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PMP > Procurement > Flashcards

Procurement Flashcards

1
Q

Who incurs the greatest financial risk in the Fixed Price Category

A

Seller

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2
Q

How much fee does a seller make on a Firm Fixed Price Contract

A

Only what’s built into the contract

If the seller has a cost overrun he takes a loss

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3
Q

What is lowest risk contract to buyer

A

FFP is lowest risk for buyer

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4
Q

Is a Cost Price Incentive Fee (CPIF) a fixed price contract?

A

No.

The final price of the contract is not fixed unless the seller’s cost reaches the price ceiling.

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5
Q

What are the elements of a FPIF contract?

A

CST3

Target cost

Target Fee

Target Price = target cost + target profit

Ceiling Price: Max amount buyer will pay
(protects the buyer)

Share Ratio: e.g.

70/30

Underrun
buyer gets 70% of the underrun

Overrun
Seller profit reduced by 30%

Profit = Target Profit + 30% underrun OR
Target Profit - 30% of overrun

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6
Q

What is the point of total assumption for a FPIF contract?

A

Point at which the seller assumes all the cost risk

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7
Q

How do you calculate PTA?

A

PTA =
Remember use the “P” in PMP to think Price although the “P” actually means “Point”

🎯Target COST+(Ceiling Price-🎯 Target Price)/ Buyer’s Share

  1. So you don’t need Actual Cost
  2. . PTA only works with FPIF contracts
  3. There is no PTA for CPIF contracts because there is no ceiling price
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8
Q

What is a Fixed Price with economic price Adjustment (FP-EPA

A

Some items are out of control of the seller (e.g. inflation, currency adjustments)

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9
Q

Who has more financial risk in the Cost Reimbursable CATEGORY

A

Buyer

Buyer pays for all legitimate costs + a fee

Not guaranteed a product

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10
Q

What is the Point of Total Assumption in a Cost Plus Incentive Fee (CPIF)

A

There is none.

There is no ceiling price thus no PTA

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11
Q

What are the elements of a CPIF contract

A

SM2T2

Target Cost

Target Fee

Minimum Fee

Maximum Fee

Share Ratio

No PTA (No Ceiling Price)

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12
Q

What is the Maximum Fee in a Cost Plus Award Fee (CPAF) contract?

A

Max Fee = Base Fee + 100% Award Fee

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13
Q

What are the key components of a CPAF contract?

A 
Estimated Costs
Base Fee
Award Fee
Fee determination period
Fee criteria
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14
Q

What is the primary reason a buyer would use a CPAF contract

A

ensure the seller’s objective align with buyer’s objectives

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15
Q

What are the elements of a Cost + Fixed Fee Contract?

A

Target Cost

Fixed Fee

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16
Q

What is the Fee on a Cost Plus Fixed Fee contract?

A

% of ESTIMATED costs

(therefore a fixed #)

It Does not change regardless of seller’s legitimate costs

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17
Q

What are the elements of a Cost + Percentage Cost contract?

A

Estimated Costs
Fee: % of ACTUAL costs (not target costs)

Thus seller motivated to drive up costs

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18
Q

A TM contract is a hybrid of a fixed price and CR contract. What is the fixed price element?

A

Buyer will pay a fixed price/hr for labor

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19
Q

A TM contract is a hybrid of a fixed price and CR contract. What is the CR element?

A

Buyer pays for all material costs at cost even though total material cost is not known.

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20
Q

Buyer Risk from Low to High

A 
CPCC
CPAF
CPIF
CPFF
FP-EPA
FPIF
FFP
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21
Q

What is seller risk from Low to High

A 
CPPC
CPAF
CPFF
CPIF
FP-EPA
FPIF
FFP
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22
Q

Calculation for Rent versus Buy

A

Rental Cost * #Days =
Investment Costs +((cost to operate* #Days))

You can also solve for #Days with algebra

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23
Q

What are the two contract categories?

A

Fixed Fee

Cost Reimbursable

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24
Q

When is a Fixed Fee Contract used

A

Rqmts are well defined

No significant changes to scope expected

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25
Q

When is a Cost Reimbursable contract used?

A

When scope of work is expected to change significantly

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26
Q

5 types of Intent to Buy Documentation

A 
C-SUMP
Contract
SLA
Understanding
MoA
Purchase Order
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27
Q

What Knowledge area includes the processes to purchase or acquire products

A

Procurement Management

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28
Q

What are the 3 Processes of Procurement Mgmt

A

Plan Procurement Mgmt
Conduct Procurements
Control Procurements

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29
Q

What are the 5 TnTs for Plan Procurement Mgmt

A 
SMED2
Source Selection Analysis (Planning how to conduct Source Selection)
Meetings
Expert Judgement
Data Analysis (Make/Buy)
Data Gathering
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30
Q

What are the 5 TnTs for Conduct Procurements

A 
B-IDEA
Bidders Conference
Interpersonal Skills
Data Analysis (Source Selection)
Expert Judgement
Advertising
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31
Q

What are the 5 TnTs for Control Procurements

A 
C-IDEA
Claims
Inspections
Data Analysis 
Expert Judgement
Audits
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32
Q

Emerging Practices in Procurement Mgmt

A 
Advances in Tools to manage contracts
More advanced Risk Mgmt
Changing Contracting Processes
Logistics and Supply Chain Mgmt
Technology and stakeholder relations
Trial Engagements (Like a fly off)
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33
Q

What are the Inputs to Plan Procurement Mgmt

A 
BEO-P3
Business Documents
EEFs
OPAs
Project Charter
Project Mgmt Plan
Project Documents
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34
Q

Plan Procurement Mgmt Outputs

A 
I-COMBSP4
*Independent Cost Estimates
Change Requests
OPAs
*Make or Buy Decisions
Bid Documents
*Source Selection Criteria
Procurement Mgmt Plan
*Procurement Strategy
*Procurement SoW
Project Document Updates
35
Q

Why is a Fixed Price contract the most commonly used contract type

A

Price of goods set at outset

Not subject to change (Unless scope changes)

36
Q

Who is responsible for all costs above the price ceiling in a Fixed Price Incentive Fee contract

A

Seller

37
Q

Why would you use a Fixed Price Incentive Fee Contract

A

Gives buyer and seller some flexibility

When you want financial incentives tied to Cost/ Schedule/Performance

38
Q

When do you use a “Least Cost” Source Selection method

A

Procurements are of a standard or routine nature

Well-established practices and standards exist

39
Q

PTA Calculation

A

PTA=

Total Cost+ (Ceiling PRICE-Target PRICE)/(Buyer’ s Share)

40
Q

Total Fee

A

Total Fee=Target Fee+

(Target Cost-Actual Cost)*Seller’ s Share

41
Q

What procurement process is EV analysis part of

A

Control Procurements (It’s the Data Analysis part)

42
Q

Audit is a TnT of what process

a. Plan Procurement
b. Conduct Procurements
c. Control Procurements
d. Validate Procurements

A

Control Procurements

43
Q

Tools and Techniques of Control Procurements

A 
C-IDEA
Claims Administration
Inspection
Data Analysis (EVM)?
Expert Judgement
Audits
44
Q

Does seller start losing OWN $$ at TPA?

A

No.

45
Q

Does seller START losing Profit at TPA?

A

Yes.

Remember the 183K TPA at $200K Ceiling Price—still made $17K Profit at TPA

46
Q

What do we follow in In CONDUCT PROCUREMENTS

A

PMP

47
Q

Inputs to CONDUCT PROCUREMENTS

A

PMP
Procurement Documents
*Seller’s Proposals
Project Documents

48
Q

What is the term for something that represents bids, quotes and proposals

A

Seller’s Proposals

49
Q

In CONDUCT PROCUREMENTS, what is an important project document

A

Updated risk register

50
Q

Independent Estimates

A

3rd Party

51
Q

When do we want an independent estimate

A

When we get only a few proposals

52
Q

What is the term for when a bidder low-balls the price?

A

Buy In

53
Q

Negotiations

A

Not just cost; e.g. Responsibility

54
Q

Centralized Contracting

A

Procurement executed by corporate group
Volume Discounts
Better able to specialize

55
Q

Decentralized Contracting

A

Procurement executed by team
More loyal to team and project
Quicker response to project requests

56
Q

5 Elements of a Contract

A

C-COAL
1. Consideration (exchange something of value)
Other
2. Competent parties (2 legal entities)
3. Offer
4. Acceptance
5. Legality of Purpose (no illegal purchases)

If it’s in the contract, it needs to be completed
If it’s not in the contract, it should not be accomplished

57
Q

What is Force majeure

A

Act of God or Environment

58
Q

What is Fait accompli

A

Item is closed to further negotiation

59
Q

Letter of Intent

A

If I buy, I buy from you
Not a commitment
Not a contract

60
Q

What type of contract are used for purchase orders

A

FFP ??

61
Q

Calculation for Total Fee

A

Total Fee = Target Fee +

(Target Cost - Actual Cost)*Seller’s Ratio

62
Q

What contract poses the highest risk to the seller

A

Firm Fixed Price

63
Q

In a FPIF contract, when do buyer and seller share the risk

A

When costs are below the PTA

64
Q

In a FPIF contract, when does the share ratio become 0%/100%

A

At PTA

65
Q

What contract types can’t be used if the contractor does not have an adequate cost accounting system

A

fixed price incentive contract
any cost reimbursable contract

because they require the seller to accurately report on costs

66
Q

Ceiling Price vs. Total Price

A

Total Price must be <= Ceiling Price

That’s why it’s called a CEILING

67
Q

Watch out for Acronyms

A

Difference between FFP and FPIF

Difference between CPAF and CPIF

68
Q

Watch Out for “Seller” versus “Buyer”

A

You’re reading into the question!

69
Q

What are the components of Total Fee

A
  1. Target Fee
  2. Adjustment based on how well the seller did wrt cost
    (Target Cost-Actual Cost) * %Seller %

If the seller spent more than planned, the adjustment is negative but regulated by the Seller %

70
Q

Can the equation for Total Fee be used for both a FPIF and CPIF?

A

Yes. But there are 2 caveats

  1. With a FPIF, you have a ceiling PRICE
    PRICE = Actual Cost + Total Fee
    PRICE <= Ceiling PRICE
  2. With a CPIF, you have a Max And a Min
    Total Fee >= Min Fee OR
    Total Fee >= Max Fee
71
Q

What characteristics do FPIF and CPIF contracts share

A

When the seller overruns, the seller’s profit is decreased

When the seller underruns, the seller’s profit is increased

There is a share ratio that represents how the buyer and seller will share cost overruns and underruns

72
Q

What is the key differentiaters between CPIF contracts and FPIF contracts

A

In a CPIF contract, there is price ceiling to protect the buyer

In a Fixed Price Incentive Fee contract, there is a maximum fee the buyer will pay

73
Q

Describe how the Fixed Fee in a Cost + FIXED Fee contract is determined

A

Buyer and Seller agree on ESTIMATED costs

Buyer and Seller agree on a reasonable fee

Fee is a % of ESTIMATED Costs so it become a number

Fixed Fee does not change, regardless of the seller’s actual costs

74
Q

In Questions 11-20 you got

3x you should have gotten right if it was not for math or speeding through questions

A

13: Wrong because you added a fee based on an overrun instead of subtracting

75
Q

What does PTA tell you

A

Are Seller’s COSTS on TARGET?

76
Q

Buyer Risk Low to High

A 
FFP
FPIF
FP-EPA
TandM?
CPAF
CPIF
CPFF
CPCC
77
Q 
Need contract for R and D and don't want seller to be concerned about incentives:  Which contract type
FFP
CPAF
CPFF
TandM
A

CPFF

Not FFP because scope changing
Not T&M because it’s long term work, not short term plug
Not CPAF because of focus on incentives

78
Q

What is the point where the
actual cost plus the resulting profit
is greater than or equal to
the price ceiling?

A 
PTA
Remember zenBridge example; 
AC was 183
Target Fee = 30K
So Actual PRICE  = 213K
Since Ceiling = 200K, payout was only 200K, so profit was 17K

AC+Profit = 183K+17K=200K ergo the Ceiling

79
Q

Contract where buyer is not allowed to see seller’s accounting records

A

Firm Fixed Price

80
Q

Why is buyer allowed to audit the seller’s accounting records on a FPIF, CPAF, and CPIF contract

A

Seller is reimbursed for actual legitimate costs

81
Q

CPFF
CPIF
FPIF
FFP

A

Contract vehicles in INCREASING order of risk to SELLER

“Risky” means potential for overrun. Not “potential for profit.”

CPFF: ktr gets legitimate costs + Fixed fee

CPIF: ktr gets legitimate costs + a fee that may be higher or LOWER than the fixed fee

Fixed Price Incentive Fee: Gets legitimate costs + Incentive Fee that could be higher or lower than the fixed fee but also must DELIVER

On a FFP, the seller may take a loss if he miscalculated.

82
Q

Least overall risk to Seller

A

Cost Plus Percentage Cost Contract

Fee based on % Actual, not estimated costs.

83
Q

T or False. On a T and M contract, the seller is reimbursed for actual legitimate labor costs.

A

False. The seller is reimbursed for the agreed-to labor RATE, not COSTS.

84
Q

Seller’s Risk from Low to High

A

CPCC
CPFF
CPIF
CPAF

TandM?

FP-EPA
FPIF
FFP

PMP (16 decks)

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