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By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com)
PMBOK Chap 12 – Proje...
By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
Learning Objectives - Project Procurement Management
Intro...
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Simple
Complex
Seller:
Provide something of value
Buyer:
P...
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Project Procurement Management -> Why Procure?
Organizatio...
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Project Procurement Management -> Definition
Other Organiz...
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Project Procurement Management-> Generic process
Planning ...
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Project Procurement Management -> -> What is contract?
Rep...
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C Project Procurement Management -> Who reviews contract?
...
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Procurement Manag.-> Centralized vs decentralized procurem...
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Project Procurement Management-> Centralized procurement
A...
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Project Procurement Management-> Decentralized procurement...
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Project Procurement Management-> Contract Types
Represents...
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Project Procurement Management-> Contract Types
Fixed Pric...
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Project Procurement Management-> Contract modifiers
Incent...
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Contract Types -> Fixed Price (Lump Sum or Firm Fixed Pric...
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Contract Types -> Fixed Price (Lump Sum or Firm Fixed Pric...
By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
Contract Types -> Fixed Price (Lump Sum or Firm Fixed Pric...
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Contract Types -> Fixed Price (Lump Sum or Firm Fixed Pric...
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Contract Types-> Cost Reimbursable Contract:
CPFF - Cost P...
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Contract Types-> Cost Reimbursable Contract:
CPFF - Cost P...
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Contract Types-> Cost Reimbursable Contract:
CPFF - Cost P...
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Contract Types-> Cost Reimbursable Contract:
CPFF - Cost P...
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Contract Types -> Time and Material:
• Contract = $1K per ...
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Contract Types -> Contract related terms
• Amount seller c...
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Contract Types -> Sam...
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Sample Questions
80%
...
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Sample Questions
FPIF (Fixed Price Incentive Fee) – Seller...
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Sample Questions
60%
(Buyer)
40%
(Seller)
Target Cost: 150...
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Sample Questions
PTA (Point of Total assumption):
• Amount...
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Sample Questions
Target Cost: 60,000
Target Fee: 15,000
Ta...
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Sample Questions
Target Cost: 60,000
Target Fee: 15,000
Ta...
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PTA – Key points
PTA can be more than the Ceiling Price.
A...
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Sample Questions
FPIF...
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Sample Questions
Targ...
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Contract -> Buyer vs Seller interest
Buyer
• Best Price
• ...
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Contract -> Buyer vs Seller Risks
FP or FFP
FP-IF
FP-EPA
C...
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Contract Types -> Fixed Price (Lump Sum or Firm Fixed Pric...
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Contract Types-> Cost Reimbursable Contract:
Cost Reimburs...
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Contract Types -> Time and Material:
Time and
Material:
Ad...
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Choose a correct Contract
Project situation
PM needs work ...
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Project Manager’s Role in Procurements
Know the procuremen...
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Procurement Management Processes
12.1 Plan Procurement Man...
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By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
12.1 Plan Procurement Management
Introduction
Plan Procure...
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12.1 Plan Procurement Management -> Introduction
Determine...
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12.1 Plan Procurement Management
The process of documentin...
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12.1 Plan Procurement Management -> ITTO
Inputs (9)
• PMP
...
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12.1 Plan Procurement Management->Input
PMP Requirements
D...
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12.1 Plan Procurement Management ->Input -> PMP
Scope Base...
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12.1 Plan Procurement Management ->Input->Requirements Doc...
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12.1 Plan Procurement Management->Input->Project Schedule
...
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12.1 Plan Procurement Management->Input->Activity Resource...
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12.1 Plan Procurement Management->Input-> Risk Register
Ta...
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12.1 Plan Procurement Management ->Input->Activity Cost Es...
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12.1 Plan Procurement Manag.->Input->Stakeholder Reg.
Prov...
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12.1 Plan Procurement Manag.->Input->EEF
EEF
Marketplace c...
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12.1 Plan Procurement Manag.->Input->OPA
Formal procuremen...
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12.1 Plan Procurement Management->T&T
Make-or-buy
analysis...
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12.1 Plan Procurement Management->T&T->Make or buy analysi...
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12.1 Plan Procurement Management->T&T->Make or buy analysi...
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12.1 Plan Procurement Manag.->T&T->Expert Judgement
To ass...
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12.1 Plan Procurement Management->T&T->Market Research
The...
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Business Experts Technical Experts Financial Experts Legal...
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12.1 Plan Procurement Management->Output
Procurement
Manag...
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12.1 Plan Procurement Management-> Output-> Procurement MP...
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12.1 Plan Procurement Management-> Output-> Decision
Make-...
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12.1 Plan Procurement Management-> Output->Procurement SOW...
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12.1 Plan Procurement Management-> Output->Source Sel. Cri...
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12.1 Plan Procurement Management -> Procurement docs.
Requ...
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12.1 Plan Procurement Management-> Output->Procurement doc...
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12.1 Plan Procurement Management-> Output-> Change Request...
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12.1 Plan Procurement Management->Output-> Document update...
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12.1 Plan Procurement Management-> Process Flow
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12.1 Plan Procurement Management -> Review
Procurement Man...
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12.2 Conduct Procurement
Introduction
Conduct Procurement ...
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Introduction – Procurement Management Processes
12.1 Plan ...
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12.2 Conduct Procurement
Seller1
Response
Seller2
Response...
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12.2 Conduct Procurement -> ITTO
Inputs (8)
• Procurement ...
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12.2 Conduct Procurement->Input
Procurement
Management Pla...
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12.2 Conduct Procurement->Input->Procurement Management Pl...
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12.2 Conduct Procurement->Input->Make-or-buy Decisions
Mak...
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12.2 Conduct Procurement->Input->Procurement SOW
Developed...
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12.2 Conduct Procurement->Input->Source Selection Criteria...
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12.2 Conduct Procurement->Input->Procurement Documents
Req...
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12.2 Conduct Procurement->Input->Seller Proposals
Contains...
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12.2 Conduct Procurement->Input->OPA
OPA
Listing of pre-
s...
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12.2 Conduct Procurement->Input
Describe overall selection...
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12.2 Conduct Procurement-> T&T
Advertisement Bidder Confer...
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12.2 Conduct Procurement-> T&T->Advertising
Existing lists...
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12.2 Conduct Procurement-> T&T->Bidder Conference
Contract...
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12.2 Conduct Procurement-> T&T->Bidder Conference
Contract...
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12.2 Conduct Procurement->T&T->Proposal Evaluation Tech.
T...
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12.2 Conduct Procurement->T&T->Proposal Evaluation Tech.
•...
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12.2 Conduct Procurement-> T&T->Independent Estimates
Inde...
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12.2 Conduct Procurement-> T&T->Analytical Techniques
Anal...
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12.2 Conduct Procurement-> T&T->Procurement Negotiations
C...
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12.2 Conduct Procurement-> T&T->Procurement Negotiations
P...
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12.2 Conduct Procurement-> T&T->Expert Judgement
Contracti...
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12.2 Conduct Procurement->Output
Selected sellers Agreemen...
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12.2 Conduct Procurement->Output->Selected Sellers
Selecte...
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12.2 Conduct Procurement->Output->Agreements
Any document ...
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12.2 Conduct Procurement -> Output-> Change Request
Once s...
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12.2 Conduct Procurement->Output->PMP updates
PMP
updates
...
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12.2 Conduct Procurement->Output->Project document updates...
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12.2 Conduct Procurement -> Process Flow
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12.2 Conduct Procurement -> Review
Conduct Procurement pro...
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PMP Chap 12 - Project Procurement Management Details - Part 1

PMP Chap 12 - Project Procurement Management Details - Part 1

Regardless of the project, when procurement results in hiring vendors who will complete all or some of the work on a project, Project managers need to understand their role in the procurement process. This presentation summarizes important procurement concepts, vendor selection process and contracting process.

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PMP Chap 12 - Project Procurement Management Details - Part 1

  1. 1. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) PMBOK Chap 12 – Project Procurement Management The processes necessary to purchase or acquire product, services, or results needed from outside the project team. Initiating Planning Executing Monitoring & Controlling Closing Plan Procurement Management Conduct Procurement Control Procurement Close Procurement We cannot solve our problems with the same thinking we used when we created them. - Albert Einstein Detailed Part-1
  2. 2. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Learning Objectives - Project Procurement Management Introduction Project Procurement management definition What is Contract ? Contract types? Contact price calculations examples PTA (Point of total assumption) calculations example. Procurement Management Processes overview Procurement Management Processes in detail Review of procurement management knowledge area Self Assessment P1 P2 P3 P4 L : Lesson
  3. 3. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Simple Complex Seller: Provide something of value Buyer: Provide monetary or other valuable compensation. Project Procurement Management-> Introduction Which Hat you are wearing? Buyer Seller
  4. 4. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management -> Why Procure? Organization don’t have expertise to carry out the work. Organization don’t have capability to do the work on your own. Lack of Human resource availability. Procurement may result in significant saving due to huge discount by seller.
  5. 5. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management -> Definition Other Organizations Outside the Project team The process is necessary to purchase and acquire product or services or result from outside the project team. This chapter assumes that the buyer of items for the project is assigned to the project team and that the sellers are organizations external to the project team.
  6. 6. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Generic process Planning Choosing a source Acquiring the product or services Administering the contract(Contract Manag. & Change control) Closing the contract Applied to Internal work orders Formal agreements Contracts between organization units Client / customer Contractor / Prime contractor Acquiring organization Service requester / Purchaser Buyer can be called as Generic Procurement process:
  7. 7. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management -> -> What is contract? Represents a mutually binding agreement. Obligates seller to provide specified product, service or result. Obligates buyer to pay for it. It provides the framework for how they will deal with each other. Contract is: Legally binding document. Can be referred to Court. Refer to other documents. Contract contain: Scope of work Major deliverables Key Milestones Terms & conditions Signing authority Contract; Subcontract Memorandum of Understanding (MOU), Letter of Intent (LOI) SLA, MO Purchase order. Agreement can be • Contract can be called as agreement, however agreement is not a contract. • Agreement is broader term. Contract Vs Agreement:
  8. 8. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 C Project Procurement Management -> Who reviews contract? Contract Review: • Ensure scope is adequately described (Product, service etc.). • Review price, contract terms & conditions, legal risks & legal language. • Goes through extensive approval process. •Buy: Outsourcing •Can be based on Strategic direction. •To manage a risk. •Required Cost Benefit Analysis. Make vs. Buy •Cost •Quality •Materials availability •Delivery (Milestones) •Payments Key procurement factors •Follow the process for each contract. •Even smallest of project where you acquire resources from other dept. can be considered as Verbal contract. Repeat Procurement
  9. 9. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Procurement Manag.-> Centralized vs decentralized procurement? Organizations Procurement policies: • Procurement policies; Rules, Regulations & procedures. • Vendor selection board; Negotiation team; Signing authority. • Mandatory involvement – Contract, Legal and Procurement departments. •Purchase/ Contracting & Legal dept. is responsible. •Expertize & Centralized support. •Standard process. •Volume discounts. Centralized •Contract manager is assigned to project. •Less overhead •Dedicated to Project Decentralized
  10. 10. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Centralized procurement Advantages • Procurement manager with higher level of expertise. • Contracting team may get training, opportunity for continuous improvement & shared lessons learned. • Standardized procurement practices allows efficiency & improve understanding. • Clearly defined career path. Disadvantages • Procurement manager will work on many projects, hence less understanding of unique needs of project. • PM may ace difficulty in obtaining Contracting help. Centralized
  11. 11. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Decentralized procurement Advantages • Dedicated Procurement manager. • PM has easier access contracting expertise. • Procurement manager has more loyalty to the project. • Procurement manager has better understanding of the project. Disadvantages • No home once the project is completed. • Difficult to maintain high level of contracting expertise. • Duplication of work & inefficient use of procurement resources. • Little standardization of process between different projects. • No career path. Decentralized
  12. 12. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Contract Types Represents a mutually binding agreement. Obligates seller to provide specified product, service or result. Obligates buyer to pay for it. Fixed Price Contract Cost Reimbursable Contract Times & Material Contract •Amount seller charges buyer.Price •This is how much cost seller incurred to create/build product.Cost •Planned in the price, seller provides to the buyer.Profit (fee)
  13. 13. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Contract Types Fixed Price Contract (as Lump sum or Firm Fixed price) Cost Reimbursable Contract Times & Material Contract Scope is well defined Cost is estimated by buyer during proposal. Fixed Price Additional cost is bared by seller. Profit is not disclosed to the buyer. Risk is on the seller. E.g., Mostly used in Construction. Scope is not exactly defined. Cost can not be estimated accurately. Target cost is agreed. Price is paid, based on costs incurred to build product. Profit (fees) is agreed separately. Risk is on the buyer. E.g., Research & development or Information technology. Efforts can not be defined. Scope per unit is defined. Buyer agrees to pay per-hour/item basis. Price is paid based on the allocation of resource not based on work completed. Seller has no incentive to control costs. Risk is on buyer (medium compared to CR) E.g., Staff augmentation in constructions or IT
  14. 14. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Procurement Management-> Contract modifiers Incentive Fee Award Fee Economic price Adjustment Fees paid based on Performance incentive. Performance criteria – work to be done faster, cheaper or better. Price calculated by Formula based on negotiated cost & total target cost. Can benefit seller or Buyer. Profit share in savings (E.g., 80% buyer & 20% seller) Similar to Incentive Fees. Award fee (bonus) paid based on the performance. Performance criteria – work to be done faster, cheaper or better. Award fee might be determined in advance or may be apportioned based on the performance. Sometime award fee is judged subjectively by buyer Used in contract with long duration when there is uncertainties about future economic conditions. Price linked to economic indicators, Government data etc. Price is paid based on the allocation of resource not based on work completed.
  15. 15. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Fixed Price (Lump Sum or Firm Fixed Price): FFP – Firm Fixed Price: FPIF - Fixed Price Incentive Fees Contract FP-EPA - Fixed Price with Economic Price Adjustment Contracts PO (Purchase Order) Fixed Price Simplest type of contract, in which price is fixed. The seller has to complete the job within an agreed amount and time. Any cost increase due to bad performance of the seller will be the responsibility of the seller Used in government or semi-government Easy to float in market & evaluate Evaluation is primarily based on a cost No or little monitoring required by buyer Risk is born by the seller Cost tends to be higher. Possible disputes between buyer & seller Scope changes can cost more to buyer. E.g., Contract Price = 1 Million 1
  16. 16. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Fixed Price (Lump Sum or Firm Fixed Price): FFP – Firm Fixed Price: FPIF - Fixed Price Incentive Fees Contract FP-EPA - Fixed Price with Economic Price Adjustment Contracts PO (Purchase Order) Fixed Price Even though price is fixed, seller is given an additional incentive based on his performance. Incentive lowers the risk taken by seller. Performance criteria can be work to be done faster, cheaper or better (Cost, time etc). E.g., Contract Price = 1 Million + Incentive Fees For every month early project is finished, an additional 10,000 is paid to seller. A variation is “FPIF successive target contract”. Incentive changes when first target is reached. 2
  17. 17. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Fixed Price (Lump Sum or Firm Fixed Price): FFP – Firm Fixed Price: FPIF - Fixed Price Incentive Fees Contract FP-EPA - Fixed Price with Economic Price Adjustment Contracts PO (Purchase Order) Fixed Price Used in multi year long contracts. E.g., Road construction, Rail road construction etc Used a special provision in a clause which protects the seller from inflation. E.g., Contract Price = 1 Million + Cost related to Economic Price adjustment Cost increase will be allowed in year 2 for specific materials based on commodity index. A variation is “Fixed Price with prospective price redetermination”. 3
  18. 18. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Fixed Price (Lump Sum or Firm Fixed Price): FFP – Firm Fixed Price: FPIF - Fixed Price Incentive Fees Contract FP-EPA - Fixed Price with Economic Price Adjustment Contracts PO (Purchase Order) Fixed Price This type of contract is used to buy commodities. E.g., Buying 10 laptops or 100 printer cartridges E.g., Contract Price = 10 X AED 5,000 = AED 50,000 4
  19. 19. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types-> Cost Reimbursable Contract: CPFF - Cost Plus Fixed Fee Contracts CPPC – Cost Plus Percentage of Cost (CPF-Cost Plus Fee) CPIF - Cost Plus Incentive Fees Contracts CPAF - Cost Plus Award Fee Contracts Seller is paid for all incurred costs plus a fixed fee (fee will not change irrespective of his performance) The buyer bears the risk. Used in high risk projects where sellers are not ready to bid. E.g., Contract Price = Cost + Fixed Fee (Fee does not vary with actual cost.) Contract Price = 1Million + 100K. Fee may be adjusted due to change in Procurement SOW based on mutual agreement. Cost Reimbursable Contract: 1 Note: Cost is calculated based on the actual cost in CRC contracts.
  20. 20. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types-> Cost Reimbursable Contract: CPFF - Cost Plus Fixed Fee Contracts CPPC – Cost Plus Percentage of Cost (CPF-Cost Plus Fee) CPIF - Cost Plus Incentive Fees Contracts CPAF - Cost Plus Award Fee Contracts Seller is paid for all incurred costs plus a percentage of the cost. Not preferred buy buyer because seller might increase the cost to earn a higher profit. Risk is on the Buyer. E.g., Contract Price = Cost + Fee ( calculated as % of cost) Contract Price = 1Million + 5% of 1Million Cost Reimbursable Contract: 2 Note: Cost is calculated based on the actual cost in CRC contracts.
  21. 21. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types-> Cost Reimbursable Contract: CPFF - Cost Plus Fixed Fee Contracts CPPC – Cost Plus Percentage of Cost (CPF-Cost Plus Fee) CPIF - Cost Plus Incentive Fees Contracts CPAF - Cost Plus Award Fee Contracts Seller is paid for all incurred costs plus incentive based on achieving certain performance. Incentive will be calculated based upon contractually agreed formula. Risk is on the Buyer, however it is lower than the CPFF. E.g., Contract Price = Cost + Incentive Fee (Fee calculated based on achieving performance criteria/target) Contract Price = 1Million + 50K Incentive is a motivating factor for the seller. Buyer & Seller share the saving or overspending. (E.g., 60/40, 60% to buyer & 40% to seller) Cost Reimbursable Contract: 3 Note: Cost is calculated based on the actual cost in CRC contracts.
  22. 22. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types-> Cost Reimbursable Contract: CPFF - Cost Plus Fixed Fee Contracts CPPC – Cost Plus Percentage of Cost (CPF-Cost Plus Fee) CPIF - Cost Plus Incentive Fees Contracts CPAF - Cost Plus Award Fee Contracts Seller is paid for all incurred costs plus award fees based on achieving certain performance. The evaluation of performance is a subjective and only decided by buyer. E.g., Contract Price = Cost + base fee + award Fee (Jugged by buyer) Contract Price = 1Million + 200K + 50K Cost Reimbursable Contract: 4 • Incentive fee is calculated based on a formula agreed in contract. It is an objective evaluation. • Award fee is dependent on buyers satisfaction & is evaluated subjectively. Award fee is not subjected to an appeal. Difference between Incentive fee & Award fee. Note: Cost is calculated based on the actual cost in CRC contracts.
  23. 23. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Time and Material: • Contract = $1K per day plus expenses or material cost. • Contract = $1K per day plus material at $5 per meter. Time and Material: Time and Material:
  24. 24. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Contract related terms • Amount seller charges buyerPrice • This is how much item cost the seller to create.Cost • Planned in the price, seller provides to the buyer.Profit (fee) • Used to compare the final price (actual) with what was expected (target price). • It is measure of success. Target Price • Incentive is usually expressed as ratio. E.g., 90/10 (Buyer/seller) • Describe how cost overrun or saving will be shared Sharing ratio • The highest price buyer will pay. • Used by buyer to encourage seller to control cost. Ceiling price
  25. 25. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) Contract Types -> Sample Questions 1. CPIF (Cost Plus Incentive Fee) •In the CPIF contract, the target cost is estimated at AED 210,000 & the fee at AED 25,000. •After the completion of the project, buyer agreed that the cost incurred was AED 200,000. •Since the seller cost came in lower than the estimated cost, the seller shares the saving; that is 80% to the buyer & 20% to the seller. •Calculate the final fee & final price. Target Cost: 210,000 Target Fee: 25,000 Contract Price: 210,000+25,000 = 235,000 80% (Buyer) 20% (Seller)
  26. 26. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) Sample Questions 80% (Buyer) 20% (Seller) Target Cost: 210,000 Target Fee: 25,000 Contract Price: 210,000+25,000 = 235,000 •Target cost – Actual cost •210,000-200,000 = 10,000 Saving: •Saving * Seller’s share% •10,000 X 20% = 2,000 Seller share •Target Fee + Seller share •25,000 + 2,000 = 27,000 Final Fees: •Actual cost + Final Fees •200,000 + 27,000 = 227,000 Final Price: Since Actual cost is less that target cost, there is saving. Actual cost is lower than the target cost, hence the seller receives more fees.
  27. 27. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Sample Questions FPIF (Fixed Price Incentive Fee) – Sellers point of view • In the FPIF contract, the target cost is estimated at AED 150,000 & the target fee at AED 30,000. After the completion of the project, buyer agreed that the cost incurred was AED 210,000. • Since the seller cost came in higher than the estimated cost, the seller shares the added cost; that is 60% to the buyer & 40% to the seller. The ceiling price is AED 200,000. • Calculate the final fee & final price, and Point of total assumption. Target Cost: 150,000 Target Fee: 30,000 Contract Price: 150,000+30,000 = 180,000 60% (Buyer) 40% (Seller)
  28. 28. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Sample Questions 60% (Buyer) 40% (Seller) Target Cost: 150,000 Target Fee: 30,000 Contract Price: 150,000+30,000 = 180,000 Since Actual cost is more that target cost, there is overspending. •Target cost – Actual cost •150,000-210,000 = - 60,000 Overspending: •Overspending * Seller’s share% •- 60,000 X 40% = - 24,000 Seller share •Target Fee + Seller share •35,000 + (- 24,000) = 6,000 Final Fees: •Actual cost + Final Fees •210,000 + 6,000 = 216,000 Final Price: •216K is greater than Ceiling price. •200,000 Final Price: Actual cost is very high than target cost, hence seller receives no fees & incur losses due to ceiling price.
  29. 29. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Sample Questions PTA (Point of Total assumption): • Amount above which seller bears all the cost of overrun. • Only refers to Fixed price incentive fees contracts. • Cost that goes above PTA assumed to be because of mismanagement. • Seller PM will some time monitor its actual cost against PTA. PTA = [(200,000 – 180,000)/60%] +150,000 PTA = (20,000/0.6)+150,000 PTA = 33,333+150,000 PTA = 183,333 (Celling price – Target price ) Buyers share ratio + Target CostPTA = Target Cost: 150,000 Target Fee: 30,000 Target Price = 180,000 Celling Price = 200,000
  30. 30. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Sample Questions Target Cost: 60,000 Target Fee: 15,000 Target Price: 75,000 Ceiling Price: 100,000 Buyer-Seller Share Ratio: 60:40 Q1) What is the PTA? PTA = (100,000 - 75,000) / 0.6 + 60,000 = 25,000 / 0.6 + 60,000 = 41,666 + 60,000 = 101,666 Q2) How much does buyer pay when actual cost reaches PTA? Cost overrun = 101,666 - 60,000 = 41,666 Buyer share ratio (BSR) = 60% or 0.6 Buyer's share of cost overrun = Cost overrun x BSR = 41,666 * 0.6 = 25,000 Amount buyer pays at PTA = Target Price + Buyer's share of cost overrun = 75,000 + 25,000 = 100,000 (= Ceiling Price) Q3) How much profit/loss does the seller make when actual cost reaches PTA? The amount seller spent (actual cost) = 101,666 The amount seller received = the amount buyer pays = 100,000 So, the amount seller makes = 100,000 - 101,666 = - 1,666 (net loss). So, in this case, seller is already in losses when the cost reaches PTA.
  31. 31. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Sample Questions Target Cost: 60,000 Target Fee: 15,000 Target Price: 75,000 Ceiling Price: 80,000 Buyer-Seller Share Ratio: 60:40 Q1) What is the PTA? PTA = (80,000 - 75,000) / 0.6 + 60,000 = 5,000 / 0.6 + 60,000 = 8,333 + 60,000 = 68,333 Q2) How much does buyer pay when actual cost reaches PTA? Cost overrun = 68,333 - 60,000 = 8,333 Buyer share ratio (BSR) = 60% or 0.6 Buyer's share of cost overrun = Cost overrun x BSR = 8,333 * 0.6 = 5,000 Amount buyer pays at PTA = Target Price + Buyer's share of cost overrun = 75,000 + 5,000 = 80,000 (= Ceiling Price) Q3) How much profit/loss does the seller make when actual cost reaches PTA? The amount seller spent (actual cost) = 68,333 The amount seller received = the amount buyer pays = 80,000 So, the amount seller makes = 80,000 - 68,333 = 11,666 (net profit). So, in this case, seller is making some profit even when the actual cost reaches PTA. Lets modify some contractual terms
  32. 32. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 PTA – Key points PTA can be more than the Ceiling Price. At or above PTA, buyer pays the Ceiling Price. At or above PTA, the contract price is fixed, and is equal to the Ceiling Price. At PTA, Buyer-Seller share ratio becomes 0:100. At PTA, a Fixed Price Incentive Fee (FPIF) contract becomes a Firm Fixed Price (FFP) contract. PTA doesn't mean point of zero profit for the seller. At PTA, seller may be making profit or loss, or no profit and no loss. Beyond PTA, all costs on the project are completely borne by the seller. Seller is usually more concerned about the PTA.
  33. 33. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) Sample Questions FPIF (Fixed Price Incentive Fee) – Sellers view •In the FPIF contract, the target cost is estimated at AED 9,000,000 & the target fee at AED 850,000. •After the completion of the project, buyer agreed that the cost incurred was AED 8,000,000. •Since the seller cost came in lower than the estimated cost, the seller shares the saving; that is 70% to the buyer & 30% to the seller. •Calculate the final fee & final price. Target Cost: 9,000,000 Target Fee: 850,000 Contract Price: 9,000,000 + 850,000 = 9,850,000
  34. 34. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) Sample Questions Target Cost: 9,000,000 Target Fee: 850,000 Contract Price: 9,000,000 + 850,000 = 9,850,000 •Target cost – Actual cost •9,000,000-8,000,000 = 1,000,000 Saving: •Saving * Seller’s share% •1,000,000 X 30% = 300,000 Seller share •Target Fee + Seller share •850,000 + 300,000 = 1,150,000 Final Fees: •Actual cost + Final Fees •8,000,000 + 1,150,000 = 9,150,000 Final Price:
  35. 35. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract -> Buyer vs Seller interest Buyer • Best Price • Best Product / Service / End result • Less Risk Seller • Best Profit • Highest quality of Product / Service & end result at lowest cost • Less Risk
  36. 36. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract -> Buyer vs Seller Risks FP or FFP FP-IF FP-EPA CP-FF CP-IF FP-AF T&M Fixed Price or Firm Fixed Price Fixed Price Incentive Fees Contract Fixed Price with Economic Price Adjustment Cost Plus Fixed Fees Contracts Cost Plus Incentive Fees Contracts Fixed Price Award Fee Contracts Time & Material Seller Seller Seller Buyer Buyer Seller Abbreviation Term Risk to CP-AF Cost Plus Award Fee Contracts Buyer
  37. 37. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Fixed Price (Lump Sum or Firm Fixed Price): Fixed Price Advantages • Less work for Buyer to manage. • Seller has strong incentive to control cost. • Companies has experience & have good understanding of scope. • Buyer knows total price. Disadvantages • Seller may charge more on change orders. • Seller may try not to complete some work if they begin to lose money. • More work for buyer to write detailed procurement SOW. • Can be more expensive if scope is unclear to compensate increased risk.
  38. 38. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types-> Cost Reimbursable Contract: Cost Reimbursable Contract: Advantages • Simpler procurement SOW. • Less work to define procurement SOW compared to FP contract. • Less costly than FP as seller does not have to add as much for risk. Disadvantages • Requires auditing sellers invoices. • More work for buyer to manage. • Seller has moderate incentive to control costs. • The total price is unknown.
  39. 39. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Contract Types -> Time and Material: Time and Material: Advantages • Very quick to create. • Smaller duration • Good for staff augmentation. Disadvantages • Seller has profit in every hour billed. • Seller has no incentive to control cost. • Useful for smaller projects. • Required day to day oversight from buyer.
  40. 40. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Choose a correct Contract Project situation PM needs work to begin immediately. You want to buy expertise to determine what need to be done. PM has detailed scope & know exactly what need to be done. You are hiring resources to augment your team. PM wants work to be done but does not have time to monitor & audit invoices of completed work. Need to rebuild a bridge ASAP after a earthquake. You need to hire contractor to perform research & development. You have clear Scope but economy is unpredictable. You wan to buy 10 laptops for your project team The project requires a high level of expertize to complete the work with best possible performance in finished product. Which contract to use T & M CR FP T & M FP FPIF CR FPEPA PO CPIF or CPAF
  41. 41. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Project Manager’s Role in Procurements Know the procurement process Understand contract terms and conditions Ensure contract contains project manag. requirements Identify risks & incorporate risk mitigation in contract Help tailor the contract to the unique needs of the project Align schedule of the contract and schedule of the project Involved in contract negotiation Make sure procurement process done smoothly Work with contract manager to manage contract changes
  42. 42. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Procurement Management Processes 12.1 Plan Procurement Management • The process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. 12.2 Conduct Procurement • The process of obtaining seller responses, selecting a seller, and awarding a contract. 12.3 Control Procurement • Managing procurement relationships, monitoring contract performance, & making changes & corrections to contracts 12.4 Close Procurement • The process of completing each procurement.
  43. 43. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
  44. 44. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management Introduction Plan Procurement Management Definition? Plan Procurement Management -> ITTO Build vs Buy Source selection criteria's Procurement documents Data flow diagram Review Self Assessment L : Lesson
  45. 45. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management -> Introduction Determine if procurement is required Full or partial procurement requirement Make or Buy Analysis & decision Identify & evaluate potential sellers Decide on requirements (How, What, how much, When) Can influence schedule, estimating & make or buy decision. Includes reviewing risks involved & type of contract.
  46. 46. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management The process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. Whether to acquire outside support, what to acquire, how to acquire it, how much is needed, and when to acquire it. Procurement decisions Specifying approach Identifying potential sellers.
  47. 47. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management -> ITTO Inputs (9) • PMP • Requirements documentation • Risk register • Activity resource requirements • Project schedule • Activity cost estimates • Stakeholder register • EEF • OPA Tools & Techniques(4) • Make-or-buy analysis • Expert judgment • Market research • Meetings Outputs(7) • Procurement Management Plan • Procurement statement of work • Procurement documents • Source selection criteria • Make-or-buy decisions • Change requests • Project documents updates
  48. 48. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Input PMP Requirements Documentation Project Schedule Activity Resource Requirements Activity cost estimate Risk Register Stakeholder Register EEF OPA
  49. 49. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management ->Input -> PMP Scope Baseline: PMP •Define scope & end product/service. •Provides constraints & assumptions •Provides acceptance criteria Project scope statement •Hierarchical structure of the deliverables •Provides work for outsourcing WBS: Description of the work required for each deliverable. WBS dictionary: Project management plan: • Project approach • Risk management plan • Communication management plan • Integrated change control process
  50. 50. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management ->Input->Requirements Doc. Requirements Documentation • Product, service or result requirements • User requirements • Acceptance criteria Business Requirements • Security • Safety • IPR • Licenses Project procurement requirements. • Performance • Insurance • Intellectual property rights • Licenses, and Permits Contractual and legal implications
  51. 51. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Input->Project Schedule Include timelines, milestones & delivery dates. Provides Schedule constraints & dependencies. Schedule constraints can be major factor in procurement. Consider time saving techniques: Preferred seller / Templates. Project Schedule Contains information on required timelines or mandated deliverable dates. Milestones Calendars
  52. 52. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Input->Activity Resource Req. People Equipment Location Activity Resource Requirements Business Analyst System Analyst Programmer Laptops Type Quantity 2 2 10 20 Contain information on specific needs such as :
  53. 53. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Input-> Risk Register Taken from Project Risk Management List Risks & results of Risk analysis & mitigation Transfer risks to seller through Contract Risk Register Ex: Change in Oil Prices Ex: Change exchange rates
  54. 54. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management ->Input->Activity Cost Est. Cost estimates for each activity Compare cost estimates with Bids Activity cost Estimates Evaluate reasonableness of bids received from potential sellers.
  55. 55. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Manag.->Input->Stakeholder Reg. Provides details on project participants & their interests. Stakeholder Register Name, Designation & Influence Needs & expectations Stakeholder specific Strategies Champions, Influencer, Resistor
  56. 56. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Manag.->Input->EEF EEF Marketplace conditions. Availability of Products, services, and results in the marketplace. Suppliers along with their past performance or reputation Typical terms and conditions for products, services, and results or for the specific industry; and Unique local requirements.
  57. 57. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Manag.->Input->OPA Formal procurement policies, procedures, and guidelines. OPA Most organizations have formal procurement policies. Project team should supply both resources & expertise to perform procurement activities, if there is no procurement dept. Procurement Management systems - An established multi‐tier supplier system of prequalified sellers based on prior experience
  58. 58. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->T&T Make-or-buy analysis Expert Judgment Market Research Meetings
  59. 59. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->T&T->Make or buy analysis Gathering data about product requirements & analyse them against available alternatives including purchase or internal manufacture. Make-or-buy analysis Reasons to Buy • Capacity and Capability • Exploit Opportunity • Shift risk (cost, time, or scope) Reasons to Make • Idle resources • Want to control • Confidential information Buy Make
  60. 60. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->T&T->Make or buy analysis Schedule Budget Cost Skills Proprietary information Contract type Make-or-buy analysis It is important to consider scope of Make vs Buy Analysis Renting or leasing is good if it is one time need Purchasing is good when it is long term requirement Major factor to consider in the decision: Buy RentLease
  61. 61. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Manag.->T&T->Expert Judgement To assess the inputs and outputs. Can be a part of selection board. To develop proposals evaluate criteria. Verify Contract terms, conditions and Legal obligations. Expert Judgment Business Experts Technical Experts Financial Experts Legal experts Project Management experts Procurement Experts
  62. 62. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->T&T->Market Research The process of gathering information at conferences, online reviews, and a variety of sources to identify market capabilities. Market Research Examination of industry and specific vendor capabilities from various sources. Leverage information gained to identify market capabilities.
  63. 63. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Business Experts Technical Experts Financial Experts Legal experts Project Management experts Procurement Experts 12.1 Plan Procurement Management->T&T-> Meetings Meetings Meeting with team to formulate a procurement strategy. Meetings with potential bidders. Discuss approach, potential issues & seller evaluation
  64. 64. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Output Procurement Management Plan Make-or-buy Decisions Procurement Statement of Work Source Selection Criteria Procurement Documents Change Requests Project Documents Updates
  65. 65. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output-> Procurement MP Plans describes how goods and services will be acquired from outside. How the procurement processes will be managed from developing procurement documents through contract closure. Procurement Management Plan Make‐or‐buy decisions Type of contract Team responsibilities Evaluation criteria Procurement metrics Managing multiple suppliers & coordination Risk management (Performance bonds/insurance) Form/format of procurement document Procurement SOW Constraints and assumptions
  66. 66. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output-> Decision Make-or-buy Decisions • Document Internal process • E.g., Develop Software in-house Make • Document external process • E.g., Buy Seller services to develop software Buy Whether particular work/Service/Product can best be developed internally Needs to be purchased from outside sources. Decisions made regarding the external purchase or internal manufacture of a product. Formally document the decision.
  67. 67. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output->Procurement SOW Developed from the project scope baseline and defines related contract scope. It describes all the procurement item in detail. Procurement Statement of Work • Clear, complete, and concise.Written description • There are specific content and format to be used In some application areas Specifications Quantity/ Quantity/ Performance desired Work location Delivery Schedule Collateral services (e.g., Warranty)
  68. 68. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output->Source Sel. Criteria Used to compare sellers proposals based on documented selection criteria to rate or score proposals. Source Selection Criteria Understanding of need Technical capability Management approach Production capacity & interest Overall Cost & Warranty Business size and type Past performance, References Intellectual property rights Proprietary rights Associated Risks Proposal1 Proposal2 Proposal3 Criteria1 Criteria2 Criteria3 0 50 100 150 Seller1 Seller2 Seller3
  69. 69. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management -> Procurement docs. Request for Information (RFI) Request for Proposal (RFP) Invitation for Bid (IFB) Request for Quote (RFQ) Procurement Documents The documents utilized in bid and proposal activities • provide various pieces of information related to a product or service or seller capability. RFI • request a detailed proposal on how work will be accomplished with price. RFP • Same as RFP. (usually a sealed bidding processes used by Govt.)IFB • request price quotations from prospective sellers of common or standard products or services. RFQ RFI RFP/IFB/RFQ
  70. 70. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output->Procurement docs. •Used when buyers doesn’t have clear information. •Used for consolidation of proposals •Ex., •Constructing a Hotel •ERP System implementation RFI •Used when you have detailed requirements •Finds cost & detailed proposal on how work will be accomplished. •Ex., •Constructing hotel based on a plan •IT Automation of business process RFP •Used when your main focus is on cost. •Time and Material contracts. •Ex., •Construction Crain for 1 year •6 months consulting to setup PMO with 2 resources RFQ Procurement Documents Terminology may vary by Industry.
  71. 71. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Output-> Change Request A decision that involves procuring goods, services, or resources typically requires a change request. Change Requests Change Request due to: More clarity on the work -> New scope addition. Project duration may change as Vendor selection process takes time. Cost may change based on Vendor & development approach (onsite/ offshore) May cause Frustration. It will go though Integrated Change control process.
  72. 72. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management->Output-> Document updates Project Documents Updates • New/Changed Requirements Requirements documentation • New/Changed Requirements Requirements traceability matrix • New Risks, Risk Closure, Attribute changes Risk register • New communication models • Additional communication channels Communication management plan • Any changes - possibly based on agreement with seller Align with procurement management plan
  73. 73. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management-> Process Flow
  74. 74. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.1 Plan Procurement Management -> Review Procurement Management plan Plan Procurement Management -> ITTO Procurement SOW Build vs Buy Source selection criteria's Procurement documents Self Assessment L : Lesson
  75. 75. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
  76. 76. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement Introduction Conduct Procurement Definition? Conduct Procurement -> ITTO What is seller proposals? Bidder Conference Proposal Evaluation Techniques Procurement negotiations Data flow diagram Review Self Assessment L : Lesson
  77. 77. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 Introduction – Procurement Management Processes 12.1 Plan Procurement Management • The process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. 12.2 Conduct Procurement • The process of obtaining seller responses, selecting a seller, and awarding a contract. 12.3 Control Procurement • Managing procurement relationships, monitoring contract performance, & making changes & corrections to contracts 12.4 Close Procurement • The process of completing each procurement.
  78. 78. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement Seller1 Response Seller2 Response Seller3 Response Seller4 Response Selection process Review prop. Evaluate Seller Selected Seller Award Contract The process of obtaining seller responses, selecting a seller, and awarding a contract. It provides alignment of internal & external stakeholder expectations through established agreements.
  79. 79. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement -> ITTO Inputs (8) • Procurement Management plan • Procurement Documents • Source Selection Criteria • Seller Proposals • Project Documents • Make-or-buy decisions • Procurement SOW • OPA Tools & Techniques(7) • Bidder Conference • Proposal Evaluation Techniques • Independent Estimates • Expert Judgment • Advertising • Analytical Techniques • Procurement Negotiations Outputs(6) • Selected sellers • Agreements • Resource Calendars • Change Requests • PMP updates • Project Documents Updates
  80. 80. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input Procurement Management Plan Make-or-buy Decisions Procurement Statement of Work Source Selection Criteria Procurement Documents Project Documents Sellers Proposals OPA
  81. 81. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Procurement Management Plan Plans describes how goods and services will be acquired from outside. How the procurement processes will be managed from developing procurement documents through contract closure. Procurement Management Plan Make‐or‐buy decisions Type of contract Team responsibilities Evaluation criteria Procurement metrics Managing multiple suppliers & coordination Risk management (Performance bonds/insurance) Form/format of procurement document Procurement SOW Constraints and assumptions
  82. 82. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Make-or-buy Decisions Make-or-buy Decisions • Document Internal process • E.g., Develop Software in-house Make • Document external process • E.g., Buy Seller services to develop software Buy Whether particular work/Service/Product can best be developed internally Needs to be purchased from outside sources. Decisions made regarding the external purchase or internal manufacture of a product. Formally document the decision.
  83. 83. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Procurement SOW Developed from the project scope baseline and defines related contract scope. It describes all the procurement item in detail. Procurement Statement of Work • Clear, complete, and concise.Written description • There are specific content and format to be used In some application areas Specifications Quantity/ Quantity/ Performance desired Work location Delivery Schedule Collateral services (e.g., Warranty)
  84. 84. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Source Selection Criteria Used to compare sellers proposals based on documented selection criteria to rate or score proposals. Source Selection Criteria Understanding of need Technical capability Management approach Production capacity & interest Overall Cost & Warranty Business size and type Past performance, References Intellectual property rights Proprietary rights Associated Risks Proposal1 Proposal2 Proposal3 Criteria1 Criteria2 Criteria3 0 50 100 150 Seller1 Seller2 Seller3
  85. 85. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Procurement Documents Request for Information (RFI) Request for Proposal (RFP) Invitation for Bid (IFB) Request for Quote (RFQ) Procurement Documents Used to solicit proposals, quotes, and bids from sellers. RFP/IFB/RFQ Sellers Proposals
  86. 86. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->Seller Proposals Contains the information that will be used by an evaluation team to select one or more successful bidders (sellers). Seller Proposals Proposal1 Proposal2 Proposal3 Criteria1 Criteria2 Criteria3 Vendor Evaluation
  87. 87. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input->OPA OPA Listing of pre- selected sellers Listing of prospective sellers Past experience with sellers Prior agreements
  88. 88. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Input Describe overall selection process Formal decision to engage seller Explain work required List of critters that will be used for proposal raking All procurement related documents (RFI, RFP, Selection criteria etc) Procurement Documents Contracts, risk register, Stakeholder Register. Sellers proposal describing complete delivery approach, along with cost. Prior selection information.
  89. 89. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T Advertisement Bidder Conference Proposal Evaluation Techniques Analytical Techniques Independent Estimates Procurement Negotiations Expert Judgment
  90. 90. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Advertising Existing lists of potential sellers can often be expanded by placing advertisements. Advertising Some government jurisdictions require public advertising of certain types of procurement items Most government jurisdictions require public advertising of pending government contracts.
  91. 91. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Bidder Conference Contractor conferences Vendor conferences Pre-bid conferences Bidder Conference Meetings between buyer & sellers Ensure a clear and complete understanding of requirements No bidders receive PREFERENTIAL treatment. Listen to EVERY question and every answer. Collecting questions from bidders Arranging field visits
  92. 92. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Bidder Conference Contractor conferences Vendor conferences Pre-bid conferences Bidder Conference Important considerations: Send details technical documents to Vendor, prior to the meeting Send outline to the vendor & share actual documents during the meeting Bring all Vendors together in a single room/single meeting Meet Vendor individually when they are reluctant to share information. In case of delay in proposal submission by one seller, Give new date to all. PM’s aim is to select best seller.
  93. 93. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->T&T->Proposal Evaluation Tech. The process of reviewing proposals provided by suppliers to support contract award decisions. Selection will be done based on seller responses to criteria and as per buyers procurement policies . Proposal Evaluation Techniques Proposal 1 Proposal 2 Proposal 3 Criteria1 Criteria2 Criteria3 Evaluation Team Screening system Independent estimate Past performance history Weighting system Proposal Evaluation Techniques
  94. 94. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->T&T->Proposal Evaluation Tech. •Eliminate sellers who do no meet minimum requirementScreening system •Estimation created in‐house or with outside assistanceIndependent estimate •Use of historical information for selection.Past performance history •Evaluate by weighting the source selection criteriaWeighting system Proposal Evaluation Techniques Seller1 Seller2 Criteria Weight rating Score rating score 1 Company 6 85 510 99 594 2 Technical 9 90 810 90 810 3 Expertise 8 82 656 80 640 4 Cost 7 88 616 75 525 Total 2592 2569 85 99 80 90 90 90 82 80 80 88 75 90 0 20 40 60 80 100 120 Seller1 Seller2 Seller3 Technical Company Expertice Cost
  95. 95. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Independent Estimates Independent Estimates • Procurement SOW is Deficient or Ambiguous • Prospective sellers misunderstood & failed to respond fully to the procurement SOW If Significant differences found. Vendor estimates Third party estimates A process of using a third party to obtain and analyze information to support prediction of cost, schedule, or other items.
  96. 96. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Analytical Techniques Analytical Techniques Identify the readiness of a vendor to provide the desired end state. Determine the cost expected to support budgeting Avoid cost overruns due to changes
  97. 97. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Procurement Negotiations Clarify the structure, requirements, and other terms of the purchases to be reflected in Final contract.. Procurement Negotiations Scope Technical solutions Technical & business approaches Authority to make changes Responsibilities Overall schedule /Milestones Price Payment terms Governing law Proprietary rights Contract financing • Obtain fair and reasonable price • Develop good relationship with the seller Objective of negotiation: What is negotiated?
  98. 98. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Procurement Negotiations PM should not be involved in negotiation. PM team should not negotiate. PM & PM team work as supporters & provides clarifications.Procurement Negotiations Who should negotiate? Lead Negotiator will negotiate Attacks Personal insults Good guy/bad guy Deadline Lying Limited authority Missing man Fair reasonable Delay Extreme demands Withdrawal Negotiation tactics
  99. 99. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement-> T&T->Expert Judgement Contracting Legal Finance Accounting Engineering Design Research Development Sales Manufacturing Screening of potential Sellers Proposals evaluation Multi-discipline review team (Expert from each discipline) Expert Judgment
  100. 100. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Output Selected sellers Agreements Resource Calendars Change Requests PMP updates Project Documents Updates
  101. 101. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Output->Selected Sellers Selected sellers • Based on the proposal or bid evaluation Judged: • A draft contract will become actual contract when an award is made. Negotiated: • For all complex, high‐value, high‐risk procurements prior to award. Final senior management approval:
  102. 102. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Output->Agreements Any document or communication that defines the initial intentions of a project. Agreements A Detailed contract A Purchase Order A Handshake An Email Agreements can be: • Provide something of valueSeller: • Provide monetary or other valuable compensation.Buyer: Mutually binding legal agreement that obligates:
  103. 103. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement -> Output-> Change Request Once seller is selected, typically project requires a change request to adjust schedule, cost, payment milestones etc. Change Requests Change Request due to: More clarity on the work -> New scope addition. Project duration/schedule may change based on proposal. Cost may change based on Vendor proposal.
  104. 104. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Output->PMP updates PMP updates Schedule: • To reflect new Date, Milestones date changes agreed by seller Quality Management plan: • Sellers agreement on Quality standards, processes.
  105. 105. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement->Output->Project document updates Project Documents Updates • Actual price based on contact valueCost Baseline: • WBSScope baseline: • Delivery dates as agreed with SellerProject schedule: • Procurement relatedAssumptions: • updatedQuality Metrics: • Process changes (if any) Procurement Management Plan:
  106. 106. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement -> Process Flow
  107. 107. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015 12.2 Conduct Procurement -> Review Conduct Procurement process Seller proposals Bidder Conference Proposal Evaluation Techniques Independent estimates Procurement negotiations Agreements L : Lesson
  108. 108. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015
  109. 109. By: Anand Bobade (nmbobade@gmail.com) All rights reserved, 2015By: Anand Bobade (nmbobade@gmail.com) Thank you!! To Learn Project Management, Contact Anand Bobade (055 5932004) • nmbobade@gmail.com • https://ae.linkedin.com/in/anandbobade • http://www.slideshare.net/anandbobade Free learning resources on slide share

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