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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

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Week 12: Procurement Management Learning Objectives

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  1. Week 12: Procurement ManagementLearning 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

  2. 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

  3. 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

  4. Outsourcing Benefits • Reduce costs • seller may gain economies of scale • Focus on core business • 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

  5. 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

  6. 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

  7. 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

  8. Procurement planning tools • Make-or-buy analysis • compare cost of providing internally to cost of outsourcing • Expertise • creative options

  9. 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

  10. Contract Types • Vary with proportion of risk to buyer, seller • Fixed price • appropriate for well-defined product or service • higher risk to seller • Cost-reimbursable • payment to seller for direct and indirect costs • higher risk to buyer • Unit price: when cost estimation difficult • time and materials

  11. Contract Variations • Incentives to seller • meeting or exceeding project objectives • Cost plus incentive • shared savings or shared extra costs • Cost plus fixed fee • Cost plus percentage of cost • no incentive for reducing costs • highest risk to buyer

  12. 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

  13. Solicitation Planning • Prospective sellers • Request for Proposal (RFP) • basic requirements • enough information for seller to respond • Request for Quote (RFQ) • simpler, more specific • Invitations to bid or negotiate • Key Output: evaluation criteria

  14. 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

  15. Source Selection • Systematic evaluation • According to weighted evaluation criteria • Involve multiple stakeholders: • technology, cost, management experts • Identify short list • May involve contract negotiation • clarification and mutual agreement • Key Output: Contract • legal relationship subject to court remedy

  16. Contract Administration • Ensures seller’s performance meets contract • May require coordination and integration among multiple contracts, sellers • Key inputs: • change requests, invoices • Key tools: • change control system (CCS) • payment system • Avoid Constructive Change Orders • changes that bypass CCS

  17. Contract Close-out • Product verification • Updating, archiving records • Formal acceptance and completion • Inputs: contract • Tools: audit • Outputs: signed completion, contract files

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