IT Project Procurement Management Quiz

Chapter 12: Project Procurement Management

• Project procurement management is the process of acquiring goods and services from an external source
• Outsourcing is a term used for purchasing goods and services from an outside source
• The global IT industry was valued at $3.7 trillion in 2017
• Outsourcing market is growing
• Some companies, like Wal-Mart, prefer not to outsource
• General Motors (GM) recently announced a shift from outsourcing 90% of IT services to only 10%

Learning Objectives (1 of 2)

• Explain the importance of project procurement management and the increased use of outsourcing for information technology (IT) projects
• Describe the work involved in planning procurements for projects, including contract types, procurement plans, statements of work, and source selection criteria
• Discuss how to conduct procurements and strategies for obtaining seller responses, selecting sellers, and awarding contracts

Learning Objectives (2 of 2)

• Discuss types of software available to assist in project procurement management
• Discuss considerations for agile/adaptive environments

Importance of Project Procurement Management (1 of 4)

• Procurement means acquiring goods and/or services from an external source
• Other terms include purchasing and outsourcing

Importance of Project Procurement Management (2 of 4)

• Why outsource?
  • Access to skills and technologies
  • Reduce fixed and recurring costs
  • Allow the client organization to focus on core business activities
  • Provide flexibility
  • Increase accountability

What Went Wrong?

• In 2011, New York City's mayor acknowledged City Hall mismanaged major IT projects
• The CityTime payroll system was inflated by $700 million due to fraud
• Nycaps (automated personnel system) experienced delays and cost overruns, increasing from $66 million to over $363 million

Importance of Project Procurement Management (3 of 4)

• Project procurement management is about acquiring goods and services from external organizations for a project
• Main processes: planning, conducting, and controlling procurements

Importance of Project Procurement Management (4 of 4)

• Provides a detailed overview of Project Procurement Management, broken down into planning, conducting and controlling procurements
• Includes the inputs, tools and techniques and outputs for each phase

Planning Procurement Management

• Identifying project needs that can be met using an external product or service
• Deciding whether to procure, how to procure, what to procure, how much to procure, and when to procure
• Make-or-buy decision: if an organization does not need to buy from external sources, then there's no need to perform other procurement processes

Types of Contracts (1 of 3)

• Fixed price/lump sum contracts: involve a set price for a defined product or service, using Point of Total Assumption (PTA)
• Cost-reimbursable contracts: payment to the seller for direct and indirect costs
• Includes cost plus incentive fee, cost plus fixed fee, and cost plus percentage of costs

Types of Contracts (2 of 3)

• A visual representation (figure 12-2) illustrates different contract types and their relative buyer and seller risks.

Types of Contracts (3 of 3)

• Contracts should include specific clauses to address unique project issues
• Time and materials contracts and unit price contracts can have varying risk levels based on the project nature
• Termination clauses allow buyer or supplier to end contracts

Tools and Techniques for Planning Procurement Management

• Make-or-buy analysis: helps determine if an organization should create a product internally or from external sources
• Expert judgment: seeking expert advice to plan contracts and acquisitions
• Market research: identifying potential suppliers

Procurement Management Plan

• Describes procurement processes from developing documentation for external purchases or acquisitions to contract closure
• Content varies based on project needs

Statement of Work (1 of 2)

• A statement of work (SOW) is a description of the work needed for a procurement
• If a SOW is used as part of a contract, it's called a contract statement of work
• A good SOW clarifies buyer expectations for bidders

Statement of Work (2 of 2)

• Provides a detailed template (figure 12-3) for creating a Statement of Work

Procurement or Bid Documents

• Request for Proposals (RFPs): used to gather proposals from potential sellers when there are various ways to meet the buyer's needs
• Requests for Quotes (RFQs): used to obtain quotes for standard items clearly defined by the buyer (like a bid, tender, or quote)

Examples from a Real RFP

• Government agencies often require procurement information to be open to the public
• Buyers should clarify their requirements, so sellers can respond appropriately

Source Selection Criteria

• Important to prepare evaluation criteria before issuing RFP/RFQs
• Organizations rate proposals and often assign weights to criteria
• Important to consider factors like past performance and management approach for proposals.
• Some IT projects require potential sellers to present

Conducting Procurements (1 of 4)

• Steps after planning for procurement management include deciding who will do the work, providing the appropriate documentation to potential sellers, obtaining proposals or bids from sellers, selecting a seller, and awarding a contract.

Conducting Procurements (2 of 4)

• Organizations can advertise for goods and services in various ways
• Approaching preferred suppliers or several potential suppliers to get bids, and holding bidders' conferences to clarify expectations is also common

Conducting Procurements (3 of 4)

• This section includes a sample evaluation sheet (figure 12-4) for evaluating proposals based on various weighted criteria

Conducting Procurements (4 of 4)

• After developing a short list of potential sellers, further detailed evaluation and proposal processes often follow.
• Contract negotiations are common during the source selection phase
• Sellers provide best and final offers(BAFOs). Final output is a signed contract

Controlling Procurements (1 of 4)

• Ensuring seller performance meets contractual requirements
• Contracts are legal relationships; legal professionals should be involved.
• Project team members must be aware of potential legal problems.
• Important to watch for constructive change orders (oral or written acts/omissions) with apparent authority

Controlling Procurements (2 of 4)

• Suggestions for change control in contracts:
  • Review, approve, and document changes to project elements as much as the initial planning phase.
  • Perform impact analysis when evaluating changes in project plans.
  • Maintain written documentation for changes in project plans.
  • Project managers and teams should stay closely involved in ensuring business needs are met.
  • Backup plans should be developed as needed for procurement processes

Controlling Procurements (3 of 4)

• Closing procurements includes completing and settling contracts, resolving outstanding issues, final results, and archiving
• Project teams determine all work completed correctly and satisfactorily; ensuring appropriate record updating

Controlling Procurements (4 of 4)

• Procurement audits identify lessons learned from the procurement process
• Records management systems help efficiently organize, find, and archive procurement documents
• Ideally, all contracts involve a negotiated settlement from the buyer and seller. Mediation/arbitration may be used if necessary

Best Practice

• Procurement can be more intelligent through the use of data science and predictive models
• Data related to finance, marketing, etc. can be analyzed
• Quality control and assurance departments can encourage employees to generate innovative supplier ideas

Using Software to Assist in Project Procurement Management (1 of 2)

• Word-processing software is used for proposals and contracts
• Spreadsheet software is used for proposal evaluation
• Databases are helpful in tracking suppliers
• Presentation software is useful for presenting procurement-related information
• E-procurement software helps with electronic procurement functions

Using Software to Assist in Project Procurement Management (2 of 2)

• Procure-to-pay suites support indirect procurements
• E-purchasing, catalog management, and e-invoicing functionalities are useful software tools
• Accounts Payable Invoice Automation is a common function

Considerations for Agile/Adaptive Environments

• Agile Manifesto values customer collaboration over contract negotiation
• Project procurement relationships are collaborative on agile projects
• Buyer and seller work together throughout the entire process to create required products and services
• Agile environments prioritize speed, clear logical processes to follow, and good project procurement management.

Chapter Summary

• Procurement, purchasing, or outsourcing is the acquisition of goods and services from outside sources
• Project procurement management involves planning and conducting procurement activities and then controlling those procurements
• Deciding what to procure, and the contract type to use, and how to describe the effort in a statement of work are important
• Several types of software can assist in project procurement management

Test your knowledge on key aspects of IT project procurement management, including outsourcing strategies and source selection considerations. This quiz covers the importance of planning, controlling, and managing procurements effectively in the IT industry.