Project – Automobile Industry

Q. A. Decision Tree

Doing it yourself –

-$100 + (70%*$120K) + (30%*-$30K) = -$25K

Outsourcing –

-$40 + (50%*$100K) + (50%*-$10K) = $5K

Result: Outsourcing is the best options to go for as the gain is $5K rather than
doing it yourself with a loss of -$25K.
Q. B. Procurement Management plan

INTRODUCTION

The purpose of the Procurement Management Plan is to define the procurement

requirements for the project and how it will be managed from developing
procurement documentation through contract closure. The Procurement
Management Plan defines the following:

 Items to be procured with justification statements and timelines

 Type of contract to be used
 Risks associated with procurement management
 How procurement risks will be mitigated through contract performance
metrics, insurance, or other means
 Determining costs and if/how they’re used as evaluation criteria
 Any standardized procurement templates or documents to be used
 How multiple suppliers will be managed if applicable
 Contract approval process
 Decision criteria
 Establishing contract deliverables and deadlines
 How procurement and contracts are coordinated with project scope,
budget, and schedule
 Any constraints pertaining to procurement
 Direction to sellers on baseline requirements such as contract schedules
and work breakdown structures (WBSs)
 Vendor Management
 Identification of any prequalified sellers if applicable
 Performance metrics for procurement activities

PROCUREMENT MANAGEMENT APPROACH

The Procurement Management Plan should be defined enough to clearly identify

the necessary steps and responsibilities for procurement from the beginning to
the end of a project. The project manager must ensure that the plan facilitates
the successful completion of the project and does not become an overwhelming
task in itself to manage. The project manager will work with the project team,
contracts/purchasing department, and other key players to manage the
procurement activities.

TYPE OF CONTRACT TO BE USED

The purpose of this section is to describe the type of contract to be used so the
contracts and purchasing department can proceed accordingly. There are many
different types of contracts like firm-fixed price, time and materials (T&M), cost-
reimbursable, and others. Different procurement items may also require
different contract types. A well-defined product may be a firm-fixed price while a
product which will require a research and development effort may be a T&M
contract.

PROCUREMENT RISKS

The purpose of this section is to identify any potential risks associated with
procurement for the project. Depending on the contract type, items or services
being purchased, vendor history, or uncertainties in the project’s scope, schedule,
or budget, potential risks may require more detailed planning and mitigation
strategies. For instance, if an organization has a close relationship to a particular
vendor but there is a chance that vendor will no longer to be able to provide
goods or services needed, this represents a significant risk to the project’s
procurement activities that must be managed.

PROCUREMENT DOCUMENTATION

The following standard documents will be used for project procurement activities:

 Standard Request for Proposal Template to include

o Background
o Proposal process and timelines
o Proposal guidelines
o Proposal formats and media
o Source selection criteria
 o Pricing forms
o Statement of work
o Terms and Conditions
 Internal source selection evaluation forms
 Non-disclosure agreement
 Letter of intent
 Firm fixed price contract
 Procurement audit form
 Procurement performance evaluation form
 Lessons learned form

PROCUREMENT CONSTRAINTS

The purpose of this section is to describe any constraints which must be

considered as part of the project’s procurement management process. These
constraints may be related to schedule, cost, scope, resources, technology, or
buyer/seller relationships. As constraints are identified, they must be considered
every step of the way as procurement activities are planned and conducted.
Every effort must be made to identify all constraints prior to any project or
procurement planning as constraints identified later in the project lifecycle can
significantly impact the project’s likelihood of success.

Source Selection Criteria

Source Selection Criteria document is part of procurement documents and is used
to rate the sellers. This document considers different parameters and due
weighting is given for each of these parameters. The contract will be awarded to
the seller who scores higher than others.

Some of the parameters considered during selection are:

- Technical capability: Does the seller have required technical skills and
knowledge?
- Cost: Does the seller offer the lowest price?
- Warranty: What is the warranty period mentioned in the proposal?
- Financial Capability: Does the seller have the financial capability to deliver the
product?
- Risk: What is the seller’s risk taking ability and risk management approach?
- Credibility: How many similar kind of projects the seller has performed earlier
and who are his clients?
- Proximity: Is the seller’s location within the city?

- Process: What kind of process does the seller use and is it proprietary or
open source?
- Reference: Can the seller provide the references of his clients to verify his
past performance?
- Management: Does the seller have leadership capabilities to drive the
project’s success?
- Relevant certification: Another criterion, though not a crucial one, is to
select a seller who has managers who hold relevant certification. For
example a Buyer is likely to prefer a PMP certified PM than a noncertified
PM in the seller’s team to take up the project.

If many sellers meet the selection criteria, then only the price factor will be
considered.

Q. C. PROCUREMENT AGREEMENT

An agreement is a legal document which is signed between two parties; one

party is called the Buyer and the other party is called the Seller. The Seller
supplies the goods and the Buyer pays the money in return. Agreement can be
a contract, purchase order, understanding, or undertaking. It should have legal
remedies.
Some of the possible components of an agreement are:
• Statement of Work: Brief description about the project and deliverables
• Schedule: Start and End date of the Project
• Reporting structure: The template
• Frequency of reporting: Weekly or monthly
• Operating location: Premises of the seller or buyer
• Price: The contract price
• SLAs
 • Penalty clauses: For any delays or violations
• Payment Terms: Frequency, criteria for the payment
• Retaining: Percentage retention of money per negotiation
• Incentive clause: Based on performance
• Insurance: If applicable
• Change request handling: Use of contract change control system
• Termination clause: The exit policy either from buyer or from seller
• Subcontractor: Approval from the buyer if the seller chooses the
subcontract
• Force Majeure: Natural calamities such as earthquake, flood, fire, and so
on.

Q. D.WORK PROFANCE DATA, INFORMATION, REPORT

Work Performance Data

Work performance data is the raw measurements taken during the progress of a
project. For example the amount of work completed, number of changes
requested, number of defects, actual cost, and so on.

Work Performance Information

Work performance information is the analyzed data or the processed data. The
examples include schedule variance, cost variance, implementation status of
change request, forecasting, and so on.

Work Performance Report

Work performance report is the physical or the electronic form of information.
For example dashboard, memos, status, recommendations, and so on.

The reporting from Seller -

Work Performance Data will mention that the actual completion of the work is
40% whereas the planned completion was 50%.
Work Performance provides the details such as the work are behind the schedule
by 10%, the reason for this delay, any issues, risk associated if any, and actions
expected. In addition to this it also provides a forecast on the completion of the
project.

To address these work issues, change request will be raised and to address this
change, Contract Change Control System technique will be used.

Contract Change Control System defines the process required to handle the
changes with respect to procurement. It can be through paperwork, disputes,
approvals, and so on. Contract Change Control System is integrated with
Integrated Change Control System.

Q. E. CONTROL PROCUREMENT

Control Procurements Output

The output to be considered for Control Procurements is Change Requests. Upon
reviewing the seller and the contract, a change request will capture the update to
the buyer’s project management plan. The change request can be traced through
the following processes to the Project Management Plan:

Perform Integrated Change Control

The Change Request enters Perform Integrated Change Control. The change is
deemed necessary and is approved.
This change request is also captured in the change log.
This change request also leaves Perform Integrated Change Control as a Project
Management Plan Update.

Direct & Manage Project Work

There is no need to send the approved change request to Direct and Manage
Project work, since the only work changed is the seller’s work.

Control Quality
However, the approved change request is received by Control Quality to confirm
the change has been made.