4E1 Project Management

1
4E1 Project Management

• Purchasing and Procurement 2

2
Tenders

• Asking potential vendors for proposals
• Allows transparency in procurement
• Aims to reduce price, improve quality through
  competition
• Used in private and public sectors
• Proposals AKA tenders, bids, quotations
• Considerations
• Cost, time, effort (vendor and customer)
• Legal obligations
• Existing suppliers
• Different types
• Public, restricted, negotiated

3
Invitation to Tender (ITT)

• Requests for Tenders (RFT, RFP)
• Also Request for Expressions of Interest (EoI)
• Also Requests for Information (RFI)
• Must state
• What is to be provided
• Quality requirements
• Delivery and payment terms
• Any special contractual conditions
• Different types of bid
• Indicative, offer, BAFO
• May be sealed

4
Evaluating Tenders

• Criteria
• Vary from single/simple to many/complex
• Weighted ranking
• Simple Multi-Attribute Rating Technique (SMART)
• Formal and informal evaluation
• Stakeholders involved
• Rules of the game
• Private sector, public sector
• Managing risks

5
Weighted Ranking

• A widely used formal evaluation technique
• Useful when there are multiple comparable options
• Costs (rewards?) must be known
• Requires formulation of distinct assessable
  criteria
• Often used in purchasing
• Capital assets e.g. earth-moving equipment
• Materials e.g. concrete, aluminium sheeting
• Services e.g. contractors, consultants

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Weighted Ranking - Complications

• Criteria may be hard (objective) or soft
  (subjective)
• Usually a mixture
• Information may be
• Uncertain
• Missing
• Fuzzy
• These can all be handled
• Dealing with uncertainty using PERT-type scoring
• Dealing with soft criteria using scales

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Weighted Ranking Step 1

• Identify all criteria
• Value trees, stakeholders,
• Classify each criterion as qualifying or award
• Qualifying - absolute (must) requirements
• Hardness must be at least 40B (Rockwell scale)
• Must be able to lift at least 2.5 tonnes
• Must comply with ISO9200
• Award important but non-essential (should)
• Supplier should have local maintenance capability
• Cost should be lt450,000

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Weighted Ranking Step 2

• Assign weights to award criteria
• 10 criterion is extremely important
• 1 criterion is fairly unimportant
• 0 is not a permissible value (why?)
• Use care when quantifying soft values
• Lay out on a grid/spreadsheet (see over)

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Weighted Ranking Step 3
Option 1
Option 2
Option 3
Class.
Weight
Criterion
Q Q A A A A A
CRITERION 1 CRITERION 2 CRITERION 3 CRITERION
4 CRITERION 5 CRITERION 6 CRITERION 7
8 7 5 4 2
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Weighted Ranking Step 4

• Evaluate options under each criterion
• Decide range of scores in advance
• Scoring and weights should be independent
• Multiple evaluators
• Consensus
• Averaging
• Psychology of group decision-making

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This brings us to
Option 1
Option 2
Option 3
Weight
Class.
Criterion
Yes Yes 9
7 2 8 4
Yes No

Yes Yes 9
6 5 8 10
8 7 5 4 2
CRITERION 1 CRITERION 2 CRITERION 3 CRITERION
4 CRITERION 5 CRITERION 6 CRITERION 7
Q Q A A A A A
Option 2 fails to meet an qualifying criterion
and is eliminated
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Weighted Ranking Step 5

• For each option
• For each criterion, multiply weight by score
• Sum the results to give options weighted score
• Take care in interpreting the result
• Observe any rules (e.g. public sector)

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Weighted Ranking Final Outcome
Perfect Score
Option 1
Option 3
Weight
Class.
Criterion
Q Q A A A A A
8 5 5 4 2
CRITERION 1 CRITERION 2 CRITERION 3 CRITERION
4 CRITERION 5 CRITERION 6 CRITERION 7
9 72 7 35
2 10 8 32 4
8
10 80 10 50 10 50 10
40 10 40
9 72 6 30
5 25 8 32 10
20
Select option 3
179
TOTAL
157
260
60
69
TOTAL
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Negotiation

• Negotiation is formal, explicit, interpersonal
  communication aimed at agreement
• It involves
• representatives of all interested parties
• conflicts of interest
• Negotiation is a specific skill
• Ability to compromise and communication skills
  also required
• Negotiation may be adversarial or cooperative
  (partnership)

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Negotiation

• Strategies
• Win-win, win-lose or win-dont care?
• Depends on goals
• Power in negotiation depends on knowledge of
  other partys best alternative to no agreement
  (BATNA)
• Timing is important
• Analysis of buyer and sellers strengths and
  weaknesses
• Knowledge of market
• Understanding of dependency relationships

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Negotiation - Positions of Strength
Need is urgent Monopoly Indifferent about
business Exceptional product Good information
Need is not urgent Many alternative
suppliers Suppliers keen to get business Buyer is
only buyer. There are substitutes.
Seller
Buyer
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Ethics

• Temptations
• Smaller inducements
• Pens, bottle of wine, gimmicks
• Larger inducements
• Golf outings, visits to plants in exotic
  locations, entertainment
• Corruption
• Bribes - cash and/or kind, kickbacks
• Clear written policies

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Timing

• Lead times!
• Include key orders in the project plan
• Delivery time as a task (may be on critical path)
• Contractual implications
• Expediting
• Routine approach flagging, reminders
• Urgent expediting
• Alternative sourcing
• Escalating
• When does the Project Manager get involved?

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e-Procurement

• Electronic purchasing e.g. via Internet, EDI,
  ERP, etc.
• Advantages
• Convenience, speed, wider reach, improved
  information
• Issues
• Security fraud, confidentiality, etc.
• Legal contracts, enforcement, etc.
• Related concepts
• Vendor-managed inventory
• Intelligent agents
• Just-in-time delivery
• Evaluated receipt settlement

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Irish Government e-Procurement
www.e-tenders.gov.ie/
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Examples of RFTs
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Searching for Tenders
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Examples of Tenders
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Electronic Purchasing
Product Service Information Request Purchase
request Payment or payment advice
Electronic Market (Txn Handler)
Response to information request Purchase
acknowledgement Shipping notice Purchase/Service
delivery Payment acknowledge
Payment Remittance Notice Electronic Funds
Transfer
Electronic Funds Transfer
Suppliers bank
Transaction Handlers Bank (Automated Clearance
House)
Purchasers bank
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Purchasing Organisation in Projects
Project Manager
The Client
Project Engineer
H.O Purchasing Agent
Suppliers
Shipping Agent
Site Manager
Overseas supplier
Subcontractors
Overseas Purchasing Agent
Local Suppliers
Role of the purchasing department
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Summary Key Points

• Purchasing is important in most projects
• Projects may use the company purchasing function
• Or do their own
• There is a standard purchasing cycle
• There are different approaches to purchasing
• There are many skills involved, including
• Negotiation
• Relationship management
• Administration