Project Procurement Management PMP Study Workbook PDF

Project Procurement Management PMP Study Workbook Dan Ryan, MBA, PMP, PMI-ACP www.pmexamcoach.com TABLE OF CONTENTS Project Procurement Management........................................................................................ 1 Procurement Overview..............................................

Project Procurement Management PMP Study Workbook Dan Ryan, MBA, PMP, PMI-ACP www.pmexamcoach.com TABLE OF CONTENTS Project Procurement Management........................................................................................ 1 Procurement Overview....................................................................................................................... 1 Procurement Key Concepts................................................................................................................. 1 Procurement Trends and Emerging Practices...................................................................................... 2 Procurement Tailoring Considerations................................................................................................ 3 Procurement Considerations for Agile Environments......................................................................... 4 Plan Procurement Management.......................................................................................................... 4 Plan Procurement Management: Inputs................................................................................................................ 5 Plan Procurement Management: Tools & Techniques........................................................................................ 7 Plan Procurement Management: Outputs............................................................................................................ 8 Conduct Procurements...................................................................................................................... 10 Conduct Procurements: Inputs.............................................................................................................................. 10 Conduct Procurements: Tools & Techniques...................................................................................................... 11 Conduct Procurements: Outputs.......................................................................................................................... 12 Control Procurements....................................................................................................................... 14 Control Procurements: Inputs................................................................................................................................ 15 Control Procurements: Tools & Techniques........................................................................................................ 16 Control Procurement: Outputs............................................................................................................................. 18 Project Procurement Management Project Procurement Management P M P S T U DY W O R K B O O K PROJECT PROCUREMENT MANAGEMENT Procurement Overview According to the PMBOK® Guide, “Project Procurement Management includes the processes necessary to purchase or acquire products, services or results needed from outside the project team.” These processes help to develop and administer agreements, which may include contracts, purchase orders, memoranda of agreements (MOAs) or internal service level agreements (SLAs). The following processes are contained in the Project Procurement Management Knowledge Area: Plan Procurement Management Conduct Procurements Control Procurements Procurement Key Concepts Important penalties and legal obligations have to be considerations as part of procurement management. The processes that are performed in procurement management describe the buyer–seller relationship. Visit www.pmexamcoach.com for exam resources Page 1 Project Procurement Management The expected deliverables and expected results from the buyer’s point of view should be stated clearly in the contract. The contract should also contain clauses specifically stating the contract’s terms and conditions. The definition of the procurement rules and the organizational members who have the authority to sign and administer the contract should be clearly stated in the contract. A contract is a legal and binding document, so the legal department of the requesting organization may perform a more thorough review process and approval process for contracts than is used for other types of project documents. The types of procurement activities necessary on more complex projects often warrant the creation of multiple contracts, which may be executed either sequentially or simultaneously. When performing decentralized purchasing activities, the project manager is usually given the authority to negotiate and sign contracts. When performing centralized purchasing activities, the authority to negotiate and sign contracts is given to a separate procurement department. PMP Exam Study Tip When performing processes and activities in procurement management, it is assumed that the project buyer is either a project team member or a member of the buying organization outside the project. It is also assumed that the project seller is not a project team member or a member of the buying organization, but is external to the project and the buying organization. Procurement Trends and Emerging Practices Following are some major trends and emerging practices that currently exist on a global scale with regard to procurement management: Page 2 Visit www.pmexamcoach.com for exam resources Project Procurement Management Tool Advancement Trends – The development tools that are used to manage project procurement possess significant improvements as compared to their predecessors. These include a single point for procurement advertising, and also a single point to obtain online procurement documents and templates. Advanced Risk Management Trends – Contracts written in today’s global environment often include specific risk management activities that are included in the contract. Contract Process Change Trends – Engineering and infrastructure megaprojects have started using internationally recognized standard contract forms and templates. This aids in the reduction of problem areas and claims when performing the activities outlined in the contract. Logistics & Supply Chain Management Trends – The effective management and flow of materials that exist on large construction and engineering projects that are executed using multiple contractors is becoming more and more crucial to the successful completion of these projects. Technology & Stakeholder Relations Trends – The use of technology (e.g., webcams) is helping to improve both relations and communications with project stakeholders on infrastructure and commercial construction projects. One of the specific benefits of using technology such as webcams is the minimization of onsite construction disputes since there is a record of the seller's activities. Trial Engagement Trends – Trial engagements with selected suppliers are being utilized more than in the past. Characteristic of these is that before a final commitment is made to one specific seller, multiple seller candidates are paid to provide initial work products and deliverables. The result is simultaneous project work progression and supplier evaluation. Procurement Tailoring Considerations The application of procurement management processes by the project manager may need to be tailored since each project is unique. Following are key considerations that the project manager should keep in mind when applying the Project Procurement Management processes: Visit www.pmexamcoach.com for exam resources Page 3 Project Procurement Management Procurement Complexity Regulatory and Governance Environment Physical Location Contractor Availability Procurement Complexity – The complexity of procurements may be increased if there are several procurements occurring at the same time and using different sellers. Physical Location – The complexity of procurements may be increased if procurement sellers and buyers are separated by different time zones, countries or continents. Regulatory and Governance Environment – The complexity of procurements may be increased if organizational procurement policies are not properly integrated with the local laws and regulations that affect the performance of procurement activities. Contractor Availability – The complexity of procurements may be increased if there is a lack of available contractors able to perform the work involved in procurements. Procurement Considerations for Agile Environments Key considerations that the project team should keep in mind when working in an agile project environment include Having specific sellers as project team members The use of Master Service Agreements (MSAs) on larger projects to help govern the engagement of buyer team members and seller team members. Plan Procurement Management According to the PMBOK® Guide, “Plan Procurement Management is the process of documenting project procurement decisions, specifying the approach, and identifying potential sellers.” Page 4 Visit www.pmexamcoach.com for exam resources Project Procurement Management This process benefits the project by determining whether to acquire goods and services from sources external to the project. It is important that the definition of procurement-related roles and responsibilities be performed early in the process of planning procurements and documented in the procurement management plan. In addition, ensuring that the team members with the correct level of expertise needed to effectively perform procurements will help ensure project success. Plan Procurement Management: Inputs Project Charter Business Documents Project Management Plan Project Documents EEFs OPAs Contract Types Project Charter – Components for this process include project objectives, project description, summary milestones and preapproved financial resources. Business Documents – Common business documents used in this process include the business case and the benefits management plan. Project Management Plan – Components for this process include the scope management plan, the quality management plan, the resource management plan, and the scope baseline. Project Documents:  Milestone List  Project Team Assignments Visit www.pmexamcoach.com for exam resources Page 5 Project Procurement Management  Requirements Documentation  Requirements Traceability Matrix  Resource Requirements  Risk Register  Stakeholder Register Enterprise Environmental Factors (EEFs) – They can be internal to the organization (e.g., legal advice regarding procurements), or external to the organization (e.g., seller past performance and reputation). Organizational Process Assets (OPAs) – Examples include preapproved seller lists, formal procurement policies, procedures and guidelines, and contract types (fixed price, costreimbursable, and time and material). Contract Types – These include; 1) fixed price (the defined product, service or result is delivered at a set price, 2) Cost-reimbursable (the seller is reimbursed for all costs incurred creating the defined product, service or result, and also receives a separate fee for the seller’s profit, and 3) Time & Material (the contract has a combination of fixed price and costreimbursable contract characteristics.) Contract Type Who Bears Risk? Fixed Price Seller bears the risk of an overrun or underrun to the work. Buyer bears the risk of incorrect scope or schedule.    Cost Reimbursable Buyer bears risk of underrun or overrun, Seller bears risk of finding and providing resources. Buyer risk of high costs if more resources are needed. Seller risk of low profit if fewer resources are used than expected.    Time and Material Variations Firm Fixed Price Fixed Price Incentive Fee Fixed Price with Economic Price Adjustment Cost Plus Fixed Fee Cost Plus Incentive Fee Cost Plus Award Fee Contract can include incentives and penalties for quality and schedule of deliverables. Table 10-1: Contract Types Page 6 Visit www.pmexamcoach.com for exam resources Project Procurement Management Plan Procurement Management: Tools & Techniques Expert Judgment DataGathering Techniques Source Selection Analysis Data Analysis Techniques Meetings Expert Judgment – Those individuals or groups that possess specific expertise in areas such as procurement, contracts and compliance should be consulted while performing this process. Data-Gathering Techniques (e.g., market research). Data Analysis Techniques (e.g., make-or-buy analysis) Source Selection Analysis – This involves prioritizing competing project demands prior to choosing a source selection method. Common source selection analysis methods include:  Least Cost  Qualifications Only  Quality Based/Highest Technical Proposal Score  Quality & Cost-Based  Sole Source  Fixed Budget Meetings – Meetings held during Plan Procurements usually include potential bidder collaborative meetings and procurement management and monitoring meetings. Visit www.pmexamcoach.com for exam resources Page 7 Project Procurement Management Plan Procurement Management: Outputs Procurement Management Plan Procurement Strategy Bid Documents Procurement Statement of Work Source Selection Criteria Make-or-Buy Decisions Independent Cost Estimates Change Requests Project Documents Updates OPAs Procurement Management Plan – The procurement management plan is a component of the project management plan that describes what types of bidding alternatives (e.g., international, national, or local) should be considered for procurements. It can be formal or informal, and can include high-level procurement information or detailed information, depending on the size and complexity of the project. Procurement Strategy – A procurement strategy should be developed after a make-or-buy decision has been made by the project team. Following is the recommended content to be included in the procurement strategy:  Delivery Methods – Considerations for delivery methods differ based on whether the contract is for construction projects (e.g., turnkey), or professional services projects (e.g., joint venture).  Contract Payment Types – These depend on policies outlined in the buying organization’s internal financial systems (e.g., lump sum, target cost).  Procurement Phases – Information concerning the specific phases of the procurement management plan identified (e.g., procurement sequencing, procurement performance indicators). Page 8 Visit www.pmexamcoach.com for exam resources Project Procurement Management Bid Documents – These are used for the solicitation of proposals from potential sellers and include request for information (RFI), request for quote (RFQ), and request for proposal (RFP). Procurement Statement of Work – This is developed based on the project scope baseline. Only the scope defined in the scope baseline should be included in the final contract. Source Selection Criteria – This criteria must be framed so that the source selected provides the highest quality of service. Common source selection criteria include capability & capacity, and seller’s financial stability. Make-or-Buy Decisions – As a result of performing a make-or-buy analysis, a decision is made whether to perform the contract work in-house or to outsource the contract work to an external source. Independent Cost Estimates – When the work to be performed ends up with a large procurement, a decision is made whether to prepare the cost estimate in-house, or to use an outside source to obtain a benchmarked cost estimate. Change Requests – Decisions made regarding the procurement of goods, services or resources may result in a change request. Project Documents Updates – Although many different project documents are updated as a result of performing this process, following are the major ones:  Lesson Learned Register  Milestone List  Requirements Documentation  Requirements Traceability Matrix  Risk Register  Stakeholder Register Organizational Process Assets Updates – These commonly include information on qualified sellers. Visit www.pmexamcoach.com for exam resources Page 9 Project Procurement Management Conduct Procurements According to the PMBOK® Guide, “Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding the contract.” This process benefits the project by selecting a qualified seller and implementing the contract for delivery of the agreed upon product or service. Conduct Procurements: Inputs Project Management Plan Project Documents Project Documentation Seller Proposals EEFs OPAs Project Management Plan – Following are common components used in this process from the project management plan:  Scope Management Plan  Requirements Management Plan  Communications Management Plan  Risk Management Plan  Procurement Management Plan  Configuration Management Plan  Cost Baseline Page 10 Visit www.pmexamcoach.com for exam resources Project Procurement Management Project Documents:  Lesson Learned Register  Project Schedule  Requirements Documentation  Risk Register  Stakeholder Register Project Documentation – This documentation fills the need to provide a written record of how the agreement was reached and may include documentation from previous projects. Following are common documents used during the Conduct Procurements process:  Bid Documents  Procurement Statement of Work  Independent Cost Estimates  Source Selection Criteria Seller Proposals – These are received from potential sellers and the information contained in them will help the individual or group evaluating them select the best seller(s). Enterprise Environmental Factors (EEFs) – They can be internal to the organization (e.g., contract management systems), or external to the organization (e.g., local procurement laws and regulations). Organizational Process Assets (OPAs) – Examples include prequalified seller lists. Conduct Procurements: Tools & Techniques Expert Judgment Advertising Visit www.pmexamcoach.com for exam resources Bidder Conferences Interpersonal & Team Skills Page 11 Project Procurement Management Expert Judgment – Those individuals or groups possessing specific expertise in areas of procurement (e.g., proposal evaluation, negotiation) should be consulted during this process. Advertising – This involves communication with potential end users of the product, service or result that is delivered by the seller. Bidder Conferences – Meetings where the seller(s) meet with the buyer to submit contract proposals. These help to ensure that all prospective bidders receive a common understanding of the procurement, and that no individual bidder receives preferential treatment. Interpersonal & Team Skills – An important interpersonal and team skill used in this process is negotiation. Conduct Procurements: Outputs Selected Sellers Agreements Change Requests Project Management Plan Updates Project Documents Updates OPAs Updates Selected Sellers – These are sellers who have been deemed capable of doing the contract work based on the source selection criteria defined by the buyer, and based on the results of the bid or proposal evaluation by the buyer. Note: Approval from the senior management of the buyer’s organization is commonly required for complex high-value high-risk projects. Agreements – As a result of selecting a bidder’s proposal and selecting the seller, a contract is created between the buyer and the seller, and serves as a mutually binding agreement. Following are important characteristics of the accepted and signed agreement:  Obligation of the seller to provide the products, services, or results contained in the agreement. Page 12 Visit www.pmexamcoach.com for exam resources Project Procurement Management  Obligation of the buyer to compensate the seller for providing the products, services, or results as per payment terms contained in the agreement.  Recognition that the agreement constitutes a binding legal relationship between the buyer and the seller subject to judicial remedies if the terms of the contract are broken. Change Requests – Decisions made regarding the final seller selection and signed agreement may result in a change request. Project Management Plan Updates – Any recommended change to the project management plan must have a change request submitted. Although many different project management plan components may require change requests, following are the most common ones:  Requirements Management Plan  Quality Management Plan  Communications Management Plan  Risk Management Plan  Procurement Management Plan  Scope Baseline  Schedule Baseline  Cost Baseline Project Documents Updates – Although many different project documents are updated as a result of performing this process, following are the major ones:  Lesson Learned Register  Requirements Documentation  Requirements Traceability Matrix  Resource Calendars  Risk Register Visit www.pmexamcoach.com for exam resources Page 13 Project Procurement Management  Stakeholder Register Organizational Process Assets Updates – These commonly include prospective and prequalified seller listings, and positive and negative information concerning the interaction of the buyer and the seller. Control Procurements According to the PMBOK® Guide, “Control Procurements is the process of managing procurement relationships, monitoring contract performance and making changes and corrections as appropriate, and closing out contracts.” This process benefits the project by ensuring that the project requirements performance levels set in the agreement for both the buyer and seller are fully met. Following are some key points to consider when conducting procurements: The administration of the procurement contract is performed by both the buyer and the seller for similar reasons. Both the buyer and the seller are responsible for ensuring that each understand their respective rights under the contract and that these rights are protected by law. When controlling a procurement, the project management team must be aware of the implications of any actions taken by either the buyer or the seller. PMP Exam Study Tip Agreements can be made any time prior to contract closure by mutual consent, in accordance with the change control terms of the agreement. It is important that these amendments are documented and capture in written form. Page 14 Visit www.pmexamcoach.com for exam resources Project Procurement Management Control Procurements: Inputs Project Management Plan Project Documents Agreements Procurement Documentation Approved Change Requests Work Performance Data EEFs OPAs Project Management Plan – Following are common components used in this process from the project management plan:  Requirements Management Plan  Risk Management Plan  Procurement Management Plan  Change Management Plan  Schedule Baseline Project Documents:  Assumption Log  Lessons Learned Register  Milestone List  Quality Reports  Requirements Documentation Visit www.pmexamcoach.com for exam resources Page 15 Project Procurement Management  Requirements Traceability Matrix  Risk Register  Stakeholder Register Agreements – These are reviewed to verify that agreement terms and conditions are met. Procurement Documentation – This includes supporting documentation used during procurement process administration. Approved Change Requests – These may result from contract terms and conditions modifications. Work Performance Data – This may include seller project status data, activities status, and incurred costs. Enterprise Environmental Factors (EEFs) – They can be internal to the organization (e.g., contract management systems), or external to the organization (e.g., marketplace conditions). Organizational Process Assets (OPAs) – Examples include prequalified seller lists. Control Procurements: Tools & Techniques Expert Judgment Claims Administration Procurement Inspection Data Analysis Techniques Procurement Audit Expert Judgment – Those individuals or groups that possess specific expertise in areas of procurement (e.g., compliance requirements, claims administration) should be consulted while performing this process. Claims Administration – This tool & technique is used when claims arise around an Page 16 Visit www.pmexamcoach.com for exam resources Project Procurement Management agreement during the course of the project. Following are a few points to keep in mind about claims on your projects:  A claim is raised when a change to an agreement is requested by either the buyer or the seller.  Claims are raised when; 1) the buyer and seller cannot agree on the level of compensation that results from the change, or 2) the buyer and seller cannot agree that a change actually occurred.  If the claims cannot be resolved, they become disputes.  If the disputes cannot be resolved, they become appeals.  If the appeal cannot be resolved, then alternate dispute resolution (ADR) is used as a last resort. Claim Dispute Appeal ADR Figure 10-1 Contract Claim Process Flow PMP Exam Study Tip It is important to follow the process flow outlined above on your projects when a claim is raised by either the buyer or the seller. Also remember that Alternative Dispute Resolution (ADR) should always be the absolute last resort. Data Analysis Techniques (e.g., contract performance reviews, earned value analysis, trend analysis) Procurement Inspection – The performed work of the contract is given a structured review. Procurement Audit – The actual procurement process is given a structured review. Visit www.pmexamcoach.com for exam resources Page 17 Project Procurement Management Control Procurement: Outputs Closed Procurements Work Performance Information Procurement Documentation Updates Change Requests Project Management Plan Updates Project Documents Updates OPAs Updates Closed Procurements – The buyer indicates to the seller that the contract is complete by sending them a formal written notice stating that the contract is complete. Work Performance Information – This includes information about the seller’s performance in terms of deliverables, technical performance, and costs incurred. Procurement Documentation Updates (e.g., contract, unapproved requested contract changes, approved change requests). Change Requests – Activities performed in this process may result in change requests to project management plan components and may affect the cost baseline, the schedule baseline, and the procurement management plan. Project Management Plan Updates – Any recommended change to the project management plan must have a change request submitted. Although many different project management plan components may require change requests, following are the most common ones:  Risk Management Plan  Procurement Management Plan  Schedule Baseline Page 18 Visit www.pmexamcoach.com for exam resources Project Procurement Management Project Documents Updates – Although many different project documents are updated as a result of performing this process, following are the major ones:  Lesson Learned Register  Resource Requirements  Requirements Traceability Matrix  Risk Register  Stakeholder Register Organizational Process Assets Updates – Examples of these may include updates to the following:  Payment Schedules and Requests  Seller Performance Evaluation Documentation  Prequalified Seller Lists Updates  Lessons Learned Repository  Procurement File Visit www.pmexamcoach.com for exam resources Page 19