Week 12: Procurement Management Learning Objectives

1
Week 12 Procurement ManagementLearning
Objectives

• You should be able to
• List and describe activities, inputs, outputs,
  and tools of the 5 procurement management
  processes
• Explain the benefits and guidelines for IT
  outsourcing
• Describe and contrast the types of contracts
• Define and describe SOW, RFQ, RFP
• List potential mistakes in managing procurement
  contracts and list guidelines for preventing them

2
Procurement Processes

• Procurement planning - what to procure
• Solicitation planning - identify sources
• Solicitation - obtain quotes or bids
• Source selection - choose source(s)
• Contract administration - with seller
• Contract close-out - completion, resolution

3
IT Outsourcing

• Increasing in importance
• Contractual relationship with external party
• who performs one or more IT functions
• at a pre-determined price
• according to pre-determined performance criteria
• Differs from merely contracting out
• relinquish some level of management control

4
Outsourcing Benefits

• Reduce costs
• seller may gain economies of scale
• Focus on core business
• let someone else do non-core business
• IT operations and/or development
• Access to advanced skills and technologies
• Workforce flexibility
• Increase accountability
• through a well-written contract

5
Outsourcing Risks

• Costs of contract administration
• Obsolescence of internal IT skills
• Loss of management control
• human resources
• quality control
• Dependence on single vendor
• Intellectual property rights

6
Procurement Management Perspectives

• Seller vendor, contractor, supplier, etc.
• Buyer customer or client of seller
• The contract may be a project of the seller, thus
  requiring Project Management
• However, procurement management is from buyers
  perspective
• Guidelines may also apply to internal clients

7
Procurement Planning

• Determining what project needs are best met by
  outside products and/or services
• Inputs
• scope, product description, market conditions
• constraints/assumptions re outside sellers
• Outputs
• procurement plan
• SOW statement of work

8
Procurement planning tools

• Make-or-buy analysis
• compare cost of providing internally to cost of
  outsourcing
• Expertise
• creative options

9
Statement of Work

• Scope detailed description of work
• Location where work to be done
• Period start and end dates
• Deliverables and due dates
• Standards industry-specific
• Acceptance criteria what will satisfy buyer
• Special requirements

10
Contract Types

• Vary with proportion of risk to buyer, seller
• Fixed price
• appropriate for well-defined product or service
• higher risk to seller
• Cost-reimbursable
• payment to seller for direct and indirect costs
• higher risk to buyer
• Unit price when cost estimation difficult
• time and materials

11
Contract Variations

• Incentives to seller
• meeting or exceeding project objectives
• Cost plus incentive
• shared savings or shared extra costs
• Cost plus fixed fee
• Cost plus percentage of cost
• no incentive for reducing costs
• highest risk to buyer

12
IT Outsourcing Contracts

• Specify expectations for experience levels
• Specify hourly rates for differing experience and
  education levels
• Termination clause terms for ending contract
• Renewal expectations
• Flexibility for changing conditions

13
Solicitation Planning

• Prospective sellers
• Request for Proposal (RFP)
• basic requirements
• enough information for seller to respond
• Request for Quote (RFQ)
• simpler, more specific
• Invitations to bid or negotiate
• Key Output evaluation criteria

14
Solicitation

• Send out RFPs, etc.
• sellers of previous work, on-going relationship
• list of qualified sellers
• conference to clarify specifications
• competition can reduce price
• Key Output Proposals or Responses

15
Source Selection

• Systematic evaluation
• According to weighted evaluation criteria
• Involve multiple stakeholders
• technology, cost, management experts
• Identify short list
• May involve contract negotiation
• clarification and mutual agreement
• Key Output Contract
• legal relationship subject to court remedy

16
Contract Administration

• Ensures sellers performance meets contract
• May require coordination and integration among
  multiple contracts, sellers
• Key inputs
• change requests, invoices
• Key tools
• change control system (CCS)
• payment system
• Avoid Constructive Change Orders
• changes that bypass CCS

17
Contract Close-out

• Product verification
• Updating, archiving records
• Formal acceptance and completion
• Inputs contract
• Tools audit
• Outputs signed completion, contract files