Practical Project Management

October 2006

Overview

           Introduction to Project Management Project Management Context Integration Management Scope Management Time Management Cost Management Quality Management Human Resource Management Communications Management Risk Management Procurement Management 2

Module 1: Introduction to Project Management

Objectives      Define what project is and describe project management Understand the history of project management Understand the growing need for better project management Discuss key elements of the project management framework Discuss recent trends in project management research and software products 3

Project Management Defined

  Project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet project requirements A project is a temporary endeavor undertaken to achieve a particular aim. Project management knowledge and practices are best described in terms of their component processes 4

History of Project Management

   Some people argue that building the Egyptian pyramids was a project, as was building the Great Wall of China Most people consider the Manhattan Project to be the first project to use “modern” project management This three-year, $2 billion (in 1946 dollars) project had a separate project manager and a technical manager 5

Project Management Framework

 A set of processes, tools and templates, designed to be used together to manage a project through its lifecycle 6

Define your project

     Select a real-life project Define the project Discuss within group Select spokesperson Share with the rest 7

Recent Trends in Research and Software

    7 Actions for Success: broaden views, communicate in 3D, political operative, assert yourself, be flexible, & sharpen social skills Five major challenges of today: global teams, moving parts, development, partners, and project portfolios Five levels of excellence: Level 1 is ad-hoc, (2) planned, (3) managed, (4) integrated, and (5) sustained Software: Microsoft Project 8

Develop a framework

 Briefly outline your PM framework using the real-life project previously described. 9

Module 2: The Project Management Context

Objectives    Understand the systems view of project management Explain the differences among functional, matrix, and project organizational structures Explain why stakeholder management and top management commitment are critical for a project’s success      Understand the initiation, planning, execution, and closure phases of the project life cycle Understand effective project initiation, planning, execution, control, and closing Distinguish between project development and product development Discuss the unique attributes and diverse nature of information technology projects List the skills and attributes of a good project manager 10

Systems View

 Systems philosophy: View things as systems, interacting components working within an environment to fulfill some purpose   Systems analysis: problem-solving approach Systems management: Address business, technological, and organizational issues before making changes to systems 11

Formal Organizational Frames

    Structural frame: Focuses on roles and responsibilities, coordination, and control. Organization charts help define this frame. Human resources frame: Focuses on providing harmony between needs of the organization and needs of people. Political frame: Assumes organizations are coalitions composed of varied individuals and interest groups. Conflict and power are key issues.

Symbolic frame: Focuses on symbols and meanings related to events. Culture is important.

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Organizational Structures

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Organizational Structures

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Stakeholder and Top Management Commitment

Top management can help project managers:  Secure adequate resources.

   Get approval for unique project needs in a timely manner.

Receive cooperation from people throughout the organization.

Learn how to be better leaders.

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Project Life Cycle Phases

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Project Development vs Product Development

 Discuss the similarities and differences of project development versus product development within your specific career. 5 minutes. Share with your peers. 17

What makes a good project manager?

 Discuss the skills and characteristics needed to be a good and successful project manager. 10 minutes. Share with the rest of your peers. 18

Module 3: Project Integration Management

Objectives  Describe an overall framework for project integration management as it relates to the other project management knowledge areas and the project life cycle     Understand the integrated change control process, planning for and managing changes, and using a change control system Explain tools and techniques to assist in project plan execution of integrated projects such as Gantt Charts, S Curves, and PERTs Explain project plan execution, its relationship to project planning, the factors related to successful results Use guidelines and templates for developing plans and perform a stakeholder analysis 19

Project Integration Management

   Project Plan Development: taking the results of other planning processes and putting them into a consistent, coherent document—the project plan Project Plan Execution: carrying out the project plan Integrated Change Control: coordinating changes across the entire project 20

Integrated Change Control

  Integrated change control involves identifying, evaluating, and managing changes throughout the project life cycle Three main objectives of change control:  Influence the factors that create changes to ensure they are beneficial  Determine that a change has occurred  Manage actual changes when and as they occur 21

Tools and Techniques

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Tools and Techniques

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Tools and Techniques

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Tools and Techniques

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Importance of Project Planning the Execution

 Discuss the reason and importance of preparing a plan before executing it using cases specific to your area of responsibility. 10 minutes. Share with your peers. 26

Stakeholder Analysis

  Documents important (often sensitive) information about stakeholders such as   stakeholders’ names and organizations roles on the project   unique facts about stakeholders level of influence and interest in the project  suggestions for managing relationships Identify, Prioritize, Understand 27

Stakeholder Analysis

  conduct a brief stakeholder analysis categorize their relation and advocating of the project 28

Module 4: Project Scope Management

Objectives     Describe the strategic planning process, apply different project selection methods, such as a net present value analysis, a weighted scoring model, and a balanced scorecard, and understand the importance of creating a project charter Explain the scope planning process and contents of a scope statement Discuss the scope definition process and construct a work breakdown structure Understand the importance of scope verification and scope change control 29

Strategic Planning Process

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Strategic Planning Process

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Scope Planning and Definition Processes

  Scope planning: Deciding how the scope will be defined, verified, and controlled.

Scope definition: Reviewing the project charter and preliminary scope statement and adding more information as requirements are developed and change requests are approved.

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Scope Statement

 In your group, place the initial project to be managed in the Scope Statement format. 10 minutes. Share with the rest of your peers. 33

Work Breakdown Structure (WBS)

 Using the same project as before and building on previous activities, develop a WBS chart with your group. 10 minutes. Share with the rest of your peers. 34

Basic Principles for Creating WBSs

1. A unit of work should appear at only one place in the WBS.

2. The work content of a WBS item is the sum of the WBS items below it.

3. A WBS item is the responsibility of only one individual, even though many people may be working on it.

4. The WBS must be consistent with the way in which work is actually going to be performed; it should serve the project team first and other purposes only if practical.

5. Project team members should be involved in developing the WBS to ensure consistency and buy-in.

6. Each WBS item must be documented to ensure accurate understanding of the scope of work included and not included in that item.

7. The WBS must be a flexible tool to accommodate inevitable changes while properly maintaining control of the work content in the project according to the scope statement. 35

Scope Verification and Scope Change Control

Suggestions for Reducing Incomplete and Changing Requirements  Develop and follow a requirements management process.

       Use techniques such as prototyping, use case modeling.

Put requirements in writing and keep them current.

Create a requirements management database for documenting and controlling requirements.

Conduct adequate testing throughout the project life cycle.

Review changes from a systems perspective.

Emphasize completion dates to help focus on what’s most important.

Allocate resources specifically for handling change requests and enhancements 36

Module 5: Project Time Management

Objectives  Understand the importance of project schedules and good project time management       Define activities as the basis for developing project schedules Explain how various tools and techniques help project managers perform activity duration estimating and schedule development Understand and use critical path analysis and critical chain scheduling Describe how to use several techniques for shortening project schedules Use a Gantt chart for schedule planning and tracking schedule information Discuss how reality checks and people issues are involved in controlling and managing changes to the project schedule 37

Schedules and Time Management

      Activity definition: Identifying the specific activities that the project team members and stakeholders must perform to produce the project deliverables.

Activity sequencing: Identifying and documenting the relationships between project activities.

Activity resource estimating: Estimating how many resources a project team should use to perform project activities.

Activity duration estimating: Estimating the number of work periods that are needed to complete individual activities.

Schedule development: Analyzing activity sequences, activity resource estimates, and activity duration estimates to create the project schedule.

Schedule control: Controlling and managing changes to the project schedule.

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Scheduling and Time Management

 Why are project schedules important? What sort of schedule conflicts could with expect in your specific project? 10 minutes. Share with the rest of your peers. 39

Activity Duration Estimating

    After defining activities and determining their sequence, the next step in time management is duration estimating Duration includes the actual amount of time worked on an activity plus elapsed time Effort is the number of workdays or work hours required to complete a task. Effort does not equal duration People doing the work should help create estimates, and an expert should review them 40

Schedule Development

   Schedule development uses results of the other time management processes to determine the start and end date of the project and its activities Ultimate goal is to create a realistic project schedule that provides a basis for monitoring project progress for the time dimension of the project Important tools and techniques include Gantt charts, PERT analysis, critical path analysis, and critical chain scheduling 41

Critical Path Method

   CPM is a project network analysis technique used to predict total project duration A critical path for a project is the series of activities that determines the earliest time which the project can be completed by The critical path is the amount of slack or float longest path through the network diagram and has the least 42

Finding the Critical Path

   First develop a good project network diagram Add the durations for all activities on each path through the project network diagram The longest path is the critical path 43

Schedule Trade-offs

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Shorten a Project Schedule

Original schedule Shortened duration thru crashing Overlapped Tasks or fast tracking

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Critical Chain Scheduling

  Critical chain scheduling is a method of scheduling that takes limited resources into account when creating a project schedule and includes buffers to protect the project completion date Critical chain scheduling assumes resources do not multitask because it often delays task completions and increases total durations 46

Example of Critical Chain Scheduling

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Scheduling using PERT

 PERT weighted average formula: optimistic time + 4X most likely time + pessimistic time 6  Example: PERT weighted average = 8 workdays + 4 X 10 workdays + 24 workdays = 12 days 6 where 8 = optimistic time, 10 = most likely time, and 24 = pessimistic time 48

Scheduling

 Develop a schedule for your project using some of the tools presented thus far. There is no rule against combining techniques. If fact, pulling the best from each may be advantageous. 15 minutes. Share with the rest of your peers. 49

Controlling and Managing Change

    Review the draft schedule or estimated completion date in the project charter. Prepare a more detailed schedule with the project team. Make sure the schedule is realistic and followed. Alert top management well in advance if there are schedule problems.

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Managing Change

 Using the recently created schedules, assess their reality. What things have been adjusted to the schedule to help manage change? 10 minutes. Share with peers. 51

Module 6: Project Cost Management

Objectives      Explain basic project cost management principles, concepts, and terms Understand the importance of good project cost management Explain cost estimating using definitive, budgetary, and rough order of magnitude (ROM) estimates Understand the processes involved in cost budgeting and preparing a cost estimate Understand the benefits of earned value management and project portfolio management 52

Cost management

    Resource planning: determining what resources and quantities of them should be used Cost estimating: developing an estimate of the costs and resources needed to complete a project Cost budgeting: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance Cost control: controlling changes to the project budget 53

Cost Management

 Why is good cost management important? Why bother with it? 54

Methods of Cost Estimating

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Earned Value Management

  Earned Value - Planned Costs = Schedule Variance (SV) Earned Value - Actual Costs = Cost Variance (CV) 56

Cost Control

  Project cost control includes    monitoring cost performance ensuring that only appropriate project changes are included in a revised cost baseline informing project stakeholders of authorized changes to the project that will affect costs Earned value management is an important tool for cost control 57

Project Portfolio Management

 Five levels for project portfolio management   Put all your projects in one database Prioritize the projects in your database  Divide your projects into two or three budgets based on type of investment   Automate the repository Apply modern portfolio theory, including risk return tools that map project risk on a curve 58

Cost Plan View

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Module 7: Project Quality Management

Objectives       Define project quality management Describe quality planning and its relationship to project scope management Discuss the importance of quality assurance Understand the importance of project quality management List the three outputs of the quality control process Understand the tools and techniques for quality control, such as Pareto analysis, statistical sampling, Six Sigma, quality control charts, and testing 60

Quality Management Program

     Quality management planning and implementing policies, procedures, and requirements. Quality control ensuring that work is being performed and that work is being checked prior to its acceptance. Quality assurance verifying that quality control tasks are being performed. Continuous quality improvement continually pursuing improvement in the quality of the project process. Quality costs redoing a project item even when this increases the item's cost. 61

Quality Planning and Quality Assurance

   Quality Definitions Quality Materials Quality Events

Importance of Quality Management

 Discuss the importance of quality management and assurance. How may they vary from project to project? 62

Tools and Techniques for Quality Control

Pareto Analysis  Steps to identify the important causes using Pareto analysis       Step 1: Form a table listing the causes and their frequency as a percentage. Step 2: Arrange the rows in the decreasing order of importance of the causes i.e. the most important cause first Step 3: Add a cumulative percentage column to the table Step 4: Plot with causes on x- and cumulative percentage on y-axis Step 5: Join the above points to form a curve Step 6: Draw line at 80% on y-axis parallel to x-axis. Then drop the line at the point of intersection with the curve on x axis. This point on the x-axis separates the important causes and trivial causes. 63

Pareto Analysis Sample

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Six Sigma

   It requires an organization-wide commitment Six Sigma organizations have the ability and willingness to adopt contrary objectives, like reducing errors and getting things done faster It is an operating philosophy that is customer focused and strives to drive out waste, raise levels of quality, and improve financial performance at breakthrough levels 65

Six Sigma

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Quality Control Chart

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Testing

   Unit test Integration testing System testing  A test plan is simply a high-level summary of the areas (functionality, elements, regions, etc.) 68

Quality Control Plan

 What sort of tools would you use and what will you be looking for when assessing quality in a project? 69

Module 8: Project Human Resource Management

Objectives      Discuss the importance of good human resource management on projects Summarize key concepts for managing people by understanding the theories of Abraham Maslow, Frederick Herzberg, David McClelland, and Douglas McGregor on motivation, H. J. Thamhain and D. L. Wilemon on influencing workers, and Stephen Covey on how people and teams can become more effective Discuss organizational planning and be able to create a project organizational chart, responsibility assignment matrix, and resource histogram Understand important issues involved in project staff acquisition and explain the concepts of resource assignments, resource loading, and resource leveling Assist in team development with training, team-building activities, and reward systems 70

Project Human Resources

    Human resource planning: Identifying and documenting project roles, responsibilities, and reporting relationships.

Acquiring the project team: Getting the needed personnel assigned to and working on the project.

Developing the project team: Building individual and group skills to enhance project performance.

Managing the project team: Tracking team member performance, motivating team members, providing timely feedback, resolving issues and conflicts, and coordinating changes to help enhance project performance. 71

Keys to Managing People

  Psychologists and management theorists have devoted much research and thought to the field of managing people at work Important areas related to project management include   motivation (intrinsic and extrinsic) influence and power  effectiveness 72

Abraham Maslow on Motivation

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Herzberg’s Motivational and Hygiene Factors

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McClelland’s Acquired-Needs

   Achievement: People with a high need for achievement seek to excel and thus tend to avoid both low-risk and high-risk situations. Affiliation: Those with a high need for affiliation need harmonious relationships with other people and need to feel accepted by other people. Power: A person's need for power can be one of two types - personal and institutional. 75

McGregor’s Theory X and Theory Y

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Thamhain and Wilemon’s Ways to Have Influence on Projects 1. Authority: the legitimate hierarchical right to issue orders 2. Assignment: the project manager's perceived ability to influence a worker's later work assignments 3. Budget: the project manager's perceived ability to authorize others' use of discretionary funds 4. Promotion: the ability to improve a worker's position 5. Money: the ability to increase a worker's pay and benefits 6. Penalty: the project manager's ability to cause punishment 7. Work challenge: the ability to assign work that capitalizes on a worker's enjoyment of doing a particular task 8. Expertise: the project manager's perceived special knowledge that others deem important 9. Friendship: the ability to establish friendly personal relationships between the project manager and others 77

Improving Effectiveness Covey’s 7 Habits

 Project managers can apply Covey’s 7 habits to improve effectiveness on projects   Be proactive Begin with the end in mind   Put first things first Think win/win   Seek first to understand, then to be understood Synergize  Sharpen the saw 78

Creating a Motivating Environment

 Discuss various instances where you have been motivated and where you have motivated others. Try to associate it to one or more of the principles discussed in this module. 79

Organizational Planning

  Organizational planning involves identifying, documenting, and assigning project roles, responsibilities, and reporting relationships Outputs and processes include     project organizational charts work definition and assignment process responsibility assignment matrixes resource histograms 80

Project Organizational Charts

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Work Definition and Assignment Process

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Responsibility Assignment Matrix

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Resource Histogram

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Project Staff Acquisition

 Staffing plans and good hiring procedures are important in staff acquisition, as are incentives for recruiting and retention  Research shows that people leave their jobs because they don’t make a difference, don’t get proper recognition, aren’t learning anything new, don’t like their coworkers, and want to earn more money 85

Resource Loading and Leveling

 Resource loading refers to the amount of individual resources an existing project schedule requires during specific time periods  Resource leveling is a technique for resolving resource conflicts by delaying tasks. The main purpose of resource leveling is to create a smoother distribution of resource usage and reduce overallocation 86

Team Development Activities

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Different types of people

  Meyers-Briggs Type Indicator (MBTI)   Extrovert/Introvert (E/I) Sensation/Intuition (S/N)   Thinking/Feeling (T/F) Judgment/Perception (J/P) Social Styles Profile     Drivers Expressives Analyticals Amiables 88

General Advice on Teams

         Be patient and kind with your team.

Fix the problem instead of blaming people. Establish regular, effective meetings.

Allow time for teams to go through the basic team-building stages. Limit the size of work teams to three to seven members.

Plan some social activities to help project team members and other stakeholders get to know each other better. Stress team identity.

Nurture team members and encourage them to help each other.

Take additional actions to work with virtual team members. 89

Module 9: Project Communications Mgmt

Objectives   Understand the importance of good communication on projects and describe the major components of a communications management plan Discuss the elements of project communications planning, including information distribution, performance reporting, and administrative closure    Discuss various methods for project information distribution and the advantages and disadvantages of each List various methods for improving project communications, such as managing conflicts, running effective meetings, using e-mail effectively, and using templates Understand individual communication needs and how to determine the number of communications channels needed for a project 90

Communications Management Plan

       A description of a collection and filing structure for gathering and storing various types of information A distribution structure describing what information goes to whom, when, and how A format for communicating key project information A project schedule for producing the information Access methods for obtaining the information A method for updating the communications management plans as the project progresses and develops A stakeholder communications analysis 91

Project Communications Management Processes

    Communications planning: determining the information and communications needs of the stakeholders Information distribution: making needed information available in a timely manner Performance reporting: collecting and disseminating performance information Administrative closure: generating, gathering, and disseminating information to formalize phase or project completion 92

Communications Planning

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Information Distribution

  Getting the right information to the right people at the right time and in a useful format is just as important as developing the information in the first place Important considerations include  using technology to enhance information distribution  formal and informal methods for distributing information 94

Information Distribution

 Discuss various methods for project information distribution and the advantages and disadvantages of each. 95

Media Choice Table

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Performance Reporting

 Performance reporting keeps stakeholders informed about how resources are being used to achieve project objectives  Status reports describe where the project stands at a specific point in time    Progress reports describe what the project team has accomplished during a certain period of time Project forecasting predicts future project status and progress based on past information and trends Status review meetings often include performance reporting 97

Administrative Closure

 A project or phase of a project requires closure  Administrative closure produces   project archives formal acceptance  lessons learned 98

Suggestions for Improving Project Communications

     Manage conflicts effectively Develop better communication skills Run effective meetings Use e-mail effectively Use templates for project communications 99

Conflict Handling Modes, in Preference Order      Confrontation or problem-solving: directly face a conflict Compromise: use a give-and-take approach Smoothing: de-emphasize areas of differences and emphasize areas of agreement Forcing: the win-lose approach Withdrawal: retreat or withdraw from an actual or potential disagreement 100

Running Effective Meetings

       Determine if a meeting can be avoided Define the purpose and intended outcome of the meeting Determine who should attend the meeting Provide an agenda to participants before the meeting Prepare handouts, visual aids, and make logistical arrangements ahead of time Run the meeting professionally Build relationships 101

Using E-Mail Effectively Tips

         Ensure it is an appropriate medium for what you want to communicate Be sure to send the e-mail to the right people Use meaningful subjects Limit the content to one main subject, and be as clear and concise as possible Limit the number and size of attachments Delete e-mail you don’t need, and don’t open it if you question the source Make sure your virus software is up to date Respond to and file e-mails quickly Learn how to use important features 102

Using Templates for Project Communications

    Many people are afraid to ask for help Providing examples and templates for project communications saves time and money Organizations can develop their own templates, use some provided by outside organizations, or use samples from textbooks Recall that research shows that companies that excel in project management make effective use of templates 103

Communication Channels

 Discuss various individual communication needs and how to determine the number of communications channels. 104

Module 10: Project Risk Management

Objectives  Understand what risk is and the importance of good project risk management       Discuss the elements involved in risk management planning Describe the risk identification process and tools and techniques to help identify project risks Discuss the qualitative risk analysis process and explain how to calculate risk factors, use probability/impact matrixes, the Top Ten Risk Item Tracking technique, and expert judgment to rank risks Explain the quantify risk analysis process and how to use decision trees and simulation to quantitative risks Discuss what is involved in risk monitoring and control Explain the results of good project risk management 105

The Importance of Project Risk Management

  Project risk management is the art and science of identifying, assigning, and responding to risk throughout the life of a project and in the best interests of meeting project objectives Risk management is often overlooked on projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates 106

Risk Management Planning

   The main output of risk management planning is a risk management plan The project team should review project documents and understand the organization’s and the sponsor’s approach to risk The level of detail will vary with the needs of the project 107

Risk Management Planning

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Risk Identification

  Risk identification is the process of understanding what potential unsatisfactory outcomes are associated with a particular project Several risk identification tools and techniques include     Brainstorming The Delphi technique Interviewing SWOT analysis 109

Risk Identification

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Activity – Identify Risks

 Identify the risks using the project you have been working on for each area of project management covered thus far. 111

Qualitative Risk Analysis

 A risk analysis assesses the likelihood and impact of identified risks to determine their magnitude and priority. Risk quantification tools and techniques include:   Probability/Impact matrixes The Top 10 Risk Item Tracking technique  Expert judgment 112

Probability/Impact Matrices

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Top 10 Risk Item Tracking

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Quantitative Risk Analysis

   Often follows qualitative risk analysis, but both can be done together or separately Large, complex projects involving leading edge technologies often require extensive quantitative risk analysis Main techniques include  Simulation  Decision tree analysis 115

Decision Trees and Expected Monetary Value (EMV)

  A decision tree is a diagramming method used to help you select the best course of action in situations in which future outcomes are uncertain EMV is a type of decision tree where you calculate the expected monetary value of a decision based on its risk event probability and monetary value 116

Decision Trees and Expected Monetary Value (EMV)

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Risk Response Planning

    Risk avoidance: eliminating a specific threat or risk, usually by eliminating its causes Risk acceptance: accepting the consequences should a risk occur Risk transference: shifting the consequence of a risk and responsibility for its management to a third party Risk mitigation: reducing the impact of a risk event by reducing the probability of its occurrence 118

Risk Monitoring and Control

    Monitoring risks involves knowing their status Controlling risks involves carrying out the risk management plans as risks occur Workarounds are unplanned responses to risk events that must be done when there are no contingency plans The main outputs of risk monitoring and control are corrective action, project change requests, and updates to other plans 119

Good Project Risk Management

   Unlike crisis management, good project risk management often goes unnoticed Well-run projects appear to be almost effortless, but a lot of work goes into running a project well Project managers should strive to make their jobs look easy to reflect the results of well run projects 120

Module 11: Project Procurement Management

Objectives   Understand the importance of project procurement management and the increasing use of outsourcing for information technology projects Describe the procurement planning process, procurement planning tools and techniques, types of contracts, and statements of work      Discuss what is involved in solicitation planning and the difference between a request for proposal and a request for quote Explain what occurs during the solicitation process Describe the source selection process and different approaches for evaluating proposals or selecting suppliers Discuss the importance of good contract administration Describe the contract close-out process 121

Procurement Management

  Procurement means acquiring goods and/or services from an outside source. We outsource for the following reasons:    To reduce both fixed and recurrent costs To allow the client organization to focus on its core business To access skills and technologies   To provide flexibility To increase accountability 122

Project Procurement Management Processes

      Procurement planning: determining what to procure and when Solicitation planning: documenting product requirements and identifying potential sources Solicitation: obtaining quotations, bids, offers, or proposals as appropriate Source selection: choosing from among potential vendors Contract administration: managing the relationship with the vendor Contract close-out: completion and settlement of the contract 123

Project Procurement Management Processes

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Procurement Planning

 Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding   whether to procure how to procure   what to procure how much to procure  when to procure 125

Make-or-buy analysis

Make or Buy Example: Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day. How long will it take for the lease cost to be the same as the purchase cost? If you need the item for 12 days, should you lease it or purchase it?

Set up an equation so the “make” is equal to the “buy.” In this example, use the following equation. Let d be the number of days to use the item.

$150d = $1,000 + $50d Solve for d as follows: Subtract $50d from the right side of the equation to get $100d = $1,000 Divide both sides of the equation by $100 d = 10 days The lease cost is the same as the purchase cost at 10 days. If you need the item for 12 days, it would be more economical to purchase it 126

Types of Contracts

    Fixed-price or lump-sum: involve a fixed total price for a well-defined product or service Cost-reimbursable: involve payment to the seller for direct and indirect costs Time and material contracts: hybrid of both fixed-price and cost-reimbursable, often used by consultants Unit price contracts: require the buyer to pay the seller a predetermined amount per unit of service 127

Cost Reimbursable Contracts

   Cost plus incentive fee (CPIF): the buyer pays the seller for allowable performance costs plus a predetermined fee and an incentive bonus Cost plus fixed fee (CPFF): the buyer pays the seller for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs Cost plus percentage of costs (CPPC): the buyer pays the seller for allowable performance costs plus a predetermined percentage based on total costs 128

Contract Types Versus Risk

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Statement of Work

   A statement of work is a description of the work required for the procurement Many contracts, or mutually binding agreements, include SOWs A good SOW gives bidders a better understanding of the buyer’s expectations 130

Statement of Work

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Solicitation planning

Solicitation planning involves preparing several documents:  Request for Proposals: used to solicit proposals from prospective sellers   Requests for Quotes: used to solicit quotes for well-defined procurements Invitations for bid or negotiation and initial contractor responses are also part of solicitation planning 132

Solicitation planning

Outline for a Request for Proposal: I. Purpose of RFP II. Organization’s Background III. Basic Requirements IV. Hardware and Software Environment V. Description of RFP Process VI. Statement of Work and Schedule Information VII. Possible Appendices A.

Current System Overview B.

C.

System Requirements Volume and Size Data D.

Required Contents of Vendor’s Response to RFP E. Sample Contract 133

Solicitation

   Solicitation involves obtaining proposals or bids from prospective sellers Organizations can advertise to procure goods and services in several ways  approaching the preferred vendor   approaching several potential vendors advertising to anyone interested A bidders’ conference can help clarify the buyer’s expectations 134

Source selection

Source selection involves:  evaluating bidders’ proposals  choosing the best one   negotiating the contract awarding the contract It is helpful to prepare formal evaluation procedures for selecting vendors. Buyers often create a “short list.” 135

Sample Proposal Evaluation Sheet

136

Detailed Criteria for Selecting Suppliers

137

Contract Administration

   Contract administration ensures that the seller’s performance meets contractual requirements Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts Many project managers ignore contractual issues, which can result in serious problems 138

Suggestions on Change Control for Contracts

   Changes to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided? Changes must be documented in writing. Project team members should also document all important meetings and telephone calls 139

Contract Close-out

  Contract close-out includes  product verification to determine if all work was completed correctly and satisfactorily  administrative activities to update records to reflect final results  archiving information for future use Procurement audits identify lessons learned in the procurement process 140

Review / Summary

141