Procuring Professional Services Chapter Seventeen Procuring Professional Services McGraw-Hill/Irwin Copyright ©2007 The McGraw-Hill Companies, All Rights Reserved

Learning Objectives To understand service sector characteristics and strategies. To identify the activities involved in procuring professional services. To understand why governmental agencies and private firms are moving toward outsourcing professional services more often. To understand the differences between procuring professional services in the public sector versus the private sector.

Learning Objectives To understand what is meant by scope of work. To understand how professional service contracts are priced. To understand how to measure project process. To understand how the critical path method is used to plan, schedule, and control complex projects.

The Service Economy Over the past 60 years, since the end of World War II, the service sector has taken on an increasingly important role in the world economy. ____________________________________________________________________________________________________________. One-third of this growth has taken place in the last 20 years, _________________________________________________________________________.

The Service Sector Many organizations in the service _____________________________________________________________________________. These changes have opened up new global markets but, at the same time, forced service industries to determine ways in which to remain competitive or they would cease to exist.

The Service Sector Expanding competition, _______________________________________________________________. In recent years, many manufacturing and service firms have been challenged to increase their focus on customer satisfaction and quality of service. _________________________________________________________________________________ For service sector firms, responses to these challenges often have resulted in making their operations more “manufacturing like.”

The Service Sector There remain, __________________________________________________________________________________. Direct customer contact is increasing in the manufacturing sector as manufacturing flexibility allows more customized design. _________________________________________________________________________________________. The importance of a responsive workforce, able to execute procurement activities in keeping with organizational objectives, cannot be understated.

Service Producing Organizations One purpose of this chapter is to review characteristics and strategies of service-producing organizations. ______________________________________________________________________________________________. This chapter also addresses the procurement of professional services. ________________________________________________________________________________________________________. Unlike manufacturing, it is more difficult to measure the performance of design consultants, contractors, and inspectors. _____________________________________________________________________________________________.

SERVICE SECTOR CHARACTERISTICS AND STRATEGIES In the last 40 years, researchers and writers in the field of operations management have noted the differences and similarities between characteristics of operations in the service sector and in manufacturing. __________________________________________________________________________________________________________________________________________. In categorizing the operations of any given organization, a complicating factor is that individual operations ________________________________________________________________________________________________.

PROFESSIONAL SERVICES The purchasing of professional services is gaining exceptional attention. ___________________________________________. A spectrum of types of service business is given in Table 17.2. IBM has evolved into a solutions provider. ________________________________________________________________________________________________________________________.

PROFESSIONAL SERVICES _________________________________________________ Federal, state, and city governments are hiring fewer people and outsourcing their tasks. As an example, the Federal Highway Administration (FHWA) and state departments of transportation (DOT) outsource the design, construction, and the inspection of new highways and bridges. _________________________________________________________________________________________________.

Equipment-Based Versus People-Based Service Systems

Scope of Work The statement of work or scope of work (SOW) is the most important component of highway and bridge design contracts. The scope of work is ___________________________________________________________________________________________________________________________. Predetermined criteria are used to determine the successful bidder. Some of the criteria include ________________________________________________________________________________.

PROJECT MANAGEMENT The management of the project is the last line of defense. If the SOW is adequate, the right contractor is selected, and the ultimate price is reasonable, then a good management effort will secure the project. ________________________________________________________________________________. __________________________________________________________________________________________________________________________________________________________. In order to be successful, the project must come in meeting the SOW, on time and within budget.

The Contract Manager The duties and responsibilities of the project or contract manager are diversified. ______________________________________________________________________. __________________________________________________________________________________________________________.

Project Management Two Important Factors 1. ______________________________. 2. ______________________________.

Costs Costs are often divided into two categories, direct and indirect costs, defined as follows: Direct costs ___________________________________________________________________ Indirect costs _________________________________.

The Tasks Involved in a Typical Complex Project Establish a reasonable budget. Know where expenditures are being made. Forecast final expenditures. Identify problem areas by comparing expenditures and budgets.

The Tasks Involved in a Typical Complex Project Apprise contractors and managers of the information early so that actions can be taken to achieve economies. ___________________________________. _____________________________ The field manager must properly balance the indirect costs to achieve the maximum level of efficiency.

The Tasks Involved in a Typical Complex Project _________________________________________. Joint reviews of indirect cost must take place on a scheduled basis Use tracking curves or lists to monitor budgeted versus actual costs. _______________________________________.

The Tasks Involved in a Typical Complex Project Establish at least 20 percent productivity improvement over previously established norms for the type of work in question. _________________________________________________________________________________________________. ______________________________________________________________________________________________________________________________. ________________________________________________.

The Tasks Involved in a Typical Complex Project (Labor productivity) ____________________________________________________________________________________. Schedule control is essential to the success of any complex project _________________________________________________________________________________________________________

The Tasks Involved in a Typical Complex Project (Scheduling) Good schedule control is to develop a plan, implement the plan, ______________________________________________________. The master schedule is generally a logical network-type schedule that reflects _____________________________________________________________________________________________________________. ________________________________________________________________________________.

PROJECT PLANNING AND SCHEDULING PROCESSES Planning must be done before performing any function. A schedule is a time-phased plan. The principal uses of schedules in the implementation process are discussed below. Before Starting __________________________________ ___________________________________. ____________________________________. _________________________________________________________________________________________________.

Permits a review and analysis of the project as actually carried out. After Completion of Construction During Construction ________________________________________________________________________________________________________________________________. Provides a means for evaluating the effects of changes and delays. Serves as a basis for evaluating progress. Aids in the coordination of resources. Permits a review and analysis of the project as actually carried out. ______________________________________________________________________________________________.

Bar Chart (or Bar Graph) Method The bar graph method includes two procedures: the bar graph schedule and the progressive curve. Bar charts are useful tools for planning and scheduling projects as bar charts _______________________________________. ________________________________________. __________________________________________.

Bar Chart (or Bar Graph) Method _____________________________________________________. Progress curves ____________________________________________________________________________________ Monitor progress. You can immediately see what should have been achieved at a point in time. __________________________________________________________________________.

Project Management and the Critical Path Method (CPM) ____________________________________________________________________________. __________________________________________________________________________________________. With CPM the contract administrator can assess the status of the project at any time, and it enables the contract administrator to monitor and revise scheduling during the project to meet the desired completion date.

Project Management and the Critical Path Method (CPM) _______________________________________________. ______________________________________________. The CPM network consists of arcs and nodes. The arcs represent the actual activities while the nodes (events) represent when the activity starts and finishes. Each node (event) combination between two nodes is unique. The end of one activity is the start of a succeeding activity.

Project Management and the Critical Path Method (CPM) The critical path is represented by the longest path through the network from node 1 to node 7. Thus, the critical path for Figure 17.1 :is A–C–F–H, which totals 25 days. __________________________________________________________________________________________________________________. This discussion of CPM is not meant to be exhaustive; 16-week courses are sometimes dedicated to the topic.

Steps in CPM Project Planning 1. _____________________________________ 2. _____________________________________. 3. _____________________________________. 4. _____________________________________. 5. _____________________________________. 6. _____________________________________.

1. Specify each individual Activity 2. Sequence the Activities From the work breakdown structure, a listing can be made of all the activities in the project. This listing can be used as the basis for adding sequence and duration information in later steps. Some activities are concurrent with other activities. A listing of the immediate predecessors of each activity is useful for constructing the CPM network diagram.

4. Estimate Activity Completion Time 3. Draw the Network Diagram 4. Estimate Activity Completion Time Once the activities and their sequencing have been defined, the CPM diagram can be drawn. CPM is usually used for projects with predictable task times. ___________________________________________________________________________________________________________________________________________________.

5. Identify the Critical Path ________________________________________________________________________________. Activities located on the critical path cannot be delayed. __________________________________________________________________________________________________________________.

Identify the Critical Path The critical path can be identified by determining the following four parameters for each activity: ES – earliest start time: ________________________________________________. EF – earliest finish time, _______________________________________________. LF – latest finish time, ________________________________________________. LS – latest start time, __________________________________________.

The Critical Path The slack time for an activity is the time between its earliest and latest start time, or between its earliest and latest finish time. Slack is the amount of time that an activity can be delayed past its earliest start or earliest finish without delaying the project. ______________________________________________________________________________________________________________________________________. A delay in the critical path delays the project. _______________________________________________________________________________________________________________________________________________.

6. Update CPM Diagram _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________. A new or multiple critical paths may emerge, and the project requirements must be updated.

CPM Crashing ________________________________________________________________________ As an example, an activity must be located on the critical path. There is a crash cost associated with any feasible activity on the critical path.