As of now, how much do expect the total project to cost?
Estimate Costs Process has what inputs?
- Scope baseline, includes the project scope statement, the WBS, and WBS dictionary. These are the sources of information about components and products of the project, as well as assumptions and constraints. 2. Project schedule, Which includes the quantity and amount of time resources will be required. This achieves the close linkage between Estimate Activity Resources and Estimate Costs 3. Human resource plan, indicates staffing requirements, cost rates, related reward costs 4. Risk register, so that risk mitigation costs are included in cost estimates 5. Enterprise environmental factors, including market conditions and published commercial databases or seller price lists 6. Organizational process assets, including cost estimation policies and templates, along with historical information and lessons learned
Estimate Costs Process has what outputs?
- Activity costs estimates, in summary form or in detail 2. Basis of estimates includes detail necessary to support the estimate and how it was determined. Also indicates the range of possible results as an indicator of the expected accuracy of the estimate 3. Project document updates including the risk register.
Estimate Costs Process is…?
- Develop an approximation of the costs of resources required for project activities 2. Estimates are based on the information known at a particular time, and can be expected to be reflined as the project proceeds, from a rough order of magnitude estimate
Estimate To Complete (ETC) is?
ETC = EAC - AC; “How much more will the project cost?”; From this point on, home much more to we expect to spend?
Estimate to Completion should be calculated periodically by the PM; True or False?
True, to make sure there are adequate funds
Estimated Value for in-process work packages is established how?
- The Measurement method should be specified in the cost management plan 2. Keep the EV calculation method as simple as possible 3. The first EV analysis should be performed at the 15-20% period of the project life cycle 4. Measurement methods: A. 0/100 : No credit until its done - You understate/conservative B. 50/50 : Take 50% when you start and 100 when done C. % Complete : Base on estimating and prone to subjective opinion D. Milestone E. Apportioned Effect : Divy % of hours to various tasks F. Level of Effort
Estimates are more accurate if
If smaller sized work components are estimated
Estimates should be reviewed for padding and reasonableness; True or False?
TRUE
Estimates: What are the three types of estimates?
- Rough Order of Magnitude (ROM) Estimate 2. Budget Estimate 3. Definitive Estimate
Estimates: What can decrease estimates?
Reducing or eliminating risks
Estimates: Who should estimate the work?
The person doing the work
Estimating cost process: What do you have at the completion of estimating cost process?
- activity cost estimates 2. and the basis for those costs 3. updates to risk register 4. project documents
Estimating should be based on what to improve accuracy?
The WBS
For indices (index), is greater than one good or bad?
Good; less than one is bad
For variances, is a negative good or bad?
Bad; positive is good
Forecast: What two cost formulas relate to Forecast spending?
ETC and EAC
Forecasting: Describe forecasting and its three approaches
- Making estimates or predictions of conditions in the project’s future based on information and knowledge available at the time of the forecast 2. As the project progresses, the project team may develop a forecast of the estimated cost at completion tha; 1. EAC forecast for ETC at the budgeted rate: EAC = AC + BAC - EV 2. EAC forecast for ETC at the cumulative CPI: EAC = BAC / CPI 3. EAC forecast for ETC considering both the CPI and SPI factors. This is used when we have a negative cost performance to date, and must meet a firm schedule date commitment. EAC = AC + (BAC - EV) / (CPI X SPI)
Future Value is?
Future Value is the value of something at a specific time in the future; FV = PV * (1 + r)to the n power; PV = Present Value; r = Interest Rate; n = Number of Periods; FV = Future Value
If the question on cost is regarding an index, like schedule performance index or cost performance index, the formula will start with what?
EV / something
Padding: Is it acceptable?
No
Percent Complete (performance) is determined with what equation?
Earned Value / Budget at Completion; EV/BAC
Percent Completion (schedule) is determined with what equation?
Project Value / Budget at Completion; PV/BAC
Performance Measurement Baseline is…?
The combination of the scope, cost, and schedule baselines
Performance Reviews are completed using what three tools?
- Variance analysis 2. Trend analysis 3. Earned value performance
Performance Reviews are used for what?
To compare cost performance over time, schedule activities or work packages over-running and under-running budget (Planned Value), milestones due, and milestones met.
Planned Spending: What two cost formulas relate to original planned spending?
PV and BAC
Present Value is?
Present Value is the value of something today to create a certain value in the future; PV = FV / (1 + r) to the n power; PV = Present Value; r = Interest Rate; n = Number of Periods; FV = Future Value; Planned Value is the budgeted cost for the work scheduled during the selected time period; As of today, what is the estimated value of the work planned to be done?
Project Cost Management can be described as?
Project Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that project can be completed within the approved budgets.
Project Estimate: What two items can the project estimate not be completed without?
- risk mgmnt activities 2. inclusion of reserves
Project Management Software is used how?
Software may be used to process actual costs and the EVM values, and to display graphical trends.
Project Selection Cost Measures are what?
- ROI : Return on Investment - IRR : Internal Rate of Return - NPV : Net Present Value- BCR : Benefit Cost Ration - For the above, pick the highest value - Payback Period, pick shortest ation - Opportunity Cost: the cost of projects not selected
Reserves are defined as?
- Contingency reserves are allowances for unplanned but potentially required changes resulting from the risks identified in the risk register. Included in the cost baseline 2. Management reserves are budgets reserved for unplanned changes to project sco
Key role responsible to fix this issue: Disagreement between to team members
Team Member
Key role responsible to fix this issue: Change of overall project deliverable
Sponsor
Key role responsible to fix this issue: Functional Mgr trying to pull EE off of project to do other work
Team Member
Key role responsible to fix this issue: PM doesn’t have authority to get things done
Sponsor
Key role responsible to fix this issue: Not enough resources to complete project
Sponsor/Functional Mgr
Key role responsible to fix this issue: Team unsure of what needs to happen
Project Manager
Key role responsible to fix this issue: Activity needs more time and will delay the project
Sponsor
Key role responsible to fix this issue: Activity needs more time without delaying the project
Project Manager
Key role responsible to fix this issue: Bad performing team member
Functional Manager
Key role responsible to fix this issue: Team is unsure of who is in charge
Sponsor
Key role responsible to fix this issue: Talk that the project is no longer needed
Sponsor
Key role responsible to fix this issue: Unrealistic schedule objective provided by the Sponsor
Sponsor
Key role responsible to fix this issue: Team is in conflict over priorities between activities
Project Manager
Key role responsible to fix this issue: Project is behind schedule
Project Manager
Key role responsible to fix this issue: Team member determines that another method is needed to complete an activity
Team Members
Key role responsible to fix this issue: Project is running out of funds
Sponsor
Key role responsible to fix this issue: Additional work being added that will add cost and was not identified during the risk mgmnt process
Sponsor
Role Responsible and when: Identify and involve stakeholders
Project Team
Role Responsible and when: Create WBS
Project Team
Role Responsible and when: Identify requirements
Project Team
Role Responsible and when: Help identify dependencies between activities
Project Team
Role Responsible and when: Decompose work packages they are responsible for into schedule activities
Project Team
Role Responsible and when: Provide time and cost estimates
Project Team
Role Responsible and when: Recommend changes
Project Team
Role Responsible and when: execute project management plan to accomplish work defined in the project scope stmnt.
Project Team
Role Responsible and when: possible involvement in creation of the project charter and scope stmnt.
Stakeholders
Role Responsible and when:
Stakeholders
Role Responsible and when: May be involved in Approving project changes if on the change control board
Stakeholders
Role Responsible and when: May be involved in verifying scope
Stakeholders
Role Responsible and when: May be involved in identify requirements
Stakeholders
Role Responsible and when: Assign specific EEs to the project
Functional Manager
Role Responsible and when: Let the PM know of other conflicting projects
Functional Manager
Role Responsible and when: provide SME
Functional Manager
Role Responsible and when: manage activities that happen within their functional area
Functional Manager
Role Responsible and when: Assist with team member performance related issues
Functional Manager
Role Responsible and when: Improve staff utilization
Functional Manager
Role Responsible and when: Selects appropriate process
Project Manager
Role Responsible and when: uses metrics to perform variance analysis
Project Manager
Role Responsible and when: Develops time and cost reserves
Project Manager
Role Responsible and when: accountable for project success or failure
Project Manager
Role Responsible and when: identifies constraints and assumptions
Project Manager
Role Responsible and when: Coordinates interactions between project and SHs
Project Manager
Role Responsible and when: May help write project charter
Project Manager
Role Responsible and when: in charge of project but not necessarily resources
Project Manager
Role Responsible and when: not necessarily tech expert
Project Manager
What team member leads and directs project planning efforts?
Project Manager
Role Responsible and when: Manages various projects or programs that may not be related
Portfolio Manager
Role Responsible and when: ensure selected projects bring value to org
Portfolio Manager
Role Responsible and when: works with Sr Execs to gather support for projects
Portfolio Manager
Role Responsible and when: getting the best return from resources invested
Portfolio Manager
Role Responsible and when: managing related projects
Program Manager
Role Responsible and when: ensuring selected projects support the strategic goals of the company
Program Manager
Role Responsible and when: providing oversight to adjust projects for program’s benefit
Program Manager
Role Responsible and when: guide and support individual PMs
Program Manager
Role Responsible and when: supplies list of risks during project planning
Sponsor
Role Responsible and when: provide expert judgment during project planning
Sponsor
Role Responsible and when: approves final project plan during project planning
Sponsor
Role Responsible and when: may indicate project milestones prior or during project initiation
Sponsor
Role Responsible and when: guides the process to get project approved and formalized, with assistance of PM if necessary prior or during project initiation
Sponsor
Role Responsible and when: ensures project buy-in throughout the org prior or during project initiation
Sponsor
Role Responsible and when: provides funding prior or during project initiation
Sponsor
Role Responsible and when: has requirements that must be met prior or during project initiation
Sponsor
Role Responsible and when: advocates and champions project prior or during project initiation
Sponsor
Role Responsible and when: protects project from outside influences and changes during executing and monitoring and Controlling
Sponsor
Role Responsible and when: clarifies scope questions during executing and monitoring and Controlling
Sponsor
Role Responsible and when: approves or rejects changes during executing and monitoring and Controlling
Sponsor
Role Responsible and when: provides formal acceptance of deliverables
Sponsor
What is a Contract?
A contract is a mutually binding agreement which obligates the seller to provide the specified product and obligates the buyer to pay for it. Terms and conditions of the contract become a key input to many of the seller’s processes. May contain the input (e.g., major deliverables, key milestones, cost objectives), or it may limit the project team’s options (a constraint). A contract may also be called an agreement, understanding, subcontract or purchase order. Most organizations have documented policies and procedures defining the procurement rules and authorities to sign and administer contracts on behalf of the organization. approval processes are usually more extensive for contracts, due to their legally binding nature. This also requires the use of specialists from necessary disciplines, such as contracting, purchasing, and law.
Describe the process Plan Procurements
Process of identifying which project needs can be best met by purchasing or acquiring products, services, or results outside the project organization and which project needs can be accomplished by the project team during project execution. Purchasing decisions are documented, specifying the approach and identifying potential sellers. Includes reviewing the risks involved in each make-or-buy decision. Procurement also is influenced by and influences the project schedule. Most consider buyer-seller responsibility for permits and/or professional licenses that may be required. Processes from Plan Procurements through Close Procurements are performed for each item to be acquired.
What are the INPUTS for the process - Plan Procurements?
- Scope baseline, containing the scope statement, WBS, and WBS dictionary., 2. Requirements documentation from the Collect Requirements process. Those with contractual and legal implications can include HSE, insurance, intellectual property rights, licenses, permits, etc., 3. Teaming agreements, legal contractual agreements between two or more entities to form a partnership or joint venture, or some other arrangement as defined by the parties. The agreement defines buyer-seller roles for each party. Agreement ends when business opportunity ends. This may be a result of a sharing response to a business opportunity., 4. Risk Register, includes risk-related information, 5. Risk-related contract decisions from Plan Risk Responses process. Includes insurance, bonding, services, and others as prepared to specify each party’s responsibility for specific risks. , 6. Activity resource requirements from Estimate Activity Resources process, 7. Project Schedule, 8. Activity cost estimates from Estimate Costs process, 9. Cost performance baseline provides information on the budget, 10. Enterprise Environmental Factors, including marketplace conditions, product market availability, suppliers (with past performance information), typical terms and conditions, and unique local requirements., 11. Organizational process assets, including procurement policies, procedures, and guidelines, procurement management systems and per-qualified sellers.
What are the TOOLS and TECHNIQUES of the process - Plan Procurements?
- Make or buy analysis, which is a general management technique to determine whether a particular product can be produced more cost-effectively by the performing organization or must be purchased from outside sources. Budget constraints may influence the decision. If we decide to buy, then we must decide whether to purchase or lease. Decision must reflect all costs, both direct and indirect., 2. Expert judgement is required to assess the inputs to the outputs from this process., - Purchase judgement, - Legal judgment, - Business and technical expertise, 3. Contract tyles. There are three broad categories:, - Fixed price or lump sum contracts, - Cost reimbursable contracts, - Time and Material (TandM) contracts, (Each category has different risk assumption by buyer and seller.)
When should you use a Fixed Price / Lump Sum Contract?
Fixed total price for a well-defined product. Fixed price contracts may also include incentives for performance on selected project objectives, such as schedule or cost. Sellers under fixed price contracts are legally obligated to complete such contracts, with possible penalties if they do not. Buyers must precisely specify the product or services. If the product is not well-defined, both the buyer and seller are at risk.
What is a Firm Fixed Price Contract (FFP)?
Most commonly used contract type. Favored by buyers because it firmly establishes the cost for goods, and is not subject to change unless the scope changes. Seller eats cost overruns.
What is a Fixed Price Incentive Fee contract (FPIF)?
Gives the buyer and seller some flexibility allowing deviation from performance, with financial incentives tied to achieving agreed to metrics, usually related to cost, schedule, or technical performance. Price determined when work is finished. Involves Point of Total Assumption.
What is Point of Total Assumption (PTA)?
Point at which seller is responsible for all cost overruns. PTA = [(Ceiling Price - Target Price) / Buyer Share)] + Target Cost
What is a Fixed Price With Economic Price Adjustment Contract (FP-EPA)?
Contract is used when agreement may span years, and permits adjustment to fixed prices based on changed conditions, such as inflation or cost increases for specific commodities. EPA clause must relate to some reliable financial index which is used to adjust the final price. The contract is intended to protect both the buyer and seller.
What is a Cost Reimbursable Contract?
Payment (reimbursement) to the seller for all legitamate actual costs, plus typically a fee representing seller profiit. It may include incentives for exceeding or falling below selected project objectives such as costs, schedule, or technical performance targets.
What is a Cost Plus Fixed Fee Contract (CPFF)?
Seller is paid for all allowable costs, and receives a fixed fee payment usually calculated as a percentage of the initial estimate, at the end of the job. Cost ca change, but fees don’t change unless scope changes.
What is a Cost Plus Incentive Fee Contract (CPIF)?
Seller is reimbursed for all allowable costs, and receives a predetermined incentive fee based on achieving certain performance objectives as specified in the contract. If final costs are less or greater than original estimated costs, both buyer and seller share the differences based upon a pre-negotiated sharing formula.
What is a Cost Plus Aware Fee Contract (CPAF)?
Seller gets all costs, with majority of aware fee based on satisfaction of subjective performance defined in the contract. Award is based on buyers satisfaction.
What is a Time and Material (TandM) Contract?
Hybrid type with aspects of both cost-reimbursable and of fixed-price:, - Cost-reimbursable because the contract is open ended, - Fixed-price because unit rates are preset (ex. senior engineer is $85/hour)
For the Contractor(Seller), order the contracts from the highest risk to the Contract(seller) to lowest risk
Note: I wasn’t able to verify this against PMBOK version 4.1. Firm Fixed Price (FFP)2. Fixed Price Incentive Fee (FPIF)3. Cost Plus Incentive Fee (CPIF) 4. Cost Plus Fixed Fee (CPFF) 5. Cost Plus Award Fee (CPAF)6: Time and materials (T&M)
For the Buyer (Customer), order the contracts from the highest risk to the Buyer (Customer) to lowest risk
Cost Plus Percent of Cost (CPPC), Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF), Fixed Price Incentive Fee (FPIF), Firm Fixed Price (FFP)
What are the OUTPUTS of the process - Plan Procurement?
- Procurement Management Plan, 2. Procurement statement of Work, 3. Make or Buy Decision Documents, 4. Procurement Documents, 5. Source Selection Criteria, 6. Change Requests
The Procurement Management Plan, which sets out how procurement processes will be managed, should address what (as needed)?
- Types of contracts, - Risk management issues, - Whether independent estimates will be used, - Interaction with performing organization procurement, purchasing, or contracting group., - Standard procurement documents needed, - Managing multiple providers, - Coordinating procurement with schedule and performance reporting, - Purchased items lead times, - Linking make-or-buy decisions to Activity Resource Estimating and Scheduled Development , - Set schedule dates for contract deliverables, - Identify performance bonds or insurance contracts, - Information provided to sellers for contract WBS, - Form and format for Contract Statement of Work , - Pre-qualified sellers list, - Procurement metrics used to manage contracts and evaluate sellers. Plan can be formal or informal, highly detailed or broadly framed, based on the needs of the project. It is a component of the project management plan.
What is the Procurement Statement of Work?
It defines just the portion of the project scope that is included within the related contract. It describes the procurement item in sufficient detail to allow sellers to determine if they can provide the items. It can include specifications, quantities, quality levels, performance data, when, work location, etc. It may be revised and refined as needed during procurement process until incorporated into a signed contract - Each procurement item requires a separate SOW, though multiple products or services can be grouped into a single SOW.
What is a Make or Buy Decision Document?
It documents the conclusions reached, and may include decisions reached, and may include decisions reached on requiring insurance or performance bonds.
What are Procurement Documents and what do they contain?
Procurement Documents are used to solicit proposals from prospective sellers., - Terms such as bid, tender, or quotation are generally used when the decisions will be based on price., - Proposal is generally used when other considerations, such as technical capability or approach and paramount., - Terms for the documents include RFI (request for information), RFP (request for proposal), RFQ (request for quotation), tender notice, invitation for negotiation, seller initial response. Meaning varies by industry and location.
When should Request for Quotation (RFQ) be used?
Procurement items are standard off the shelf and relatively low in price. A list of qualified sellers receives the RFQ.
When should Request for Proposal (RFP) be used?
Procurement items are complex, non-standard and high in price. Items are solutions to problems as specified by a Statement of Requirements.
When should Invitation for Bid (IFB) be used?
Procurement items are standard, but high in price. All items are clearly specified by a Statement of Work.
