Project Management 101:getting Started: List of Contents

PM 101
Chapter 12
Project Management 101

:Getting started
Dr Kenneth Park BSc MSc PhD FHEA MCIOB MRICS PMP KCCM
List of Contents
Week 4: Project Communications, Risk, Procurement,

Responsibility
Mon: Getting the word out (Ch. 10)

Activity: Stakeholder analysis
Tue: Planning for the unknown and uncertainty (Ch.11)
Activity: Risk register.
Wed: Getting some help (Ch.12)
Making good choices (Ch.13)
Activities: Contract process solution, Make or buy.
Thurs: Final Examination Check your knowledge.
1
PM 101
Your thoughts - 5 minutes 1.

2.
Go to the website q.xorro.com
Enter: asnc
3. Click Go
4. Login using Alias: put your
Nickname and Click Login
What is
Procurement?
Your thoughts - 5 minutes 1.

2.
Go to the website q.xorro.com
Enter: asnc
3. Click Go
Descriptions of each process. Process names Process groups
Plan out what youll purchase, and how

and when you will need the contracts to
be negotiated for your project.
Decide on the seller (or sellers) you are

going to work with, and finalize and sign
the contract.
Keep tabs on the contract. Make sure

your company is getting what you
paid for.
Confirm that the work was done right

and that all obligations are fulfilled on
both sides.
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PM 101
Learning Objectives
In this session, you will learn Procurement Management. By the end

of this session you should be able to :
Describe Procurement Management Processes including Plan

Procurements, Conduct Procurements, Control Procurements and
Close Procurements; and
Explain the relevant tools and techniques.
Project Procurement Management

Project Procurement Management includes the processes necessary to purchase or
acquire products, services, or results needed from outside the project team. The
organisation can be either the buyer or seller of the products, services, or results of a project
Administer
Close
Conduct
Plan The process of managing procurement relationships,
The process of obtaining
documenting
seller
project
responses,
purchasing
selecting
decisions,
a seller,
Procurement The processcontract
monitoring of completing each project
performance, procurement.
and making changes and
specifying
and awarding
correctionsthe
asaapproach,
contract. and identifying potential sellers.
needed.
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PM 101
Project Procurement
Management
1. Plan Procurements
Plan Procurements is the process of
documenting project purchasing decision,
specifying the approach, and identifying
potential sellers.
It identifies those project needs which can best

be, or must be, met by acquiring projects,
services, or results outside of the project
organisation, versus those project needs which
can be accomplished by the project team..
What to acquire,
how to acquire it,
how much is
needed, and when
to acquire it
1. Plan Procurements: Input

Plan Procurements is the process of documenting project purchasing decision,
specifying the approach, and identifying potential sellers. This process involves
determining whether to acquire outside support and, if so what to acquire, how to acquire
it, how much is needed, and when to acquire it.
The Your cost You need to consider the level of

Your Scope Baseline and
performance baseline expertise your company has with the
Requirements Document tell
and your schedule product or work youre thinking of
you a lot about the work
play a big part in how contracting, as well as the job and
you need to do and how this These are partnership
you plan out your contracting markets you operate in.
contract will fit into it. documents that describe the
procurement. Contracting adds an extra
relationship between a buyer dimension of risk to your
and a seller when theyre project because your seller
working together as a team. will have different
management and policies. So
managing risks is especially
important!
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PM 101
1. Go to the website q.xorro.com
Project Procurement
2. Enter: asnc
3. Click Go
Management
1. Plan Procurements : Tool & Techniques

Make or buy Analysis:
It is a general management technique used to determine whether particular work can best
be accomplished by the project team or must be purchased from outside sources.
Budget constraints may influence make-or-buy decisions.
Q. You are trying to decide whether to How much does it cost to build it
versus buy it?
lease or buy an item for your project.
How will this decision affect the scope
The daily lease cost is $120. To of your project?
purchase the item, the investment cost How about your project schedule?
is $1,000 and the daily cost is $20. Do you have time to do the work and
How long will it take for the lease cost still meet your commitments?
to be the same as the purchase cost? As you plan out what you will and
wont contract, you need to have
thought through your reasoning pretty
carefully.
There are some resources that your
company can buy, rent, or lease
depending on the situation.

Expert Judgement:
Expert technical judgement will often be used to assess the inputs to and outputs from this
process. It can also be used to develop or modify the criteria that will be used to evaluate
seller proposals.
Experts can be really helpful in

evaluating technology, or providing
insight into how your work might be
done in different sourcing scenarios.
Expert legal judgement may involve
the services of legal staff to assist
with unique procurement issues,
terms, and conditions.
Such judgement, including business
and technical expertise, can be
applied to both the technical details of
the acquired products, services or
results and to various aspects of this.
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PM 101

Contract types:
The risk shared between the buyer and seller is determined by the contract type.
You should know a little bit about the major kinds of contracts available to you so that you
choose the one that creates the most fair and workable deal for you and the contractor.
Fixed-price (no matter how

much time or effort goes into
them, you always pay the
same)
Cost reimbursable (where
the seller charges you for
the cost of doing the work
plus some fee or rate).
Time and materials
contract (where the buyer
pays a rate for the time
spent working on the project
or for all of the materials
used ).

Fixed-priced contracts (FP, or Lump Sum, Firm Fixed Price):
This category of contracts involves setting a fixed total price for a defined product or service
to be provided. It is used for acquiring for goods or services with well-defined
specifications or requirements and there is enough competition to determine a fair and
reasonable fixed price before the work begins.
FFP Firm Fixed Price : the most

commonly used contract
type is the FFP.
A fixed price contract only
makes sense in cases
where the scope is very well
known.
Any cost increase due to
adverse performance is the
responsibility of the seller,
who is obligated to complete
the effort.
Contract = $ 1,000,000
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PM 101

Fixed Price Incentive Fee
You are going to pay a fixed
FPIF price for the contract and
give a bonus based on
some performance goal.
It gives the buyer and seller
some flexibility in that it
allows for deviation from
performance, with financial
incentives tied to achieving
agreed to metrics.
These incentives are related
to cost, schedule, or
Contract = $ 1,000,000. For every month technical performance of the
early the project is finished, an seller.
additional $10,000 is paid to the seller.

Fixed Price with Economic

Price Adjustment
It is used whenever the
FPEPA
sellers performance period
spans a considerable period
of years, as is desired with
many long-term relationships.
Due to changed conditions,
such as inflation changes, or
cost increases (decreases)
for specific commodities.
Future costs might not be
Contract = $ 1,000,000, but a price predictable.
increase will be allowed in year two
based on the US CPI report for year one.
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PM 101

Cost Reimbursable:
This category of contracts involves payments (cost reimbursements) to the seller for all
legitimate actual costs incurred for completed work, plus a fee representing seller profit. It
may include financial incentive clauses whenever the seller exceeds, or falls below, defined
objectives such as costs, schedule or technical performance targets.
Costs Plus Incentive Fee

The seller is reimbursed for
all allowable costs for
performing the contract work
CPIF and receives predetermined
incentive fee based upon
achieving certain
performance objectives as
set forth in the contract.
e.g. an 80/20 split
over/under target costs
based on the actual
Target cost= $ 1,100,000. performance of the seller.
Target fee = $ 100,000, Sharing 80/20
Actual cost = $ 1,000,000.

Cost Reimbursable:
Costs Plus Award Fee

The buyer pays all costs and
a base fee plus an award
amount (a bonus) on
performance.
CPAF This is based solely on the
subjective determination of
seller performance by the
buyer, and is generally not
subject to appeals.
This is a type of incentive
Contract = Cost plus $ 10,000 for every contract.
month production exceeds 10,000 units.
Maximum award available is $100,000.
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PM 101

Cost Reimbursable:
Costs Plus Fixed Fee

You pay the seller back for
the costs involved in doing
the work, plus you agree to
an amount that you will pay
on top of that.
Fee is paid only for
CPFF completed work and does
not change due to seller
performance.
Fee amount do not change
unless the project scope
changes.
Contract = Cost plus a fee of $ 100,000

Cost Reimbursable:
Costs Plus Percentage

Fee
The buyer pays for all
allowable costs plus a
percentage of the initial
estimated projects costs as
a fee.
This type of cost
reimbursable contract is not
CPPC
allowed for US federal
acquisitions or
procurements under federal
acquisition regulations.
Contract = Cost plus 10 % of costs as fee.
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PM 101

Time and materials contract type:
This is a hybrid type of contractual arrangement that contain aspects of both cost-
reimbursable and fixed-price contract. It is used in labor contracts. It means that you will
pay a rate for each of the people working on your project plus their materials costs.
Time part means that the

buyer pays a fixed rate for
laborusually a certain
number of dollars per hour.
Materials part means that
the buyer also pays for
materials, equipment, office
space, administrative
overhead costs, and
anything else that has to be
paid for.
The seller typically
purchases those things and
Contract = $ 100 per hour plus expenses bills the buyer for them.
or materials at cost.
1. Plan Procurements : Output
And youll use this one to

This plan will have:
help you figure out which
the planned delivery dates for the
seller you want to hire.
work or products you are
contracting This is just a list of
the companys standard documents the work that will
you will use be contracted. This After doing your make
the contract types you plan to use, statement of work will or buy analysis, you write
and any metrics that will be used to be given to potential down what you learned
measure the contractors contracting partners so that other people
performance later. understand your rationale. After Youll use this output to
any constraints or assumptions help you find the sellers
you need to know about all of the that will do the work.
contracts you plan to create for
your project
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PM 101
2. Conduct Procurements
Conduct Procurements is the process of obtaining seller responses, selecting a seller,
and awarding a contact. The team will receive bids or proposals and will apply previously
defined selection criteria to select one or more sellers who are qualified to perform work.
Get the word out to sellers / see

what kind of responses you get.
Narrow down your list of sellers
to a few who look like they might
be good candidates,
Evaluate all of their responses
against your source selection
criteria and choose the vendor
youre going to work with.
Get it all on paper.
2. Conduct Procurements: Input

Youve figured out what services you want to procure, and youve gone out and found
a list of potential sellers. Now its time to choose one of them to do the project work
and thats exactly what you do in Conduct Procurements. Youll start with some of the
outputs you created in Plan Procurements.
Procurement documents The procurement statement of work

will have all of the The Make or Buy decisions you is where you write out all of the work
information that youll made will come in handy because that needs to be done by a contractor.
actually give to potential theyll tell you what you need to It tells you the scope of the work that
sellers to help them bid on find a contractor to help out with Use the Source Selection youre going to contract to another
your contract. Two of the and what youll do yourself. Criteria to evaluate the sellers company.
most commonly used that respond to you. By
procurement documents evaluating all of your sellers
are the RFI and the RFP. using the same criteria, youll be
sure that you evaluate everyone
fairly and find
the right seller for your
company.
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PM 101
2. Conduct Procurements: Tool & Techniques

Internet Search
Companies will often use an Internet search to get an idea of the price range for the things
theyll need to buy as part of the proposal. The internet has a major influence on most
project procurements and supply chain acquisitions in firms.
Advertising
Sometimes the best way to get in touch with sellers is to place an ad.
Also, sometimes you are required to take out an ad (like for some government-funded
projects) in order to give all sellers full notice.
Bidder Conferences (contractor/vendor conference, pre-bid conference)

The best way to do that is to get them all in a room together, so that they can ask questions
about your contract. They are used to ensure that all prospective sellers have a clear
common understanding of the procurement and that no bidders receive preferential
treatment in a fair and unbiased way.
Independent Estimates
A lot of the time, you dont have the expertise in your company to figure out whether or not
a seller is quoting you a fair price. Thats why youll often turn to a third party to come up
with an estimate of what the work should cost.

Expert Judgment
Heres another case where its really good to bring in someone from outside your project to
help evaluate each proposal. You should bring in someone with a lot of specific expertise in
the work being done to make sure the seller is up to the job.
Procurement Negotiation Objectives of Negotiation

When you send out a package of It is important for everyone involved in
procurement documents to a potential negotiations to understand that the
seller, it usually has some information objectives of negotiations are to:
about the contract you want to sign:
the type of contract, some of the terms, Obtain a fair and reasonable price.
maybe some rough calculations and Develop a good relationship with
estimates of the total costs, and other the seller.
numbers. But not all sellers will want to
sign that particular contract, even ones If negotiations turn from win-win to win-
who youll eventually want to work lose, the seller will be less concerned
with. Thats why you need to negotiate with completing the work than with
the terms of the contract. recovering what was lost in negotiation.
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PM 101

Proposal Evaluation Techniques
Youre going to have to work closely with the seller to figure out if their proposal really is
appropriate for the work. You need to be very careful before you choose someone to do the
work. Thats what this tool is forits a kind of catch-all thats there to remind you that
theres no single way to evaluate a proposal. You need to look at the whole picturethe
seller, your needs, and the job.
Seller A
A B C
Criteria Weight Rating for this category on 1 to 100 scale Category score
Number of years in business 5% 50 2.5
Understanding of need 25% 80 20
Price or life cycle cost 10% 90 9
Technical ability 25% 40 10
Ability to complete the work on time 20% 30 6
Project management ability 15% 30 4.5
Total score for this seller 52
2. Conduct Procurements : Output
Any time you do negotiations,

The whole point of the you usually end up making some
Conduct Procurements adjustments to your plansso youll
process is, well, to Conduct In the course of selecting a source, you need to use these for change control.
Procurements and here might find changes that need to be
they are. Along with the made to your requirements or other
contract, this is the most documents If your contract
important output of the
Finally! Everyones signed on makes some of the
process.
the dotted line, and youve sellers resources
got your contract. available to you, youll
need this in order to
update your Staffing
Management Plan.
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PM 101
3. Control Procurements: Input

Administer Procurements is the process of managing procurement relationships,
monitoring contract performance, and making changes and corrections as needed.
Both the buyer and the seller must ensure that both parties meet their contractual
obligations and that their own legal rights are protected.
This ensures that the sellers performance meets

procurement requirements and that the buyer
performs according to the terms of the legal
contract.
3. Control Procurements: Tool & Techniques
Tools and techniques to keep your project

running
Payment System
Your partner wont be very happy
Records Management System
if you dont pay.
There are a lot of records
produced by a typical contract:
The payment system is how your
invoices, receipts, communications,
company pays its sellers. Its usually
memos, emails, instructions,
established by an Accounting or
clarifications, etc.
Accounts Receivable department.
Youll need to put a system in place to
All payments should be made and
manage them.
documented in strict accordance with
the terms of the contract.
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PM 101
3. Control Procurements: Tool & Techniques
Tools and techniques to find and fix problems

Claims Administration
Procurement
When theres a dispute Performance Reporting
Performance Review
between a buyer and a seller, The easiest way for you to
Most contracts lay out
thats called a claim. Most keep track of the contract
certain standards for how
contracts have some language work being done is to write
well the seller should do
that explains exactly how up performance reports.
the job. The buyer has the
claims should be resolved.
right to make sure this is
happening, and the way to
Contract Change Control
Inspections and Audits do this is to go over the
System
This is where youll check up performance of the
Its a set of procedures that
on the actual product or sellers team.
are set up to handle
service that the project is
changes in the contract.
producing to make sure that it
You might have a different
meets your needs and the Buyer-conducted
one for every contract in
terms of the contract.
your project.
performance reviews
let buyers check all
of the work that the
sellers are doing.
3. Administer Procurements: Output
Correspondence. Procurement management

Payment schedules and requests. plan and baseline schedule.
This means the contract, any Seller performance evaluation
supporting documents, and documentation. Change requests to the
information from the seller.
project management
plan, its subsidiary
plans and other
components, such as the
cost baseline, project
schedule and
procurement
management plan.
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PM 101
4. Close Procurements : Input

Close Procurements is the process of completing each project procurement.
Even if your contract ends disastrously (or in court), you still need to close out the contract
so that you can make sure all of your companys responsibilities are taken care ofand
that you learn from the experience.
Early termination of a contract is a special case of procurement closure that can result from
a mutual agreement of both parties, from the default of one party, or for convenience of the
buyer if provided for in the contract.
4. Close Procurements: Tool & Techniques

Procurement audits
Once youve closed out the contract, you go over everything that happened on the project
to figure out the lessons learned and look for anything that went right or wrong.
A procurement audit is a structured review of the procurement process originating from the
Plan Procurements process through Administer Procurements.
Procurement Negotiations
Records management system
You need to make sure that all of the
When you were working with the legal
terms of the contract have been met
team to put the contract together, you
and there are no outstanding claims on
looked at information about past
it.
contracts.
If the buyer or the seller have
So where did it come from? Past
outstanding claims from the relationship,
project managers stored their contracts
they need to get resolved, sometimes
and other documents in the records
through legal arbitration or, in the worst-
management system.
case scenario, in court.
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PM 101
3. Administer Procurements: Output
Any lessons you learned from

the procurement audits should
The way you close out a contract is be added here, along with any
by giving noticea formal written documentation and a copy of
onethat the contract is complete the formal acceptance that
and instructions for doing that you gave to the seller.
should be part of the contract
terms.
Key Points for Today

Project Procurement Management includes the processes necessary
to purchase or acquire products, services, or results needed from
outside the project team.
Four Procurement Management Processes

Plan Procurements;
Conduct Procurements;
Control Procurements; and
Close Procurements.
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PM 101
Today Think
Kenny has 18 months to build up the capacity his company needs
to handle all the technical support calls. See if you can figure out
whether its a better deal for Kenny to make or buy.
1. If they handle the extra work within the company instead of finding a seller, it will cost
an extra $35,000 in overtime and $11,000 in training costs in total, on top of the
$4,400 per person per month for the five-person team needed to do the extra support
work. Whats the total cost of for keeping the work within the company?
2. Kenny and Dan talked to a few companies and estimate that it will cost $20,000 per
month to hire another company to do the work, but theyll also need to spend
$44,000 in setup costs. What will contracting the work cost?
3. So does it make more sense to make or buy? Why?
Any Questions?
18

Project Management 101:getting Started: List of Contents

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PM 101

Project Management 101

Week 4: Project Communications, Risk, Procurement,

Mon: Getting the word out (Ch. 10)

Your thoughts - 5 minutes 1.

Your thoughts - 5 minutes 1.

Descriptions of each process. Process names Process groups

Plan out what youll purchase, and how

Decide on the seller (or sellers) you are

Keep tabs on the contract. Make sure

Confirm that the work was done right

In this session, you will learn Procurement Management. By the end

Describe Procurement Management Processes including Plan

Project Procurement Management

Project Procurement Management

It identifies those project needs which can best

Project Procurement Management

1. Plan Procurements: Input

The Your cost You need to consider the level of

1. Go to the website q.xorro.com

1. Plan Procurements : Tool & Techniques

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Experts can be really helpful in

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Fixed-price (no matter how

Project Procurement Management

1. Plan Procurements : Tool & Techniques

FFP Firm Fixed Price : the most

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Fixed Price with Economic

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Costs Plus Incentive Fee

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Costs Plus Award Fee

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Costs Plus Fixed Fee

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Costs Plus Percentage

Project Procurement Management

1. Plan Procurements : Tool & Techniques

Time part means that the

Project Procurement Management

1. Plan Procurements : Output

And youll use this one to

Project Procurement Management

Get the word out to sellers / see

Project Procurement Management

2. Conduct Procurements: Input

Procurement documents The procurement statement of work

Project Procurement Management

2. Conduct Procurements: Tool & Techniques

Bidder Conferences (contractor/vendor conference, pre-bid conference)

Project Procurement Management

2. Conduct Procurements: Tool & Techniques