Transcript Week 12: Procurement Management Learning Objectives

Week 12: Procurement Management
Learning 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
Procurement Processes
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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
IT Outsourcing
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Increasing in importance
Contractual relationship with external party
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who performs one or more IT functions
at a pre-determined price
according to pre-determined performance
criteria
Differs from merely contracting out
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relinquish some level of management control
Outsourcing Benefits
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Reduce costs
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Focus on core business
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seller may gain economies of scale
let someone else do non-core business
IT operations and/or development
Access to advanced skills and technologies
Workforce flexibility
Increase accountability
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through a well-written contract
Outsourcing Risks
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Costs of contract administration
Obsolescence of internal IT skills
Loss of management control
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human resources
quality control
Dependence on single vendor
Intellectual property rights
Procurement Management
Perspectives
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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
buyer’s perspective
Guidelines may also apply to internal clients
Procurement Planning
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Determining what project needs are best
met by outside products and/or services
Inputs:
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scope, product description, market conditions
constraints/assumptions re: outside sellers
Outputs:
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procurement plan
SOW: statement of work
Procurement planning tools
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Make-or-buy analysis
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compare cost of providing internally to cost of
outsourcing
Expertise
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creative options
Statement of Work
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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
Contract Types
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Vary with proportion of risk to buyer, seller
Fixed price
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Cost-reimbursable
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appropriate for well-defined product or service
higher risk to seller
payment to seller for direct and indirect costs
higher risk to buyer
Unit price: when cost estimation difficult
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time and materials
Contract Variations
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Incentives to seller
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Cost plus incentive
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meeting or exceeding project objectives
shared savings or shared extra costs
Cost plus fixed fee
Cost plus percentage of cost
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no incentive for reducing costs
highest risk to buyer
IT Outsourcing Contracts
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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
Solicitation Planning
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Prospective sellers
Request for Proposal (RFP)
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Request for Quote (RFQ)
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basic requirements
enough information for seller to respond
simpler, more specific
Invitations to bid or negotiate
Key Output: evaluation criteria
Solicitation
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Send out RFP’s, etc.
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sellers of previous work, on-going relationship
list of qualified sellers
conference to clarify specifications
competition can reduce price
Key Output: Proposals or Responses
Source Selection
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Systematic evaluation
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Involve multiple stakeholders:
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technology, cost, management experts
Identify short list
May involve contract negotiation
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According to weighted evaluation criteria
clarification and mutual agreement
Key Output: Contract
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legal relationship subject to court remedy
Contract Administration
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Ensures seller’s performance meets contract
May require coordination and integration
among multiple contracts, sellers
Key inputs:
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Key tools:
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change requests, invoices
change control system (CCS)
payment system
Avoid Constructive Change Orders
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changes that bypass CCS
Contract Close-out
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Product verification
Updating, archiving records
Formal acceptance and completion
Inputs: contract
Tools: audit
Outputs: signed completion, contract files