Week 12: Procurement Management Learning Objectives
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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
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
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
Outsourcing Benefits
Reduce costs
Focus on core business
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
through a well-written contract
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
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
buyer’s perspective
Guidelines may also apply to internal clients
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
Procurement planning tools
Make-or-buy analysis
compare cost of providing internally to cost of
outsourcing
Expertise
creative options
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
Contract Types
Vary with proportion of risk to buyer, seller
Fixed price
Cost-reimbursable
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
time and materials
Contract Variations
Incentives to seller
Cost plus incentive
meeting or exceeding project objectives
shared savings or shared extra costs
Cost plus fixed fee
Cost plus percentage of cost
no incentive for reducing costs
highest risk to buyer
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
Solicitation Planning
Prospective sellers
Request for Proposal (RFP)
Request for Quote (RFQ)
basic requirements
enough information for seller to respond
simpler, more specific
Invitations to bid or negotiate
Key Output: evaluation criteria
Solicitation
Send out RFP’s, 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
Source Selection
Systematic evaluation
Involve multiple stakeholders:
technology, cost, management experts
Identify short list
May involve contract negotiation
According to weighted evaluation criteria
clarification and mutual agreement
Key Output: Contract
legal relationship subject to court remedy
Contract Administration
Ensures seller’s performance meets contract
May require coordination and integration
among multiple contracts, sellers
Key inputs:
Key tools:
change requests, invoices
change control system (CCS)
payment system
Avoid Constructive Change Orders
changes that bypass CCS
Contract Close-out
Product verification
Updating, archiving records
Formal acceptance and completion
Inputs: contract
Tools: audit
Outputs: signed completion, contract files