Procurement Management Procurement Management: Faculty

30‐05‐2020
Procurement Management
Area of Haziness
Project Boundary with
various players
Selecting Sub contractor International
under project constraints project
High
Obscurity,
complexity Stay Ahead
Sunil Kumar
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Faculty
Sunil Kumar
• 12 year in academics – IPM
• ( Visiting/Guest faculty for NITIE,Powai, IIT Madras, IIT Delhi, CEPT ,PDPU Ahmedabad etc.)
• 18 years with industry prior to IPM
‐ Vizag steel, BHEL, ALSTOM
‐ Power projects in India and Bhutan
• Link Theory and Practice
• B.Tech ( Mech), G B Pant University, Pantnagar,
• PGDBM (Operation) XIMB, Bhubaneshwar
• FPM(OR and decision Science), XLRI, Jamshedpur (Thesis submission stage)
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Construction Project: Egyptian Pyramid
5.9 million tones, 20 years , approx 800 tones of stone every day,
2.3 million blocks, each wt 2‐70 tones, structure ht 146 meters,
accuracy 0.04 inch, 13 acre base, max dev at ht within 1 inch, >12
blocks /hour x24 hrs, worker .100000 unskilled, 40000 skilled
C. 2560 BC
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1
30‐05‐2020
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Ground Reality Check – Sample L & T Project
PROJECT START DATE 05‐Sep‐12
CONTRACTUAL completion –07‐Jan‐15
ACTUAL 07‐Jan‐15
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Current Situation – Infra project India‐ as per MOSPI Aug 2019
(Ministry of Statistics and Programme Implementation)
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30‐05‐2020
Trend of cost overrun in projects‐ MOSPI
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Trend of time overrun in projects‐ MOSPI
Trend of Time overruns in projects‐
MOSPI
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Cost overruns and schedule delays in Construction industry
• Nine out of ten infrastructure megaprojects face cost overruns that add, on average, 70
percent to the original budget.
• 61 percent exceeding the original schedule.
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2017 McKinsey report Stay Connected
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30‐05‐2020
Typology of project
Required Iteration
Imagine Pluto @17000
km/hr chased by spacecraft
@60000 km/hr gets
manoeuvred at distance of
6‐7 billion km from earth
Level of Creativity
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Challenges faced by Implementation agency
The highlighted
points in blue are
issues that require
input and support
from the State
Governments
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Challenges faced by Contractors
The highlighted
points in blue are
issues that require
input and support
from the State
Governments
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4
30‐05‐2020
Pre‐development and Land Acquisition phase issue
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Planning and Engineering
Suboptimal Feasibility/ Investigation Reports‐ Incomplete and improper feasibility reports and Detailed Project Reports (DPR) often lead to
incorrect cost and time estimates, result of limited or incomplete understanding of the project scope. Additionally, DPR prepared several years
before project initiation, forecast incorrect ground conditions during execution phase. This leads to improper baselining, contributing to fragile
targets In the six laning of Panipat‐Jalandhar section oh NH‐1, inadequate soil investigations and DPR led to a delay of 47 months and
~23% of cost overrun.
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Project Approval‐ Bent Flyvbjerg Syndrome
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5
30‐05‐2020
Inefficient project execution
• Challenges in the tendering phase
‐ Quality of planning and engineering design is poor
‐ Contracts in use are inappropriate
• Challenges during execution
‐ Performance management is weak
• If all is well all the time, Probably you don’t know what's going on
‐ Poor Decision making
‐ Availability of skilled and semi‐skilled manpower
‐ Weak risk management skills:
‐ Below‐par design and engineering skills
‐ Dispute resolution ineffective
‐ Lack of best‐in‐class procurement
‐ “Chalta haaay” Ho Jayega Attitude, Procrastination
‐ Poorly systematized operation: SOP & ISO for show case
‐ Poor process capability: Indicator> expediter and inspection
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Exercise
• Pl write One major problem you faced in project execution in current
or earlier project related to planning.
• Project
• Area
• Problem
• Root cause
• Impact on project objective ‐
‐ Time
‐ Cost
‐ Quality/scope
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Common Contractor and Client issues
During Planning/tendering Related to Client
• Wrong Estimation • Front Delay
• Communication/interface with other • Approval for project go ahead
agency • Approval for drawing
• Operation input delay‐ constructability • Frequent change in design
• Scope clarity • Payment issues
• Decision on issues
• Concurrency loss‐ construction before
design During Execution
• Poor requirement capture • Availability of resources
• Resource shortage • Monitoring and expediting poor
• Vendor poor selection‐ lead to quality • Delay in supply
• Poor quality pattern
• Geographical , regional and logistics issue • Risk triggered
• Fabrication capacity • Surprises not considered
• Estimate cost panel too low, so unable to
put PO
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6
30‐05‐2020
Initial Site Assessment‐ Importance
• To assess the general suitability
of the site and achieve safe and
economical design
• To assess local challenges &
constraints to execute the
work.
• To foresee and provide
provisions against difficulties
that may arise during
construction due to ground
and other local conditions.
• To find out the sources of
construction material and
selection of sites for disposal of
water or surplus material
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Construction Phase
• Construct the project’s facilities,
work
fabricate and install equipment.
• The work is done in accordance with the
plans and specifications developed
during the design phase. Creating
Relationship
• The project’s highest levels of activity, in
terms of numbers of personnel and people Condition
costs incurred per day, occur during
Project success is function of people, the work
construction. and condition or work environment at site
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Site Management
Testing of assumption
Conversion of 2D/3D into reality
Inconsistency not apparent in two dimension drawing become glaring after assembly
Everyday work is installed condition at site changes‐ beware of the shifting
circumstances
Staying ahead of time gives space for plan, meet problem and solve before it affect
work pace
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30‐05‐2020
Construction site: Distinguishing trait
 site location and surrounding
‐ Variability problem in evolving environment
‐ Use of local material and labor input add to uncertainty
‐ Site geology and other work condition variation
‐ Spatial flow of work along with material flow
‐ Poorly systematized site operation
 Temporary multiorganization
‐ Different company and practice
‐ Poor communication of data , knowledge and design solution across organization
‐ Achieving goal congruity across organization
 Regulatory intervention : causing uncertainty and constraints
Presence of customer over your head
Last leg of the relay race in Race Project
Rapid change: Condition and community sentiment
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 Error =et = Xt ‐Et

Inefficient project execution 

Mean Absolute Deviation (MAD)
Mean Square Error (MSE)
 Mean Percentage Error (MPE)
 Mean Absolute Percentage Error (MAPE)
• Challenges in the tendering phase 

Mean Error (ME)
RMSE = Root Mean Squared Error
‐ Quality of planning and engineering design is poor
• How do we know??
‐ Contracts in use are inappropriate
• Challenges during execution
‐ Performance management is weak
‐ Poor Decision making
‐ Availability of skilled and semi‐skilled manpower
‐ Weak risk management skills:
‐ Below‐par design and engineering skills
‐ Lack of best‐in‐class procurement
‐ Dispute resolution ineffective Mean Absolute Percentage Error (MAPE)=
A‐Actual Value, F‐ Forecast or planned value,
n‐ nos. of activities Stay Ahead
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Extent of deviation( L & T Sample)
Total as per Total as per
Engineering construction final
Description Unit
final executed
deliverable
Excavation (Soil) m3 30,445 34,043
Excavation (Rock) m3 4,800 21,631
RCC m3 11,621 13,437
Structural steel MT 3,391 4,160
Process piping - DSS kg 24,09,403 NA
Process piping –
kg 9,44,390 NA
CS/SS
Utility piping GRE

(Fire and Potable M 1225 2090
Water)
Piping Fabrication ID 1,07,599

1,59,770
Piping Field welding ID 52,077
259,415 (includes
Electrical cable laying M 2,40,355
Earthing cables)
Electrical Termination Nos. - 6,378
Inst cable laying M 2,32,500 2,29,537
Inst Termination Nos. - 3,937 Stay Ahead


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8
30‐05‐2020
Exercise – Find the MAPE of Activities below
As considered in Tender As Actual
No. of Nos. of Rate per
Activity Estimated Unit Cost (Rs. worker Hrs in a Nos. of Hr per
Description Quantity s In Lacs) engaged month month labor
•Concreting 10860 m3 65.16 20 480 10 52
•Shuttering 20000 m2 44.00 40 480 10 50
•Staging 60000 m3 27.00 20 480 10 52
•Reinforcement 590 MT 35.40 20 480 10 52
•Brickwork 1500 m3 14.25 30 220 10 68
•Plastering 13999 m2 26.00 20 220 10 68
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Variance at activity level
Actual
Planned Cost cost(Rs in Total Absolute Percentage error
Activity Description (Rs. In Lacs) Lacs) variance value at activity level
•Concreting 65.16 50 ‐15.16 15.16 23
• Shuttering 44.00 95 51.00 51 116
• Staging 27.00 50 23.00 23 85
• Reinforcement 35.40 50 14.60 14.6 41
• Brickwork 14.25 45 30.75 30.75 216
• Plastering 26.00 30 4.00 4 15
Total 211.81 320 108.19 138.51 65
80%
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30‐05‐2020
Contractor selection
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What makes it possible ?
Think of Construction project without sub contractor
How much percentage and type of services/supply of your
total project work they constitute , in terms of manpower,
material, Tools and plants, services?
WEBEX Poll‐
A‐less than 50%
B‐ 50‐70%
C‐ 70‐80%
D‐80‐90%
E‐ More than 90%
Respond pl.
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Importance of sub contract
• Work Horse: Constitute …webex poll result………of project team
• Project success ‐general contractor ‐project TQC is function of sub
contractor performance
• Sub contractor: among top five contributing factor of project delay
• Construction mismanagement may start with a single sub
contractor , cascade through work force chain to affect schedule
and damage multiple party
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30‐05‐2020
Sub Contractor
• A subcontractor is a person/firm hired by a general
contractor (or prime contractor, or main contractor)
to perform a specific task as part of the overall
project and is normally paid for services provided to
the project by the originating general contractor
• Manufacturer: someone or company who buy materials, raw materials or components and
transform them into a sellable product. Not necessarily marketing or selling it.
• Vendor : someone who supply some products to someone else. It can be a manufacturer or a
middle men
• Distributor: someone who buy some goods in batch (medium/ high quantities) and sell those
goods in smaller batch to retailers.
• Agent: someone who is between a buyer and a seller , who doesn't usually take ownership of the
goods but get a commission to have introduced parties.
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• How much effective is our sub contractor/ Vendor based on your
experience at site/office
Webex Poll
• A‐ Perfect, It could not have been better
• B‐very Good, to my satisfaction
• C‐Good – workable
• D‐Not good – but some how will do
• E‐Impossible to get the work done, Disastrous
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Poll result
• How much effective is our sub
contractor/ Vendor based on your
experience at site/office
Webex Poll
• A‐ Perfect, It could not have been
better
• B‐very Good, to my satisfaction
• C‐Good – workable
• D‐Not good – but some how will do
• E‐Impossible to get the work done,
Disastrous
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30‐05‐2020
• Is problem lies with our concept of L1 ( Lowest bidder) selection of
sub contractor?
• Poll
• A‐Yes
• B‐No
• C‐ May be
• D‐ Don’t no
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Decisions for sub contractor selection
• Decision making is the process of identifying and choosing among
alternative courses of action in a manner appropriate to the demands
of the situation.
• Alternative courses of action must be
‐ Identified,
‐ Weighed,
‐ Weeded out.
When something is obvious or made to be obvious, do we need decision?
And when something is unanimous?
Beware of justifying decision!!!
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Managers Challenge
• Many decisions that managers deal with every
day involve at least some degree of
uncertainty and require non programmed
decision making
 May be difficult to make
 Made amid changing factors
 Information may be unclear
 May have to deal with conflicting points of view
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30‐May‐20 Sunil Kumar 36 Stay Relevant
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30‐05‐2020
Managers Challenges
Multiple criteria: Number of
conflicting criteria representing the
interest of different group
Value Judgment: Bias factor based
on perception
Unintended Consequence: Positive,
negative , Frankenstein monster
effect :Man Creates Dinosaur, Dinosaur Eats
Man
Ex‐ signal jammer, fund for eradication
hurried and/or narrowly focused or
vested interest decision makers
typically give little or no
consideration to the full range of
likely consequences of their
decisions
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Conditions Affecting Decision
● Certainty
● Information is fully available, no doubt about factual basis, outcome predictable
accurately
● Risk
● Decision has clear‐cut goals
● Information available but has poor reliability
● Alternative are subject to probability
● Uncertainty
● Information about alternatives and future events is incomplete and not reliable
● Ambiguity
● Goals to be achieved or the problem to be solved is unclear
● Alternatives are difficult to define
● Information about outcomes is unavailable
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Conditions that Affect the Possibility of Decision Failure
Organizational
Problem
Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity
Programmed Nonprogrammed
Decisions Decisions
Problem
Solution
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30‐05‐2020
Categories of Decisions
• Programmed Decisions: Routine , SOP
‐ Situations occurred often enough to enable decision rules to be developed and applied
in the future
‐ Made in response to recurring organizational problems, e.g. hiring, billing
• Non programmed Decisions –Non routine, in response to unique, poorly defined and largely
unstructured, and have important consequences to the organization e.g.: replacement of contractor in
middle of the project.
• The Principle of Exception
‐ “Only bring exceptions to the way things should be to the manager’s attention. Handle
routine matters yourself.”
Ill‐structured Non programmed Top
Decisions
Type of Problem Level in
Organization
Programmed
Decisions Bottom
Well‐structured
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Selection of Desired Alternatives: Factors
• Risk Propensity = willingness to undertake risk with the opportunity
of gaining an increased payoff
• Implementation = using managerial, administrative, and persuasive
abilities to translate the chosen alternative into action
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Decision making process(Non
Programmed/Strategic)
• Decision may be considered as
• Operational decision:
‐ Concerned with managing
operation,
‐ Focus result on short term basis,
‐ Outcome is known quickly
• Strategic decision :
‐ Prediction pertaining to important
issue on a long term basis,
‐ Lot of uncertainty in consideration,
‐ Choice is among significantly
different alternative,
‐ Involve payoff far into future
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Elements Of Decision Quality
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• Appropriate frame:
‐ clear purpose,
‐ conscious perspective,
‐ Well defined scope.
• Creative, doable alternatives:
‐ explore all possibilities
‐ understand fully different alternatives
‐ Quality achieved with number of innovative and realizable
alternatives considered
• Meaningful, reliable information:
‐ establish correct and explicit information based on appropriate
facts.
‐ The uncertainty involved can then be expressed in the form of a Stay Ahead
probabilistic judgment. Sunil Kumar
30‐May‐20 44 Stay Relevant
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• Clear values and trade‐offs:
‐ explicit statements of fundamental values need to be
established.
• Logically correct reasoning:
‐ consequences of each alternative on the value measure to
be evaluated comprehensively.
• Commitment to action:
‐ full commitment to put the action plan into implementation
is a significant of ensuring success.
‐ Without commitments from all parties involved, it is unlikely
to obtain any useful and beneficial results, even with the
most sophisticated and comprehensive action plan in hand.
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Single, Group‐aided Decision Making And
Group Decision Making
• Moving from single to multiple decision maker bring complexity
• Decision making is a highly social activity with committees, study groups, review panels, or
project teams contributing in a variety of ways.
• In group aided DM, group does everything except make the final decision. Where as in group
DM group actually makes the final decision.
• Problem of dispersed accountability: in group decision making, it reflect the collective
experience and wisdom of all those involved, personal accountability is lost. Blame for a joint
decision that fails is too easily passed on to others.
• “There was a company run by committee, by consensus. No one actually made a decision.
When things went well, there would be a number of people willing to take credit. But when
things went wrong, it was impossible to fix responsibility on anyone.”
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Advantages and Disadvantages of Group-Aided Decision Making
Advantage Disadvantage
1. Social pressure
1. Greater pool of knowledge Unwillingness to disturb(rock the boat) and pressure to conform(due to
hierarchy) may combine to stifle the creativity of individual
2. Different perspectives contributors.
2. Minority domination:
3. Greater comprehension by those who talk loudest and longest
3. Logrolling :
4. Increased acceptance: Exchange favor/reciprocal voting
outcome viewed as “ours” Political wheeling and dealing can displace sound thinking when an
rather than “their” individual’s pet project or vested interest is at stake.
4. Goal displacement
5. Training ground: learning Sometimes secondary considerations
of group dynamics by less such as winning an argument, making a point, or getting back at a rival
experienced displace the primary task of making a sound decision or solving a
problem.
5. Groupthink
Sometimes cohesive “in groups” let the desire for unanimity override
sound judgment when generating and evaluating alternative courses of
action.
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Individual Vs group performance: Contingency
Management
• Nature of task and Insights from research
• Problem‐solving task: Individuals are faster, but groups tend to
produce better results
• Complex task/ Brainstorming task : Best results achieved by polling
the contributions of individuals working alone
• Learning task :Groups consistently outperform individuals
• Concept mastery/ creative task: Contributions from average‐ability
group members tend to improve when they are teamed with high‐
ability group members
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Avoiding Decision Trap
• Human tendencies that are capable of eroding the quality of decision making.
• Framing error:
‐ Tendency to evaluate positively presented information favorably and negatively
presented information unfavorably. Glass 50 % full or empty.
‐ Framing influences interpretation and intended behavior. Advertisement to create
frame , major problem in perception
• Overconfidence:
‐ It expose managers to unreasonable risks. With business conditions constantly changing
and innovations often seem to be the only constant, no one can “have all the answers”
for long.
‐ Being crisp and decisive tend to settle issues so quickly that they have no opportunity
to grasp the ramifications .
‐ already have all the answers, they have no way to learn new answers
‐ Whenever something truly important is at stake, push for rapid closure, allowing no
periods of uncertainty, even when uncertainty is appropriate
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Avoiding Decision Trap
• Escalation of commitment :Tendency of individuals and organizations to get locked
into losing courses of action because quitting is personally and socially difficult.
• Reason to hold on to failing decision/business : sentimental value, false hope, and
culture
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Sub Contractor selection Approaches
New Decision
Approaches for
Turbulent
Times
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30‐05‐2020
Multi‐Criteria
Decision Making
“It has become more and more difficult to see the world
around us in a one‐dimensional way and to use only a
single criterion when judging what we see”
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The Decision‐Making Process
Identify Problem
Select Alternative
Develop Decision Allocate Weights
Criteria to Criteria Implement
Alternative
Develop Analyze
Alternatives Alternatives
Evaluate Results
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Approaches For MCDM
‐ Simple additive weighting method (SAW)
‐ Weighted product method(WPM)
‐ Analytic Hierarchy Process (AHP)
‐ Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS)
‐ Entropy Method
‐ Standard Deviation Method
‐ Data envelopment Analysis
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Multi‐Criteria Decision Making
• Each decision table (also called decision matrix) in MADM/MCDM methods has four
main parts, :
‐ Alternatives, alternatives, ai (for i = 1, 2, ….. , N),
‐ Attributes, bj (for j = 1, 2, ….. , M),
‐ Weight or relative importance of each attribute, wj (for j=1, 2, ….., M)
‐ Measures of performance of alternatives with respect to the attributes. Mij (for i= 1, 2,
….., N; j=1, 2, ….., M
• Decision maker is to find the best alternative and/or to rank the entire set of
alternatives.
• all the elements in the decision table must be normalized to the same units, so that
all possible attributes in the decision problem can be considered
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Decision Table in MCDM
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Simple Additive Weighting (SAW) Method
Weighted sum method (Fishburn)
Overall or composite performance score : Pi
• Drawback: ???
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Example Using Weighted Scoring Method
• Objective
‐ Selecting a mobile crane
• Criteria
‐ Capability, Reliability, Fuel‐economy
• Alternatives
‐ Crane 1,
‐ Crane 2,
‐ Crane 3,
‐ Crane 4
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Weights and Scores
Weight 0.3 0.4 0.3

Si
Capability Reliability Fuel Eco.
Crane 1 7 9 9 8.4
Crane 2 8 7 8 7.6
Crane 3 9 6 8 7.5
Crane 4 7.0
6 7 8
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Simple Additive Weighting (SAW) Method
Weighted sum method (Fishburn)
• The attributes can be beneficial or non‐beneficial.
• Beneficial attribute > (mij)K/(mij)L,
• non‐beneficial attribute> (mij)L/(mij)K.
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Weighted Product Method (WPM): Miller
• The overall or composite performance score of an
alternative is given by equation
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Conversion of Linguistic Term into Crisp Score
11 point crisp scale
5 point crisp scale Linguistic term Crisp Score
Crisp
Exceptionally low 0.045
Linguistic term Score
Extreemly Low 0.135
Low 0.115
Very Low 0.255
Below Average 0.295 Low 0.335
Average 0.495 Below Average 0.41

Average 0.5
Above average 0.695
Above average 0.59
High 0.895
High 0.665
"Count what is countable, measure what is
Very High 0.745
measurable, and what is not measurable,
make measurable." [Galileo Galelei, 1564‐ Extremely High 0.865
1642] Exceptionally High 0.955
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30‐05‐2020

Current Situation – Infra project India‐ as per MOSPI Aug 2019

Project Approval‐ Bent Flyvbjerg Syndrome

 Error =et = Xt ‐Et

Excavation (Soil) m3 30,445 34,043

Excavation (Rock) m3 4,800 21,631

RCC m3 11,621 13,437

Structural steel MT 3,391 4,160

Process piping - DSS kg 24,09,403 NA

Utility piping GRE

Piping Fabrication ID 1,07,599

Electrical Termination Nos. - 6,378

Inst cable laying M 2,32,500 2,29,537

Inst Termination Nos. - 3,937 Stay Ahead

Low Possibility of Failure High

• Decision may be considered as

Advantages and Disadvantages of Group-Aided Decision Making

Weight 0.3 0.4 0.3

Average 0.495 Below Average 0.41

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