IT Project+ Study Guide, 2nd Edition (PKO-002)

Many projects are completed using external resources for part of the project deliverables. For a variety of reasons, another company may complete pieces of the project work or on occasion even the entire project. You may have been part of a project team that included contractors to complete certain tasks . IT projects often use outside resources on large projects rather than hire more employees who may not have any work when the project is done. If your project includes outside resources, you need to be familiar with the procurement process. Procurement planning is the process of identifying the goods and services required for your project that will be purchased from an outside organization. If your project is completely internal, you do not need a procurement plan, unless internal departments bid on the work and sign a contract.

As a project manager, you are the buyer of goods and services for your project, so because of that we will cover the procurement process from the buyer's perspective.

The organization selling the goods or services is referred to as a vendor, a supplier, a consultant, or a contractor.

The procurement process is very complex and often involves the legal department or in the case of larger companies a separate procurement department that manages the process across the organization. This book will not make you an expert in procurement, but we will cover many of the basic concepts.

Procurement planning starts with the decision to procure goods or services outside the organization. Once that decision has been made, you need to determine what type of contract would be best. A statement of work (SOW) is developed to define exactly what work the vendor is being asked to deliver. The SOW is incorporated in a document distributed to the vendors who will be bidding on the work. Vendor evaluation criteria are developed to use in evaluating the bids or proposals that are received.

Let's start by looking at some of the circumstances that might cause you to procure outside resources.

Make or Buy Analysis

Before you can define a procurement plan, you need to determine whether you need to procure anything. The general management technique known as make or buy analysis is often used to make that determination. What it involves is looking at the trade-offs between doing something in-house versus procuring it outside the organization. Here are some of the more common areas to consider:

Equipment

For some of your project resources, this may be fairly simple. If you are developing a new application that requires new hardware, you will need to obtain the hardware from outside your company. But you still have a decision point of purchasing the hardware outright or leasing it. You need to look at the life expectancy of the application as well as such things as whether other applications could run on the hardware and share some of the cost.

Staff Augmentation

The use of outside human resources can range from paying a vendor to run the entire project to contracting for specific resources to perform certain tasks.

Using a vendor can be driven by a lack of organizational expertise. If none of your programmers are skilled in the programming language required for your new application, you could hire people who have this expertise, but there may not be a need for all of those people once the development work is complete. Contracting for programmers with the required skill set to complete the project work may be a better plan. If the new system will be maintained internally after the project is completed, you need to determine how you will train existing employees or add to the current maintenance staff.

Time-critical projects may also require more resources than are currently available. Contract resources can fill this gap.

Other Goods or Services

Projects may have specific deliverables that are appropriate to have completed by a vendor. If you are installing a new commercial software application, you can schedule resources to develop training or you can purchase the training. If you do not have a dedicated in-house training development and delivery team, it may be more effective to contract these services. There may even be existing training developed that you can purchase either with or without resources to do the training.

IV&V and testing services are an ideal candidate for this kind of outsourcing as well. Unless you've got a formal testing department with an established set of procedures, you'll get much better results from outsourcing the testing to a group of professionals.

Once you determine which aspects of the project to procure from outside the organization, you need to have a basic understanding of the types of contracts you can use to authorize this work.

Types of Contracts

A contract is a legal document that covers the work that will be done, how the work will be compensated, and any penalties for noncompliance . Entire law school courses are devoted to contract management, so this book is not going to make you a contract expert, but you should be able to understand differences between the types of contracts. Most contracts fall into one of the following categories: fixed price contracts, cost reimbursable contracts, and time and materials contracts. Let's take a more detailed look at each of these.

Fixed price contracts Fixed price contracts have a fixed fee for the work that the vendor will provide. This type of contract works best when the product is very well defined and there is good historical information. Using a fixed price contract on a product or service that is not well defined or has never been done before is risky for both the buyer and the seller.

Cost reimbursable contract A cost reimbursable contract provides a seller with payment of all costs he or she incurs to deliver the product and includes a fee to cover the seller's profit. This type of contract has the most risk for the buyer, as you do not know what the total cost will be. Although this may not be the most desirable contract from a buyer perspective, it may be your only option if you do not have a well-defined product or if you are asking the vendor to provide something that has never been done before.

Time and materials contract A time and materials contract is a cross between a fixed price and cost reimbursable contract. The buyer and the seller agree on a unit rate, such as the hourly rate for a programmer, but the total cost is unknown and will depend on the amount of time spent to produce the product. This type of contract is often used for staff augmentation, where contract workers are brought on to perform specific tasks on the project.

Keep in mind the types of contracts as you define the work you want completed in the statement of work (SOW).

Statement of Work

If you are going to have outside vendors involved in the project, it is critical that they know exactly what you are asking them to do. The statement of work (SOW) details the goods or services you wish to procure. In many respects it is similar to the project scope statement; it contains the project description, major deliverables, success criteria, and any assumptions or constraints. It will also generally include information about any warranties the vendor is supplying and will detail payment expectations. The portion of your project scope statement pertaining to the work you are putting out for bid is a good starting point for the SOW.

Even if the SOW is actually created by another department, the project manager should be involved in the process to ensure accuracy of the project requirements. Vendors use the SOW to determine if they are both capable and interested in bidding on your project work. It must be very clear and precise. Anything in the SOW that is ambiguous could lead to a less than satisfactory deliverable .

Many companies have templates for creating a SOW; this ensures that all required items are covered and provides consistent information to vendors.

Completion of the SOW means you are ready to start vendor solicitation.

Vendor Solicitation

Once you have decided that some of the project work will be completed outside the organization and have developed a SOW defining what you want done, you need to notify vendors. Solicitation is the process of obtaining responses from vendors to complete your project work as documented in the SOW.

Typically a procurement document is prepared to notify prospective sellers of work. There are several terms associated with these documents. Three of the more common terms are:

These terms are often used interchangeably and may have different meanings in different organizations. Regardless of what these documents are called, they should include your SOW, information regarding how responses are to be formatted and delivered, and a date by which responses must be received. Potential vendors may be required to make a formal presentation or they may just be asked to submit a bid. Depending on the industry you are in, these procurement documents may be extremely detailed.

Before providing a copy of your procurement document to any potential seller, always determine if your company has an approved vendor list. Many companies have a formal process that vendors must comply with before they can do business with the company. If your company has such a policy, you should only be soliciting bids from those approved vendors. If no such list exists, the project team or the procurement department will need to research potential vendors through trade association, Internet, or other available sources of information.

At the time the procurement documents are distributed (or earlier), you need to develop the criteria to be used to evaluate the bids, quotes, or proposals you receive.

Vendor Selection Criteria

The amount of time that the project manager spends on vendor selection is driven by whether the company has a separate procurement department. If your company has a specialized group that handles vendor contracts, they will advise you what information you need to provide and a member of their team will work on your project to manage the vendor selection process and the contract.

If you are responsible for vendor selection, then you will need to develop criteria to use when evaluating vendor bids or proposals. It helps to decide up front with the sponsor and other key stakeholders who will be involved in the review and selection of vendor proposals. This group should develop the selection criteria as a team and reach agreement ahead of time as to any weighting of the criteria.

Sole-Source Documentation

For those of you who work in government, your procurement job is even harder! Governments typically not only create an approved vendor list-you must buy from the vendors on the list unless you can prove that they can't supply it, never mind whether another manufacturer makes a superior product or not!

The only way you can get around this problem is to provide what is called sole-source documentation stating that the vendor you're buying from is the only one that carries the thing that you need along with the reasons why you need that specific thing. If you don't carefully document the exact reasons why you need the thing you need and you don't make a convincing case of it, you're likely to be forced to go with someone else's product and make it work.

 

The vendor evaluation criteria you develop will be used to rank the various proposals. The criteria may be both objective and subjective . An example of criteria you might use includes:

Case Study: Chaptal Wineries Email and Intranet Systems-Formulating the Final Plans in the Project Planning Process

You're very close to finally being able to begin the Chaptal project plan. However, you need to focus on some final planning elements that will help bring about a solidly deployed project. You'll develop a roles and responsibilities worksheet, communications plan, quality plan, and you'll perform risk assessment and team member designations and procurement planning in this section.

Roles and Responsibilities and Team Member Designations

Title: Yourself-project manager and IT Director for Chaptal

Role: Project planner, initiator, and coordinator

Primary responsibilities: Acquisition of project hardware and software, also WAN telecommunications connections Vendor contracts and maintenance agreements Managing contractors and other winery employees in bringing about the deliverables Work with day-to-day IT duties as required

Title: Guillaume Fourche, Metor Sanchez, Jason Jay-project team members

Role: Assist with WAN connectivity issues, testing, and server deployment at the various winery sites

Title: Intranet contractor

Role: Develop all intranet pages for use by the Chaptal winery group

Title: Telecommunications contractors

Role: Provide T1/E1 connectivity from the winery site to the telecommunications cloud.

Communications Plan Kim Cox-your boss, also the project sponsor. You've decided she'll need daily updates on your progress. Since you don't have email yet, you'll either give her a quick heads-up in person, or over the phone. She says she doesn't expect a blow-by-blow synopsis, just any standout issues or problems that you've run into. She'd also like a quick update on any significant project progress.

Guillaume Fourche, Metor Sanchez, and Jason Jay need to hear from you at a minimum of once a week, even if you have nothing to share. Since they will be working with you to get things done for their particular areas of the world, you'll also need to get any news, updates, or issues while you're talking with them.

All of the telecommunications companies will require direct dialog as needed. When your intranet contractor begins work, he or she will dialog with you on a daily basis, giving you status updates, showing you the work to date, and working with you on testing procedures.

Winery Expansion Communication Plan

Project: Chaptal Wineries Date:

Quality Plan Your quality plan consists of three elements:

 

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