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Quick Recap. Lesson 10: Managing Project Procurement Topic 10A: Examine the Project Procurements Process Topic 10B: Obtain Responses from Sellers Topic 10C: Determine Project Sellers. Learning Objectives. To understand the relationship between procurement, purchasing, and supply management

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Quick recap

Lesson 10: Managing Project ProcurementTopic 10A: Examine the Project Procurements ProcessTopic 10B: Obtain Responses from SellersTopic 10C: Determine Project Sellers

Learning objectives
Learning Objectives

  • To understand the relationship between procurement, purchasing, and supply management

  • To examine procurement objectives

  • To learn about supplier selection and evaluation

Learning objectives1
Learning Objectives

  • To understand quality issues in procurement

  • To examine global procurement

  • To learn about investment recovery

  • To examine socially responsible procurement

Procurement key terms
Procurement Key Terms

  • Bribes

  • Excess (surplus) materials

  • Global procurement (sourcing)

  • Investment recovery

  • ISO 9000

  • Kickbacks

  • Lean six sigma

  • Malcolm Baldrige National Quality Award

  • Multiple sourcing

  • Obsolete materials


  • Refers to the raw materials, component parts, and supplies bought from outside organizations to support a company’s operations

  • Procurement costs often range between 60%-80% of an organization’s revenues

Procurement objectives
Procurement Objectives

  • Supporting organizational goals and objectives

  • Managing the purchasing process effectively and efficiently

  • Managing the supply base

  • Developing strong relationships with other functional groups

  • Supporting operational requirements

Supplier selection and evaluation
Supplier Selection and Evaluation

  • One of procurement’s most important responsibilities

  • Involves stating an organization’s needs and determining how well various potential suppliers can fulfill these needs

Planning contracting
Planning Contracting

  • Involves preparing several documents needed for potential sellers to prepare their responses and determining the evaluation criteria for the contract award.

    • Request for Proposals: Used to solicit proposals from prospective sellers.

      • A proposal is a document prepared by a seller when there are different approaches for meeting buyer needs.

    • Requests for Quotes: Used to solicit quotes or bids from prospective suppliers.

      • A bid, also called a tender or quote (short for quotation), is a document prepared by sellers providing pricing for standard items that have been clearly defined by the buyer.

Figure 12 3 request for proposal rfp template
Figure 12-3. Request for Proposal (RFP) Template

Information Technology Project Management, Fourth Edition

Evaluation criteria
Evaluation Criteria

  • It’s important to prepare some form of evaluation criteria, preferably before issuing a formal RFP or RFQ.

  • Beware of proposals that look good on paper; be sure to evaluate factors, such as past performance and management approach.

  • Can require a technical presentation as part of a proposal.

Requesting seller responses
Requesting Seller Responses

  • Deciding whom to ask to do the work, sending appropriate documentation to potential sellers, and obtaining proposals or bids.

  • Organizations can advertise to procure goods and services in several ways:

    • Approaching the preferred vendor.

    • Approaching several potential vendors.

    • Advertising to anyone interested.

  • A bidders’ conference can help clarify the buyer’s expectations.

Selecting sellers
Selecting Sellers

  • Also called source selection.

  • Involves:

    • Evaluating proposals or bids from sellers.

    • Choosing the best one.

    • Negotiating the contract.

    • Awarding the contract.

Figure 12 4 sample proposal evaluation sheet
Figure 12-4. Sample Proposal Evaluation Sheet

Information Technology Project Management, Fourth Edition

Seller selection process
Seller Selection Process

  • Organizations often do an initial evaluation of all proposals and bids and then develop a short list of potential sellers for further evaluation.

  • Sellers on the short list often prepare a best and final offer (BAFO).

  • Final output is a contract signed by the buyer and the selected seller.

Media snapshot
Media Snapshot

  • Many organizations realize that selecting appropriate sellers can often provide a win-win situation.

  • Several companies, including those owned by famous celebrities, work closely with outside sources to help both parties come out ahead.

  • For example, Oprah Winfrey celebrated the premiere of her show’s nineteenth season by giving each of her 276 audience members a new car that was donated by Pontiac.

Administering the contract
Administering the Contract

  • Ensures that the seller’s performance meets contractual requirements.

  • Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts.

  • Many project managers ignore contractual issues, which can result in serious problems.

Suggestions for change control in contracts
Suggestions for Change Control in Contracts

  • Changes to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved.

  • Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided?

  • Changes must be documented in writing. Project team members should also document all important meetings and telephone phone calls.

Suggestions for change control in contracts cont d
Suggestions for Change Control in Contracts (cont’d)

  • Project managers and teams should stay closely involved to make sure the new system will meet business needs and work in an operational environment.

  • Have backup plans.

  • Use tools and techniques, such as a contract change control system, buyer-conducted performance reviews, inspections and audits, and so on.

Closing the contract
Closing the Contract

  • Involves completing and settling contracts and resolving any open items.

  • The project team should:

    • Determine if all work was completed correctly and satisfactorily.

    • Update records to reflect final results.

    • Archive information for future use.

  • The contract itself should include requirements for formal acceptance and closure.

Tools to assist in contract closure
Tools to Assist in Contract Closure

  • Procurement audits identify lessons learned in the procurement process.

  • A records management system provides the ability to easily organize, find, and archive procurement-related documents.

Using software to assist in project procurement management
Using Software to Assist in Project Procurement Management

  • Word processing software helps write proposals and contracts, spreadsheets help evaluate suppliers, databases help track suppliers, and presentation software helps present procurement-related information.

  • E-procurement software does many procurement functions electronically.

  • Organizations also use other Internet tools to find information on suppliers or auction goods and services.

Supplier development reverse marketing
Supplier Development(Reverse Marketing)

  • Refers to “a degree of aggressive procurement involvement not normally encountered in supplier selection”

  • Can include:

    • Purchaser initiating contact with supplier

    • Purchaser establishing prices, terms and conditions

Supplier development reverse marketing1
Supplier Development(Reverse Marketing)

  • Motivation to adopt supplier development include:

    • Numerous inefficiencies associated with suppliers initiating marketing efforts toward purchasers

    • Purchaser may be aware of important benefits which are unknown to the supplier

    • Compel suppliers to meet necessary requirements to achieve competitive advantage in the supply chain

Quality issues in procurement
Quality Issues in Procurement

  • Quality – conformance to mutually agreed-upon requirements

  • Important to match quality levels of buyers and sellers in the supply chain

  • Vendors are expected to have quality programs/practices

    • ISO 9000

    • Six Sigma

    • Lean Six Sigma

Quality issues in procurement1
Quality Issues in Procurement

  • Malcolm Baldrige National Quality Award

    • Quality related initiative to recognize U.S. organizations for achievement in quality and performance

    • Eligibility now includes manufacturers, services, small businesses, health care and educational institutions

    • Restricted to U.S. headquartered organizations

    • Interested parties submit a formal application that is evaluated by a committee

Global procurement sourcing
Global Procurement (Sourcing)

  • Refers to buying components and inputs anywhere in the world

  • Driven by:

    • Factor-input strategy (organization is seeking low-cost or high-quality)

    • Market access strategy (organization is sourcing in markets where it plans to do significant business)

Global procurement sourcing1
Global Procurement (Sourcing)

  • Components of Global Sourcing Development model:

    • Planning

    • Specification

    • Evaluation

    • Relationship management

    • Transportation and holding costs

    • Implementation

    • Monitoring and improving

Global procurement sourcing2
Global Procurement (Sourcing)

  • Challenges in establishing a successful global sourcing strategy include understanding hidden costs as supply bases are expanded

  • Examples of hidden costs:

    • Increased costs of dealing with suppliers outside the domestic market

    • Duty and tariff changes that occur over supply agreement life

    • Increased inventory-related costs associated with global supply chains

    • Rising levels of logistics cost volatility (e.g. ocean freight rates)

Investment recovery
Investment Recovery

  • Identifies opportunities to recover revenues or reduce costs associated with:

    • Scrap

    • Surplus

    • Obsolete

    • Waste materials

  • Often the responsibility of the procurement manager

Socially responsible procurement
Socially Responsible Procurement

  • Socially responsible procurement refers to “procurement activities that meet the ethical and discretionary responsibilities expected by society.”

    Source: Craig R. Carter and Marianne M. Jennings, Journal of Business Logistics

Socially responsible procurement1
Socially Responsible Procurement

  • Five dimensions include:

    • Diversity

    • The environment

    • Human rights

    • Philanthropy

    • Safety

Socially responsible procurement2
Socially Responsible Procurement

  • Ethical considerations

    • “win at all costs” philosophy can exacerbate unethical behavior

  • Areas of ethical concern in procurement:

    • Gift giving and receiving

    • Bribes and kickbacks

    • Misuse of information

    • Improper methods of knowledge acquisition

    • Lying or misrepresentation of the truth

    • Product quality (lack of)

    • Misuse of company assets

    • Conflicts of interest

Statement of work sow



Statement of work performance based contracting
Statement of WorkPerformance-Based Contracting

Performance-based contracting involves structuring all aspects of an acquisition around the purpose of the work to be performed as opposed to either the manner by which the work is to be performed or a broad and imprecise statement of work.

Statement of work what vs how
Statement of WorkWhat vs. How

  • Lower costs

  • Flexibility to achieve a solution

  • Solution is the responsibility on the contractor

What is an sow
What Is An SOW?

  • A formal written description of your minimum requirements to be performed by a contractor

  • The “heart of your procurement”

Why is a clear and concise sow important
Why is a Clear and Concise SOW Important ?

  • Provides a clear understanding of the requirements

  • Establishes a baseline for proposal evaluation

  • Reduces evaluation and negotiation time

  • Minimizes need for future changes

  • Baselines contractor performance measures

Statement of work process overview

  • The following is a summary of the recommended process steps for preparing a Statement of Work SOW :

  • Establish a preliminary scope statement ( i.e., the purpose or objective of your procurement)

  • List the tasks to be performed ( i.e., All performance requirements you intend the contractor to satisfy, all requirements that the contractor must comply with during contract performance )

  • Group similar and related tasks.

  • Organize the tasks in logical sequence

  • Identify the input ( Required resources to perform the tasks)

  • Identify the output ( Required results or deliverables )

  • Identify the timeline or frequency of the deliverables (output)

  • Develop the parameters for acceptable quality and performance

  • Determine how you will monitor the deliverables

Statement of work step 1
Statement of WorkStep 1

  • Establish a preliminary scope statement that:

    • Identifies the objective or purpose of the procurement

    • Description of work to be performed

    • Define the magnitude of work to be performed

    • Defines the boundaries of performance and responsibilities

Statement of work step 2
Statement of WorkStep 2

  • List task to be performed that will:

    • Accomplish the objective of the SOW

    • Focus of “what” not “how” the contractor will perform

Statement of work step 3
Statement of WorkStep 3

  • Group similar and related task

  • Categorize tasks as either major or sub-tasks

  • Add any additional tasks as you work through this

Statement of work step 4
Statement of WorkStep 4

  • Organized task in logical sequence

    • Chronological order

    • Time-phase

    • Discipline

  • Ensure task required meet the minimum requirements

  • Delete unnecessary or repetitive tasks

Statement of work step 5
Statement of WorkStep 5

  • Identify the required resources for each task (input)

    • May be labor, equipment and material

    • May be NAFI or government provided

  • Identify any operating restrictions or procedures

Statement of work step 6
Statement of WorkStep 6

  • Identify required results and or deliverables (output)

    • Meetings

    • Reports

  • Provides information to develop oversight plan

  • Contractor responsible for the work (input to output)

Statement of work step 7
Statement of WorkStep 7

  • Identify the frequency and timeline of deliverables

  • Assists in

    • Refining SOW

    • Method of surveillance

    • Surveillance plan

    • Cost estimate

Statement of work step 8
Statement of WorkStep 8

  • Develop performance standard or acceptance criteria expressed in

    • Quality

    • Quantity

    • Time

    • Appearance

  • Should include elements such as “What, when, where, how many times

  • Should be appropriate for the contract and

    • Necessary

    • Realistic

    • Objective and measurable

Statement of work step 9
Statement of WorkStep 9

  • Determine how you will monitor the deliverables

  • Must be appropriate for the contract

  • Cost effective

  • Methods include:

    • 100% inspection

    • Random sampling

    • Periodic inspection

    • Customer complaints

    • Review of progress milestones

    • Reports by contractor

Statement of work conclusion
Statement of WorkConclusion

Lastly, the key factor in the success of the Performance Based Contract is the ability of you, the customer, to write good requirements.