Overview of this week’s material 2 Procurement management is one of the nine major project management knowledge areas according to PMI Project Integration management, scope management, time management, cost management, quality management, human resource management, communication management, risk management, and PROCUREMENT MANAGEMENT WEEK 6 Procurement Management includes: PROCUREMENT CONTROL AND PROJECT The planning, budgeting, scheduling, and control of MANAGEMENT INFORMATION SYSTEMS procured goods, work, or services (GWS). Usually, goods are raw materials or produced items, work is (PMIS) contracted labor, and services is consulting TCM 545/645 – Project Control Systems Dr. Richard Gebken TCM 545/645 - Project Control Systems Items of Concern for Procurement Procurement Management Management Include: 3 4 Equipment, materials, or components designed and provided by vendors Identifying GWS items to specifically for the project. Could be: be procured portions of work packages or entire work packages (e.g., design work, Involves decision about environmental impact study, soil analysis) which items are to be major portions of the project wholly (“turnkey”: subcontractors fully design, build, and install equipment or components for the project end-item). Designed, built, or provided in-house; OR Off-the-shelf (OTS) equipment and components supplied by vendors. (Products readily available and not specifically produced for the project.) Procured (purchased or acquired) Bulk materials (cement, metal tubing or framing, wire, stone, piping, etc.) Happens during the WBS Consumables (nails, bolts, rivets, fuel) or loose tools used for construction or fabrication process or design process when the needed materials Equipment not already owned by the contractor; e.g., includes cranes, supports, scaffolding, and equipment for machine-shops, welding, and testing. and resources are first Administrative equipment not already owned by contractor; e.g., computers, identified. project office facilities and office equipment. TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems Procurement Management Involves: Contracting 5 6 Contracting with suppliers or subcontractors, often Every project involves “ contracting” through the formal RFP/proposal process. an agreement for one party (SDO – systems RFP = request for proposal development organization) to do something (project) for Integrating procured GWS items into the project life another (customer) cycle and project plan (i.e., schedule, responsibility Most people think of the project contract only matrix, budget, quality, and risk, etc.) between the customer and the SDO Logistics in many projects the SDO is also a customer that Transport and storage of materials for the project. contracts its work to many other organizations loading, unloading, transportation, inspection, clearances and approvals, and storage of materials can be major issues. Procured materials must arrive when needed according to project schedules. TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems 1
Contracting (cont'd) Contracting (cont'd) 7 8 A PM of an SDO typically hires other contractors Sometimes SDO doesn’t do any “work” but merely (subcontractors), sometimes through RFP-proposal hires and manages the work of others. process, in which case SDO becomes “customer” Project team consists of numerous organizations held PM must know how to evaluate proposals together by contracts as well write them After the contract agreement, the contractual agreement must be managed, i.e., ensuring that work performed is in conformance with the contract that the contract is up-to-date regarding ongoing changes in the project, customer needs, and the contractor’s capability. This process, called contract administration , TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems Why Study Procurement Management Basic Kinds of Contractual Agreements in the Project Controls Class? 9 10 Different contractual agreements offer different advantages to Aside from the main tasks of: the customer and contractor, depending on the nature of the Planning purchases and acquisitions project. The basic agreements are: Planning contracting strategies Fixed Price Contract —Price paid by the customer for the project is fixed regardless of the costs incurred by the Asking for and proposals from SDOs (RFP Process) contractor. And Evaluating proposals from SDOs Cost-Plus Contract —Price paid by the customer is based on the costs incurred in the project plus the contractor’s fee. Procurement management also includes contract Incentive Contract —Price paid by the customer depends on the administration contractor’s performance in comparison to the target price, schedule, or technical specification: the contractor either receives a bonus for exceeding the target, or must pay the customer a penalty for falling short of the target. TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems The Project Control Emphasis of Contract Administration Contract Administration 11 12 According to PMI’s PMBOK (3 rd edition), Contract At the heart of Contract Administration is Administration is: Procurement Control – the process of: The process of managing the contract and the Monitoring quality, schedule, and cost of all procured relationship between the buyer and the seller , items reviewing and documenting how a seller is performing Visiting and inspecting the facilities of subcontractors or has performed to establish required corrective and suppliers actions and provide a basis for future relationship with Tracking subcontractors’ and suppliers’ progress and the seller, managing contract related changes, and, expenses, when appropriate, managing the contractual Preparing contingency for all major procured material, relationship with the outside buyer of the project. equipment, components, and services TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems 2
PMI’s Control Procurements Process The 7 Tools and Techniques of (PMBOK 5 th edition, process12.3) Procurement Control 13 14 Contract Change Control System Procurement Contract change Procurement Inputs Tools & Techniques Outputs documents control system Document updates Describes the processes needed to make contract changes Project management Procurement Organizational Since the contract is a legal document, a formal process to plan performance process assets authorize or deny changes must be established reviews updates Contract Procurement Performance Reviews Inspections and Change requests Performance reports audits Project management Examine the ability of the “seller” to meet various Approved change Performance plan updates requirements: requests Reporting Work performance Work performance Scope, quality, budget, and schedule requirements Payment Systems information information May take the form of quality audits, inspections, or Claims examination of the work product itself administration Reviews should be based upon the SOW from the original Records Management system contract plus any contract changes to date TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems The 7 Tools and Techniques of The 7 Tools and Techniques of Procurement Control (cont’d) Procurement Control (cont’d) 15 16 Claims administration Inspections and Audits Involves documenting, monitoring, and managing Similar to quality assurance process where buyer or 3 rd contested changes to the contract party will physically inspect the work of the seller Claims (also known as disputes or appeals) may Performance Reporting eventually be resolved through negotiation, mediation, A large part of project management, this process involves arbitration, or the courts providing managers and stakeholders with updates about Records Management System the progress of vendors in meeting project objectives Maintaining an organized system for contract Payment systems documentation is important As part of this process, vendors submit invoices for payment Focus should be placed on indexing documents for easy Contract administration must include processes for reviewing filing and retrieval (related to last topic below – IT) and approving payment of invoices TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems Project Management Information Systems (PMIS) 18 PMIS is a framework, or system, that assists in the collecting, organizing, storing, processing, and disseminating of project related information Can be paper-based or electronic The availability of computerized PMIS solutions has skyrocketed over the last 5 years, as such There are many options in terms of capability, 17 Project Management Information Systems (PMIS) flexibility, and price This is what are term projects are hopefully focusing on TCM 545/645 - Project Control Systems TCM 545/645 - Project Control Systems 3
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