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PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 1
Procurement Management
ContractTeaming Agreements
Make or Buy Analysis
Proposals
Procurement management plan
Bidder conferences
Seller
Buyer
Hot Topics
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 2
Procurement Management
Project procurement Management includes processes required to acquire products and services from outside the organization.
Project procurement Management processes include the following.
1. Plan Procurements
2. Conduct Procurements
3. Administer Procurements
4. Close Procurements
Project Procurement Management includes the processes to purchase or acquire products, services or results needed from outside
project team to perform the work.
Project Procurement Management includes the processes to purchase or acquire products, services or results needed from outside
project team to perform the work.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 3
Procurement Management
Initiating Process Group
Planning Process Group
Executing Process Group
Monitoring & Controlling
Process GroupClosing Process
GroupPlan Procurements
Conduct Procurements
Administer Procurements
Close Procurements
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 4
Buyer-seller Relationship
A formal contractual relationship is developed and exists between buyer and seller
Buyer - The acquirer of products, goods or services.
Seller - The provider or supplier of products, goods or services.
A contract represents a mutually binding agreement that obligates seller to provide products, services or results and obligate buyer to provide monetary or other valuable consideration.
The buyer-seller relationship can exist at many levels on any one project,and between organizations internal to and external to acquiring organization.
An organization can be either buyer or seller of product, service or result under a contract.
An organization can be either buyer or seller of product, service or result under a contract.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 5
Plan Procurements
Plan Procurements is a process of documenting project purchasingdecisions, specifying the approach and identifying potential sellers.
Involves considering
Whether to acquire or not?
What to acquire?
When to acquire?
How to acquire?
How much to acquire?
Also considers
Potential Sellers
Risks involved in make-or-buy decisions.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 6
Plan Procurements
Inputs Tools and Techniques OutputsScope Baseline
Requirements Documentation
Teaming Agreements
Risk Register
Risk-related contract decisions
Activity resource requirements
Project Schedule
Activity Cost estimates
Cost performance baseline
Enterprise environmental factors
Organizational process Assets
Make-or-buy analysis
Expert judgment
Contract types
Procurement management plan
Procurement statements of work
Make-or-buy decisions
Procurement documents
Source selection criteria
Change requests
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 7
Inputs - Plan Procurements
Scope Baseline• Scope statement
− Product scope, service description, list of deliverables, acceptance criteria.• WBS
− Relationship among all components of project and project deliverables.• WBS Dictionary
− Identifies deliverables and description of work within each WBS
Requirements Documentation• Information about Project requirements that is considered during procurement
planning. • Requirements with contractual and legal implications
Teaming Agreements• Legal contractual agreements between two or more entities.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 8
Inputs (cont’d) - Plan Procurements
Risk Register• Contains Identified Risks, Risk owners and Risk Responses.
Risk-Related Contract decisions• Agreements including insurance, bonding, services.
Activity resource requirements• Information on specific needs i.e. people, equipment.
Project Schedule• Information on required timelines.
Activity Cost Estimates• To evaluate the rationale of the bids or proposals.
Cost Performance Baseline• Detail on the Planned budget over time.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 9
Inputs (cont’d) - Plan Procurements
Enterprise environmental factors• Conditions of market place
• Products, services or results that are available in the market place
• Suppliers, including past performance or reputation.
• Terms and conditions
• Unique local requirement
Organizational process assets• Formal procurement Policies, Procedures, Guidelines
• Management systems
• An established multi-tier system of pre-qualified sellers based on prior experience.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 10
Tools & Techniques - Plan Procurements
Make-or-buy analysis• Make or buy
• Purchase or rent
• Should consider Life cycle costs for the analysis
• Budget constraints influence make-or-buy decisions
Expert judgment• Expert technical judgment
• Expert purchasing judgment
• Expert legal judgment
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 11
Tools & Techniques (cont’d) - Plan Procurements
Contract types• Different types of contracts are more or less appropriate for different types of
purchases.
• The type of contract used and the specific contract terms and conditions set the degree of risk being assumed by both buyer and seller.
Types of contracts• Fixed price or lump-sum
• Cost-reimbursable
• Time and material (T & M)
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 12
Tools & Techniques (cont’d) - Plan Procurements
Contract typesFirm Fixed price –Most commonly used contract type. A fixed total price for a well-defined product and cost not to change unless the scope of work changes. Fixed price Incentive Fee contracts – Fixed price plus financial incentives for achieving performance targets. Fixed price with Economic price adjustment contracts – used when the contract period spans for considerable years. Fixed price with adjustments due to changed conditions i.e. inflation, increase in labor costs etc. Cost Plus Fixed fee contracts – Seller reimbursed for all costs (direct & indirect) for performing the work plus fixed fee. Cost Plus incentive fee contracts - Seller reimbursed for all costs (direct & indirect) for performing the work plus incentive fee on achieving performance objectives. Cost Plus award fee contracts - Seller reimbursed for all costs (direct & indirect) for performing the work plus fee based on subjective determination of seller performance. Time and Material contracts – Hybrid type of contract with aspects of Fixed (i.e. costs not to exceed and time limits) and Cost reimbursable (value of agreement not defined).
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 13
Tools & Techniques (cont’d) - Plan Procurements
Firm Fixed Price (FFP)
Fixed Price Incentive Fee (FPIF)
Fixed price with Economic price adjustment (FP-EPA)
Cost Plus Award Fee (CPAF)
Cost Plus Incentive Fee (CPIF)
Cost Plus Fixed Fee (CPFF)
Buyer’s risk
Seller’s risk
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 14
Outputs - Plan Procurements
Procurement management plan – Describes how the procurement processes will be managed. It includes,
Types of contracts to be used
Estimate preparation and evaluation
Standardized procurement document
Coordinating procurement with scheduling and performance reporting
Constraints and assumptions
Identifying performance bonds or insurance contracts to mitigate project risks
Format to be used for contract statement of work
Procurement metrics to be used to manage contract and evaluate sellers
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 15
Outputs (cont’d) - Plan Procurements
Procurement statement of work • Describes the procurement items in sufficient detail for prospective sellers to
determine if they are capable of providing the item
• Describes products, services or results to be supplied by seller
• Includes specifications, quantity desired, quality levels work location etc.
• Should include a description of any collateral services required for the procured item
Make-or-Buy decisions• What project products, services or results will be either acquired or will be
developed by project team
• Make-or-buy decisions document includes a short justification for decision
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 16
Outputs (cont’d) - Plan Procurements
Procurement documents - Used to seek proposals from prospective sellers.• Bids, tender, quotation – when seller selection decision is based on price.• Proposal – When seller selection is done based on technical skill or approach
Common names for different types of procurement documents are• Invitation for bid (IFB)• Request for proposal (RFP)• Request for quotation (RFQ)• Tender notice• Invitation for negotiation• Contractor initial response
Procurement documents should include:• The relevant statement of work• Description of the desired form of the response• Required contractual provisions
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 17
Outputs (cont’d) - Plan Procurements
Source selection criteria - Used to rate or score proposals (objective or subjective)• Understanding of the need• Overall or life-cycle cost• Technical capability• Risk• Management approach• Financial capacity• Production capacity and interest • Business size and type• References• Intellectual property rights• Propriety rights
Change requests
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 18
Questions
1. Which type of contract should be used for a well defined product?a. Unit–price contractb. Fixed-price contractc. Cost-reimbursable contract d. Partnership contract
2. All of the following are processes in project procurement management excepta. Contract terminationb. Conduct Procurementsc. Plan Procurementsd. Administer Procurements
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 19
Conduct Procurements
Conduct Procurements is a process of obtaining seller responses,selecting a seller and awarding a contract.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 20
Conduct Procurements
Inputs Tools and Techniques Outputs
Project Management Plan
Procurement Documents
Source Selection Criteria
Qualified Seller List
Seller Proposals
Project Documents
Make-or-buy decisions
Teaming agreements
Organizational process Assets
Bidder conferences
Proposal evaluation techniques
Independent Estimates
Expert Judgment
Advertising
Internet Search
Procurement Negotiations
Selected sellers
Procurement contract award
Resource calendars
Change requests
Project Management plan updates
Project document updates
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 21
Inputs - Conduct Procurements
Project Management Plan• Described earlier
Procurement Documents• Described earlier
Source Selection Criteria• Described earlier
Qualified Seller List• Listing of sellers who have been pre-screened based on their qualifications and past
experience. Procurement documents are directed to only those sellers.
Make-or-buy decisions• Described earlier
Seller Proposals• Seller-prepared documents that describe the seller’s ability and willingness to provide
the requested product, services or results• It is legal and formal offer in response to a buyers’ request
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 22
Inputs (cont’d) - Conduct Procurements
Project Documents• Risk Register
• Risk-related contract decisions
Teaming agreements• Described earlier
Organizational process Assets• Listing of prospective and previously qualified sellers
• Information on relevant past experience with sellers, both good and bad.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 23
Tools & Techniques – Conduct Procurements
Bidder’s conference• Contractor conference, vendor conference, pre-bid conference
• Meetings with prospective sellers prior to preparation of a proposal
• Ensure all prospective sellers have a clear, common understanding of the procurement
• Responses to questions may be incorporated into the procurement documents as amendments
Proposal evaluation techniques• Different techniques to rate and score proposals
Independent Estimates• Develop Independent Estimate to serve as a benchmark on proposed responses.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 24
Tools & Techniques (cont’d) – Conduct Procurements
Expert Judgment• Procurement review by expertise from functional disciplines such as legal, financing.
Advertising• Placing advertisements in general-circulation publications, such as newspapers, or in
specialty publications, such as professional journals
Internet search• Exploring Internet/Purchasing products on the Internet depending on the Procurement
type.
Procurement Negotiations• Involves clarification and mutual agreement on the structure and requirements of the
contract, prior to the signing of the contract.
• Contract negotiations conclude with a Contract document that can be signed by both buyer and seller.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 25
Outputs - Conduct Procurements
Selected sellers• Selected sellers are those sellers who have been judged to be in competitive range
based on outcome of proposal or bid evaluation• And who have negotiated a draft contract that will become actual contract when an
award is made.
Procurement contract award• A mutually binding agreement that obligates the seller to provide the specified product,
and obligates the buyer to pay for it. Major components in a contract document will include the following: Statement of Work, Schedule baselines, Performance reporting, Period of performance, Roles and Responsibilities, Pricing, etc.
Resource calendars• Quantity and availability of resources • Dates on which specific resource can active or idle
Change requests• Requested changes to project management plan and its subsidiary plans and other
components.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 26
Outputs - Conduct Procurements
Project Management plan updates• Updates to Procurement management plan, Scope baseline, Cost baseline, Schedule
baseline.
Project document updates• Requirements documentation
• Requirements traceability documentation
• Risk Register
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 27
Questions
1. Recent statistics indicate that more than 10,000 airline passengers are injured each year from baggage that falls from overhead bins. You recently were assigned to manage a project to make it safer to sit on an aisle seat on planes. You performed a make or buy analysis and decided to outsource an improved bin design and manufacture. You found out that it may be time-consuming to ensure that sellers have clear and common understanding of the procurement process and of needs of your project. Which technique may help you saving time?
a. Bidder Conferences
b. Internet Search
c. Advertising
d. Relevant local associations.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 28
Definitions
Term DefinitionRequest for Proposal (RFP)
Request for a price and a proposed method of meeting requirements
Often used when both price and technical evaluation determine winnersRequest for Quote (RFQ)
Materials or services
Price-drivenWarranty Implied Warranty. Act of sale implies:
General fitness for use
Fitness for special uses
Express Warranty
Beyond the mere act of the sale
Seller makes specific representationsArbitration Resolution of dispute outside court
Dispute referred to one or more person by whose decision they abide.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 29
Definitions (cont’d)
Term DefinitionForce Majeure In an extraordinary event or circumstance beyond the control of the
parties prevents one or both parties from fulfilling their obligations under the contract.
Breach / Material breach
Any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach.
Intellectual property
Intellectual property reflects the idea that this subject matter is the product of the mind or the intellect.
Retainage Retainage is a sum withheld from the progress payments to the Contractor and later paid in accordance with the terms of the construction contract.
Termination Cancellation of an outsourcing agreement.Waiver Voluntary relinquishment or surrender of some known right or privilege
A waiver can only release negligent activity, not intentional activity
The waiver must be signed voluntarily and with the full knowledge the right being waived
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 30
Definitions (cont’d)
Term DefinitionPurchase order Form of contract that is unilateral
Used for simple procurementsLetter of intent Normally not a contract but an agreement between two parties
No legal binding
Expresses Intention
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 31
Contractual elements
What is required to make a contract?• An offer
• Acceptance
• Consideration
• Legal capacity
• Legal purpose
A contract is mutually binding legal agreement that obligates the buyer to pay the seller to provide the specified products, services or results
and obligates the buyer to pay the seller.
A contract is mutually binding legal agreement that obligates the buyer to pay the seller to provide the specified products, services or results
and obligates the buyer to pay the seller.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 32
Administer Procurements
Process of managing procurement relationships, monitoring contract performance and making changes and corrections as needed.
Buyer and seller ensure that both meet their contractual obligations and have their legal rights protected
The legal nature of the contractual relationship makes it imperative that the project team be acutely aware of the legal implications of actions they take during administration of the contract
Payment terms should be defined within the contract and should link progress made with compensation paid
Procurement Administration process ensures that seller’s performance meets contractual requirements and that the buyer
performs according to the terms of the contract.
Procurement Administration process ensures that seller’s performance meets contractual requirements and that the buyer
performs according to the terms of the contract.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 33
Administer Procurements
Inputs Tools and Techniques Outputs
Procurement documents
Project management plan
Contract
Performance reports
Approved change requests
Work performance information
Contract change controlsystem
Procurement performance reviews
Inspections and audits
Performance reporting
Payment systems
Claims administration
Records management system
Procurement documentation
Organizational process assets (updates)
Change requests
Project management plan (updates)
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 34
Inputs – Administer Procurements
Procurement documents – discussed earlierProject Management Plan – discussed earlierContract – discussed earlierPerformance reports• Seller developed technical documentation and other deliverables information
provided in accordance with the contract terms • Seller Performance reportsApproved Change requests• Modifications to the terms of the contractWork performance information• Extent to which quality standards are met, what costs are incurred, sellers’
invoices etc. • Which deliverables have been completed and which have been not
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 35
Tools & Techniques - Administer Procurements
Contract change control system• Defines the process by which the contract may be modified. It includes: paperwork,
tracking systems, dispute-resolution procedures, approval procedures, performance reporting, payment system
Procurement performance reviews• Provides management with information about how effectively the seller is achieving the
contractual objectives
Inspection and audits• Required by buyer and supported by seller
Performance reporting• It provides management with information about how effectively seller is achieving
contractual objectives.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 36
Tools & Techniques (cont’d) - Administer Procurements
Payment systems• Handled by the accounts payable system of the performing organization
• It includes the appropriate reviews and approvals by the project management team
Claims administration• Contested changes where buyer and seller can’t agree on compensation for the
change.
• Also called claims, disputes and appeals
• Documented, Processed, Monitored and Managed throughout the contract life cycle.
Records Management system• Manage contract documents and records by maintaining an index of all documents
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 37
Outputs - Administer Procurements
Procurement documentation• Contains schedules, requested unapproved contract changes, approved change
requests, seller developed technical documentation and work performance information
Organizational process assets (updates)• Correspondence, payment schedule and requests, seller performance evaluation
documentation
Change requests• Change requests to Project management plan, its subsidiary plan and other
components i.e. Cost baseline, Performance baseline.
Project management plan (updates)• Updates to procurement management plan and Baseline schedule.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 38
Close Procurements
Completion and settlement of each procurement, including resolution of any open items
Involves product verification and administrative closeout
Early closure of contract is a special case of procurement closure
May result from mutual agreement of the parties or from default of one of the parties.
Procurements closure process involves verification that all work and deliverables were accepted.
Procurements closure process involves verification that all work and deliverables were accepted.
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 39
Close Procurements
Inputs Tools and Techniques Outputs
Project management plan
Procurement documentation
Procurement audits
Negotiated settlements
Records management system
Closed Procurements
Organizational process assets updates
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 40
Input - Close Procurements
Project management plan• Described earlier
Procurement documentation• Described earlier
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 41
Tools & Techniques - Close Procurements
Procurement audits• Structured reviews of the procurement process, from plan procurements through
Administer procurements
• Conducted to identify successes and failures in preparation or administration of other procurement contracts
Negotiated settlements• Settlement of Claims, outstanding issues. • When settlement cannot be achieved through direct negotiation, alternative dispute
resolution may be explored.
Records Mangement system• Described earlier
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 42
Outputs - Close Procurements
Closed procurements• Buyer provides the seller with formal notice that contract has been
completed.
Organizational process assets• Updates
− Procurement file
− Deliverable acceptance
− Lessons learnt documentation
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 43
Recap
ContractTeaming Agreements
Make or Buy Analysis
Proposals
Procurement management plan
Bidder conferences
Seller
Buyer
PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate
© 2009 Capgemini - All rights reserved 44
Review Questions Time
Review Questions