1. Ch 11 - 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

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 Focus on core business
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 Cost plus incentive
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. Key Output: Proposals or Responses
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 Involve multiple stakeholders:
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