Chapter 12: Project Procurement ManagementLearning ObjectivesLearning Objectives (cont’d)Importance of Project Procurement ManagementDebates on OutsourcingWhy Outsource?ContractsProject Procurement Management ProcessesProject Procurement Management Processes (cont’d)Planning Purchases and AcquisitionsWhat Went Right?Tools and Techniques for Planning Purchases and AcquisitionsMake-or-Buy ExampleMake-or Buy SolutionTypes of ContractsCost Reimbursable ContractsFigure 12-2. Contract Types Versus RiskContract ClausesProcurement Management PlanContract Statement of Work (SOW)Figure 12-2. Statement of Work (SOW) TemplatePlanning ContractingFigure 12-3. Request for Proposal (RFP) TemplateEvaluation CriteriaRequesting Seller ResponsesSelecting SellersFigure 12-4. Sample Proposal Evaluation SheetSeller Selection ProcessMedia SnapshotAdministering the ContractSuggestions for Change Control in ContractsSuggestions for Change Control in Contracts (cont’d)Closing the ContractTools to Assist in Contract ClosureUsing Software to Assist in Project Procurement ManagementChapter SummaryChapter 12:Project Procurement ManagementInformation Technology Project Management,Fourth Edition2Information Technology Project Management, Fourth EditionLearning ObjectivesUnderstand the importance of project procurement management and the increasing use of outsourcing for information technology projects.Describe the work involved in planning purchases and acquisitions for projects, the contents of a procurement management plan and contract statement of work, and calculations involved in a make-or-buy analysis.Discuss what is involved in planning contracting, including the creation of various procurement documents and evaluation criteria for sellers.3Information Technology Project Management, Fourth EditionLearning Objectives (cont’d)Understand the process of requesting seller responses and the difference between proposals and bids.Describe the seller selection process and recognize different approaches for evaluating proposals or selecting suppliers.Discuss the importance of good contract administration.Describe the contract closure process.Discuss types of software available to assist in project procurement management.4Information Technology Project Management, Fourth EditionImportance of Project Procurement ManagementProcurement means acquiring goods and/or services from an outside source.Other terms include purchasing and outsourcing.Experts predict that global spending on computer software and services will continue to grow.India is the leading country for U.S. offshore outsourcing.5Information Technology Project Management, Fourth EditionDebates on OutsourcingSome companies, such as Wal-Mart, prefer to do no outsourcing at all, while others do a lot of outsourcing.Most organizations do some form of outsourcing to meet their IT needs and spend most money within their own country.The U.S. temporary workforce continues to grow as people work for temporary job agencies so they can more easily move from company to company.6Information Technology Project Management, Fourth EditionWhy Outsource?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.7Information Technology Project Management, Fourth EditionContractsA contract is a mutually binding agreement that obligates the seller to provide the specified products or services and obligates the buyer to pay for them.Contracts can clarify responsibilities and sharpen focus on key deliverables of a project.Because contracts are legally binding, there is more accountability for delivering the work as stated in the contract.A recent trend in outsourcing is the increasing size of contracts.8Information Technology Project Management, Fourth EditionProject Procurement Management ProcessesProject procurement management: Acquiring goods and services for a project from outside the performing organization.Processes include:Planning purchases and acquisitions: Determining what to procure, when, and how.Planning contracting: Describing requirements for the products or services desired from the procurement and identifying potential sources or sellers (contractors, suppliers, or providers who provide goods and services to other organizations).9Information Technology Project Management, Fourth EditionProject Procurement Management Processes (cont’d)Requesting seller responses: Obtaining information, quotes, bids, offers, or proposals from sellers, as appropriate.Selecting sellers: Choosing from among potential suppliers through a process of evaluating potential sellers and negotiating the contract.Administering the contract: Managing the relationship with the selected seller.Closing the contract: Completing and settling each contract, including resolving any open items.10Information Technology Project Management, Fourth EditionPlanning Purchases and AcquisitionsIdentifying which project needs can best be met by using products or services outside the organization.If there is no need to buy any products or services from outside the organization, then there is no need to perform any of the other procurement management processes.11Information Technology Project Management, Fourth EditionWhat Went Right?Several organizations, such as The Boots Company PLC in England, outsource their IT services to save money compared with the cost of running the systems themselves.Carefully planning procurement can also save millions of dollars, as the U.S. Air Force did by using a unit pricing strategy for a large office automation project.12Information Technology Project Management, Fourth EditionTools and Techniques for Planning Purchases and AcquisitionsMake-or-buy analysis: General management technique used to determine whether an organization should make or perform a particular product or service inside the organization or buy from someone else.Often involves financial analysis.Experts, both internal and external, can provide valuable inputs in procurement decisions.13Information Technology Project Management, Fourth EditionMake-or-Buy ExampleAssume you can lease an item you need for a project for $800/day. To purchase the item, the cost is $12,000 plus a daily operational cost of $400/day.How long will it take for the purchase cost