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Procurement Management Knowledge Area

Project Mangement - overview of the Procurement Management knowledge area within project management. Describes the 3 processes within Project Procurement Management and the process groups impacted.


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Procurement Management Knowledge Area

  2. 2. Overview of Procurement Management ◦ The processes that are needed to purchase products or services for use within the project ◦ Includes contract management to handle agreements with external sellers
  4. 4. Procurement - Centralized Contracting Procurement management is handled by a centralized source Procurement managers may worry about multiple projects at a time
  5. 5. Procurement - Decentralized Contracting Procurement is handled by someone dedicated to the project The procurement manager handles the projects contracts
  6. 6. 12.1 PLAN PROCUREMENT MANAGEMENT Part of the Planning Process Group
  7. 7. 12.1 Plan Procurement Management ◦ Part of the Planning Process Group ◦ Concerned with documenting the specific approaches to procurement and identifying possible sellers of the goods or services that may be needed ◦ Determines if outside support will be needed, what products will be needed and when they may be needed
  9. 9. Fixed Price Contracts A fixed price is agreed upon for the delivery of a product or service The buyer defines what they need, the seller agrees to the need and a fixed price is agreed upon The product or services being procured need to be specifically defined Variations of the Fixed Price Contract Firm Fixed Price (FFP): Most common contract type; additional costs beyond agreed level are the responsibility of the seller Fixed Price Incentive Fee Contract (FPIF): A fixed price is set, but incentives can be offered if agreed expectations are exceeded such as superior quality or reduced delivery time Fixed Price with Economic Price Adjustment (FP- EPA): Long-term contracts or relationships that considers future economic conditions that adjust the costs of goods or services to protect from external conditions
  10. 10. Cost Reimbursable Contracts Contract variations Cost Plus Fixed Fee Contracts (CPFF): Costs for performing the contract work and a fixed fee or fixed percentage fee is paid by the buyer Cost Plus Incentive Fee Contracts (CPIF): Costs for performing the work and an incentive fee based on achievement is paid by the buyer Cost Plus Award Fee (CPAF): Costs for performing work is paid, and the profit is earned primarily on subjective and agreed upon performance of the seller Can include financial incentives for exceptional performance or agreed performance levels It includes the variable costs for completed work plus a profit fee for the seller If the scope is uncertain or highly variable (complex) the costs may not be accurately known
  11. 11. Time and Materials Contract A hybrid contract that merges cost reimbursable and fixed-price contract Used for bringing in external experts, consultants, or resources not present in the company when the required needs cannot be explicitly defined The buyer may pay on a per-hour, per- day, per-month or per-item rate as agreed upon in advance Typically used in shorter project increments and should include a “Not to Exceed” clause defining limits to the work or costs
  12. 12. Contract Terms •Given to the seller with the hope of bringing the seller’s goals inline with the buyers objectives Incentives •Defines when payments occur such as monthly or quarterly payments Payment Schedule •The amount charged to the buyer by the sellerPrice •The profit planned by the seller that is included in the total price Profit •The amount the seller pays to deliver the goods or services Cost •Proportion of payments split between the buyer and seller Sharing Ratio •The agreed upon highest price the buyer will pay to the seller Ceiling Price
  13. 13. Contract Terms ◦ Point of Total Assumption (PTA) ◦ Applies to FPIF contracts, a cost level that assumes mismanagement if costs rise above the calculated PTA
  15. 15. Make or Buy Analysis Determine if work can be completed by the project team or if it should be purchased from external sources Buying can decrease risks and place that risk on the seller Making can increase the efficiency of project budget and allow for better control over the quality, amount, and even costs of the work output Proprietary nature of the work and legal regulations should be considered and my require making the product internally
  16. 16. Procurement Management Plan The output of the Plan Procurement Management Process and a part of the Project Management Plan The procurement decisions should be documented and maintained in the Procurement Manage Plan
  17. 17. What is Included in the Procurement Management Plan? Contracts used Management processes related to suppliers Procurement coordination with scheduling, costs, and other projects Constraints and assumptions with procurement Scheduled delivery dates of the sellers Possible sellers or prequalified sellers and related metrics for seller evaluation Risk management related to procurements
  18. 18. Procurement Statement of Work The scope of the needed work to be done within the procurement The scope can be broken down and sellers can bid on the broken down work; providing services or goods for one or more work activities
  19. 19. Bid Documents ◦ Documents that describe the buyer’s needs from the seller ◦ Describes the requirements needed from the sellers ◦ Types of Bid Documents ◦ Request for Proposal (RFP): Contains detailed information about the required work and possible ways the work will be completed or objectives met ◦ Request for Bid (RFB) or Invitation for Bid (IFB): Invitation to sellers where the buyer expects sellers to bid on the work ◦ Request for Quotation (RFQ): A request for the price of goods or services based on the required needs
  20. 20. 12.2 CONDUCT PROCUREMENTS Part of the Executing Process Group
  21. 21. 12.2 Conduct Procurements ◦ Part of the Executing Process Group ◦ The process involved with collecting seller bids or responses to requests, selecting the sellers, and awarding the contracts ◦ Aligns stakeholder expectations through contractual and established agreements
  22. 22. Conducting Procurements Bid Conferences • Meeting between a buyer and possible sellers before bid submission that allows sellers to clarify points of the requests Seller Proposal or Bid • The seller evaluates the work and sends in a bid, proposal, or price quote Proposal Review • The buyer reviews the seller proposals and selects the seller based on defined selection method in the Procurement Management Plan
  23. 23. 12.3 CONTROL PROCUREMENTS Part of the Monitoring & Controlling Process Group
  24. 24. 12.3 Control Procurements ◦ Part of the Monitoring & Controlling Process Group ◦ The managing of relationships related to procurement and monitoring sellers performance in relation to the agreed requirements ◦ Works to make sure obligations on both the project and the supplier are being met
  25. 25. Controlling Procurements • A system that defines a change control system for procurements and dispute resolutionContract Change Control • Audit or review of the seller’s progress when compared to the procurement scope and costsProcurement Performance Reviews • Verifying compliance to the stated agreements for the procurementInspections and Audits • Measuring the work performance information as compared to expected performancePerformance Reporting • Monitoring changes that cannot be agreed upon and working to solve any disputesClaims Administration • The records of communication related to procurement or handling a procurementRecords Management
  26. 26. Sources A Guide to the Project Management Body of Knowledge – PMBOK 6th Edition Joshua Render

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Project Mangement - overview of the Procurement Management knowledge area within project management. Describes the 3 processes within Project Procurement Management and the process groups impacted. Blog: YouTube: Twitter: Tumblr:


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