Module 4

Performing Projects: Project supply chain management: - Plan

purchasing and acquisitions, plan contracting, contact types,
project partnering and collaborations, project supply chain
management. Project Progress and Results: Project Balanced
Scorecard Approach, Internal project, customer, financial issues,
Finishing the project: Terminate project early, finish projects on
time, secure customer feedback and approval, knowledge
management, perform administrative and contract closure.
 Project supply chain management
Plan purchasing and acquisitions
The PMBOK (Project Management Body of Knowledge) process plan
procurement management is “the process of documenting project procurement
decisions, specifying the approach, and identifying potential sellers. It identifies
those project needs that can be met by acquiring products or services from outside
suppliers, determines what to purchase or acquire, and determines when and how
to do so.

On some projects, a portion of the services or materials may be sourced from

another company; on other projects, the bulk or even all of the work may be
performed by an external company. A client company needs to plan for purchasing
and acquisition, whether it is for part or all of a project.

The needs of the parent organization should be considered as well as those of the
project when deciding how to acquire necessary items because it may be better for
the parent organization to buy an item rather than to rent it for the current project
and then rent it again for a future project.
To effectively plan for purchasing and acquisition of materials
and services, a project team typically finishes most of the project
planning so they understand what the true project needs are. At a
minimum, the project team requires a project scope statement,
which is “the description of the project scope, major deliverables,
assumptions, and constraints.”Once the requirements are
identified, a project manager should be able to determine whether
or not to buy, what to buy, and the quantity to buy.
a)Outputs of Planning
One primary output of this planning is a procurement management plan, which
is a “managed component of the project management plan that describes how a
project team will acquire goods and services from outside the performing
organization”. The procurement management plan can include guidance for
types of contracts to be used, risk management issues, and how to select
potential suppliers. This plan guides the client company’s efforts through all
activities dealing with the acquisition of all the necessary materials and services
to complete the project.

Another major output is the procurement statement of work, which “describes

the procurement item in sufficient detail to allow prospective sellers to
determine if they are capable of providing the products, services, or results”.
This document should ensure that both the contractor and client companies
understand the work that is being requested in the same clear manner, for
example, offering information such as specifications, quantity desired, quality
levels, performance data, work requirements, and other requirements.
b)Make-or-Buy Decisions
Project procurement can be considered from the view of the buyer–seller
interface. This interface exists at all levels of any project supply chain and
between businesses internal to and external to the project organization.
Depending on the application areas, the seller can be called a supplier, supplier’s
supplier, or contractor. Depending on the buyer’s position in the project
acquisition cycle, the buyer can be called a customer, a service requestor, or a
purchaser. The seller can be viewed during the contract life cycle first as a
bidder and then as the contracted supplier or vendor.

For any products or services needed in a project, during the purchase planning
phase, the project team determines which project needs can best be met by
purchasing or acquiring products and services from an outside provider and
which project needs can be accomplished by the project team during project
execution. Buying from an outside supplier to meet project needs is a well-
established practice. For example, many firms outsource information technology
requirements, accounting work, legal functions, logistics, and so on.
C)REASONS TO BUY OR SELL
The make-or-buy decision is not trivial. It involves intricate issues such as a
project organization’s competitive analysis and demand analysis. The project
team also needs to evaluate the advantages and disadvantages of outsourcing
from the viewpoint of time, cost, and performance control.
OUTSOURCING ISSUES
While outsourcing has gained in popularity, there are potential issues related to
outsourcing. Some of these are relatively important with regard to the goal of
projects.

• Loss of time control for completing project activities

• Lack of cost control for outsourced activities
• Gradual loss of special skills for doing some specific activities
• Loss of project focus and a potential conflict of interest
• Ineffective management as a result of complicated business interactions
• Loss of confidentiality and double outsourcing when a third party is used
 Plan Contracting
The second project procurement management process is to conduct
procurements, which is “the process of obtaining seller responses,
selecting a seller, and awarding a contract. Client firms need to
decide which potential contractor companies they wish to solicit
and then make sure those companies know about the potential
project. Sometimes, firms develop a qualified sellers list and only
allow listed companies to submit a proposal on the upcoming
project. Other times, they advertise widely in hopes of attracting
new contractors’ interest. In either event, a formal request is
normally sent out with hopes that competent firms will compete
for the right to perform the project.
a) Sources for Potential Suppliers
Based on the nature of what is being requested in early procurement stages, the
project team usually starts the selection process by establishing a robust list of
potential suppliers. The following information sources are frequently used to
identify these potential suppliers:
• Supplier websites
• Supplier information files
• Supplier catalogs
• Trade journals
• Phone directories
• Sales personnel
• Trade shows
• Professional organizations and conferences
b)Information for Potential Suppliers
Once potential contractors submit bids or proposals, the client company applies
previously defined selection criteria to select one or more sellers who are
qualified to perform the work and are acceptable as sellers. On some projects in
which the services or materials are commodities, the selection decision is made
mostly or entirely on price.
c) Approaches Used When Evaluating Prospective Suppliers
After developing a comprehensive list of potential suppliers, the project team
needs to evaluate each prospective supplier individually. The approaches and
analyses can include:

• Supplier surveys that provide sufficient knowledge of the supplier to make a

decision to include or exclude the firm from further consideration

• Financial condition analysis that reveals whether a supplier is clearly

incapable of performing satisfactorily

• Facility visits to allow the project team to obtain first-hand information

concerning the adequacy of the firm’s technological capabilities,
manufacturing or distribution capabilities, and managerial orientation

• Quality ability analysis that examines the potential supplier’s quality

capability

• Delivery ability analysis that estimates the supplier’s capability to deliver the
required product or services on time; backup solutions can also be considered
d) Supplier Selection
After one or more potential suppliers have passed the evaluation process, the
selection process must begin. The project team now invites potential suppliers to
submit bids or proposals. Procurement documents are used to solicit proposals
from various vendors.
A request for proposal usually includes the following items:
• Purchasing overview
• Basic supplier requirements
• Technical requirements
• Managerial requirements
• Pricing information
• Appendices
 Contact Types
Different types of contracts can be used as tools in planning
acquisitions specified in the make-or-buy decision. Contracts differ
by type with regard to how the risk is distributed and how the project
is performed. The seven most common types of project procurement
contracts are shown in figure
a) Fixed-Price Contracts
A fixed-price contract is “an agreement that sets the fee that will be paid for a
defined scope of work regardless of the cost or effort to deliver it.” The most
common variations of fixed-price contracts are
i)firm-fixed-price (FFP),
ii)fixed-price-incentive-fee (FPIFD), and
iii)fixed-price-economic-price-adjustment (FP-EPA).
i)FIRM-FIXED-PRICE (FFP) CONTRACTS are “a type of fixed-price contract
where the buyer pays the seller a set amount as defined in the contract, regardless
of the seller’s cost.” Any cost increase due to adverse performance is the
responsibility of the seller, who is obligated to complete the effort.
ii)FIXED-PRICE-INCENTIVE-FEE (FPIF) CONTRACTS are “a type of contract
where the buyer pays the seller a set amount as defined by the contract, and the
seller can earn an additional amount if the seller meets defined performance
criteria”.
iii)FIXED-PRICE-ECONOMIC-PRICE-ADJUSTMENT(FP-EPA) CONTRACTS
are “fixed price contracts, but with a special provision allowing for final
adjustments to the contract price due to changed conditions such as inflation
changes, or cost increases (or decreases) for specific commodities”.
b) Cost-Reimbursable Contracts
Cost-reimbursable contracts are “a type of contract involving
payment to the seller for the seller’s actual costs, plus a fee typically
representing the seller’s profit”. The three variations of commonly
used cost-reimbursement contracts are
i)Cost-plus-fixed-fee,
ii)Cost plus-award-fee, and
iii)Cost-plus-incentive-fee.
COST-PLUS-FIXED-FEE (CPFF) CONTRACTS are “a type of cost-
reimbursable contract where the buyer reimburses the seller for the seller’s
allowable costs (allowable costs are defined by the contract) plus a fixed amount
of profit (fee)”.
COST-PLUS-AWARD-FEE (CPFF) CONTRACTS are “a category of contract
that involves payments to the seller for all legitimate costs incurred for completed
work, plus an award fee representing seller profit”.
COST-PLUS-INCENTIVE-FEE (CPIF) CONTRACTS are “a type of cost-
reimbursable contract where the buyer reimburses the seller for the seller’s
allowable costs (allowable costs are defined by the contract) and the seller earns a
profit if it meets defined performance criteria”.
c) Time and Material (T&M) Contracts
Time and material contracts are “a type of contract that is a hybrid
contractual arrangement containing aspects of both cost-reimbursement
and fixed-price contracts”. In this type of contract, the unit rate for each
hour of labor or pound of material is set in the contract as in a fixed-
price contract.
The following items are frequently considered when selecting the right
type of contract:
• Overall degree of cost and schedule risk
• Type and complexity of requirements
• Extent of price competition
• Cost and price analysis
• Urgency of the requirements
• Performance period
• Contractor’s responsibility
• Contractor’s accounting system
• Extent of subcontracting
 Project Partnering and Collaborations
Companies are constantly in need of outsourcing or contracting
significant segments of project work to other companies. The trend
for the future suggests that more and more projects will involve
working with people from different organizations. Research also
finds that through strategic partnering, companies are more likely to
access advanced technology, share risks, and improve project-based
performance and relative competitiveness.
The term partnering is used to describe this process. Partnering is a
method for transforming contractual arrangements into a cohesive,
collaborative project team with a single set of goals and established
procedures for resolving disputes in a timely and cost-efficient
manner.
SOURCES OF CONFLICT DURING PROJECT PURCHASING In the
procurement and purchasing environment, conflicts are inevitable.

RESOLVING PROJECT PURCHASING CONFLICTS One approach to resolving

conflict is to use project partnering as an effective way to engage both the project
owner and contractors.

MUTUAL GOALS IN PROJECT PARTNERSHIPS Some common goals warrant

a more supportive relationship.

EFFECTIVE PROJECT PARTNERING APPROACHES Many differences exist

between the way traditional project procurement unfolds and the way
contemporary project procurement takes place in a partnering mode.

SECURING COMMITMENT TO PARTNERING When developing a project

supply chain partnership, a project manager may want to consider contractors with
a mutual interest and expertise in partnership. At the beginning, the owner needs to
get the commitment of the top management of all firms involved. All the benefits
of the partnership and how the partnership would work need to be described in
detail.
Some of the most significant mechanisms are as follows:
• Problem resolution—Solving problems at the lowest level of organizations and
having an agreed-upon escalation procedure
• Continuous improvement—Endless waste elimination and cost reduction
• Joint assessment—Reviewing the partnering process jointly
• Persistent leadership—Displaying a collaborative response consistently
 Project supply chain management.
Project supply chain management as a system approach to
managing the entire flows of physical products, information, and
funds from suppliers and producers, through resellers, and finally
the project organization for creating customer satisfaction. A
sample project supply chain is shown in figure.
a)SCM Components
• Make-or-buy decisions—which are “decisions made
regarding the external purchase or internal manufacture of a
product.”
• Contract types—We introduce the contact types and
compare their advantages and disadvantages in case a buy
decision is warranted.
• Collaboration and cooperation—As different firms take
care of their own interests, it is essential to coordinate their
project activities to ensure the deliverables are produced as
scheduled.
• System integration—concerning the tradeoffs among
project goals such as time, cost, and quality.
• SCM Factors
Generally, supply chain management is more important to projects
where a large portion of the work is being subcontracted and more
company collaboration is needed. Other factors include the
following:
• The value of the outsourced products or services relative to the
total value of the project
• The timing of the work being purchased
• The capability of the project team
• The role of the outsourced work in the entire project
• The number of suppliers required
• The structure of the procurement supply chain (the number of
stages in the supply chain and the nature of the intercompany
relationship)
C) SCM Decisions
Some of the major project supply chain management
decisions are:
• Distribution network configuration
• Inventory control in a supply chain
• Logistics
• Supply contracts
• Distribution strategies
• Supply chain integration and strategic partnering
• Outsourcing and procurement strategies
• Product design
• Information technology and decision-support systems
d)Project Procurement Management Processes
Project procurement management includes the following four
processes.
1. Plan procurement management
2. Conduct procurements
3. Control procurements
4. Close procurements
 Project Progress and Results:
• Project Balanced Scorecard Approach
To successfully accomplish all five aspects of project determination, a
project manager can think in terms of a balanced scorecard approach to
her project. The concept behind a balanced scorecard is that an
organization needs to be evaluated along customer, internal business,
financial, and growth and innovation perspectives. If one considers a
project as a temporary organization, the same aspects make sense to
monitor and control a project. Figure shows a project balanced scorecard
approach to project determination.

When a project manager seeks to monitor and control a project, the

different aspects are often interrelated, and their impacts on each other
need to be considered. For example, a proposed change may impact the
scope, quality, schedule, and/or cost. However, to understand project
control, each aspect must first be considered individually.
 Internal Project Issues
While all aspects of a project are important and interrelated when
determining progress and results, a logical starting place is the
project work that needs to be accomplished. Closely related are
the risks that may impede the work and adequate
communication.
a) Direct and Manage Project Work
Directing and managing project work is “the process of leading and
performing the work defined in the project management plan and
implementing approved changes to achieve the project’s objectives”. When
project managers authorize project work, they should empower others to the
extent possible, yet control them to the extent necessary. It should be clear
who is allowed to authorize each portion of work to commence.
Skills an owner representative can use when working closely with
a project manager to effectively make these tradeoff decisions are
shown in figure
b)Monitor and Control Project Work
Monitoring and controlling project work includes “the processes of tracking,
reviewing, and reporting the progress to meet the performance objectives
defined in the project plan”.To monitor means to “collect project performance
data with respect to a plan, produce performance measures, and report and
disseminate performance information”. control means “comparing actual
performance with planned performance, analyzing variances, assessing trends
to effect process improvements, evaluating possible alternatives, and
recommending appropriate corrective action when needed”.
c)Monitoring and Controlling Project Risk
During project planning, the project team normally develops a risk
management plan that is used to guide risk monitoring and
controlling activities. They also normally create a risk register to
record each identified risk, its priority, potential causes, and
potential responses. The risk management plan and risk register
are used to monitor and control project risks, and to resolve them
when they occur.
Control risks is “the process of implementing risk response plans,
tracking identified risks, monitoring residual risks, identifying
new risks, and evaluating risk process effectiveness throughout
the project”.
d) Manage Communications
Manage communications is “the process of creating, distributing,
storing, retrieving, and the ultimate disposition of project
information in accordance with the communications management
plan” To successfully communicate the right project information to
the right stakeholders, in the right format, at the right time, several
things must happen.
• Communicate accurately
• Communicate promptly
• Communicate effectively
e) Control Communications
Control communications is “the process of monitoring and
controlling communications throughout the entire project life cycle
to ensure the information needs of the project stakeholders are
met.”The project manager and core team often discuss whether the
communications are following the plan, how effective they are,
and how to improve their effectiveness.
 Customer Issues
The second major perspective included in a balanced scorecard
approach to project control is the customer. Customers want the
deliverables of the project. They want the results to be useful
(quality).
a) Perform Quality Assurance
Performing quality assurance is “the process of auditing the quality
requirements and the results of quality control measurements to
ensure appropriate quality standards and operational definitions are
used”.
AUDITS A quality audit is “a structured, independent process to
determine if project activities comply with organizational and
project policies, processes and procedures”.
Auditors have the following three sets of data:
1. Documentation of how the work is supposed to be done (the standards either
developed or adopted in quality planning)
2. Descriptions of how the work is actually done
3. Documentation to verify how the work was completed
PROCESS IMPROVEMENT A process is “a systematic series of activities directed
toward causing an end result such that one or more inputs will be acted upon to
create one or more outputs”
Benchmarking consists of the following steps:
1. Determine a process that needs dramatic improvement.
2. Identify another organization that performs that process very well.
3. Make a deal with that organization to learn from them (they might require
payment or the sharing of one of the observer’s best practices with them).
4. Determine what needs to be observed and what questions need to be asked.
5. Make a site visit to observe and question the other organization.
6. Decide which observed methods will help the organization.
7. Adapt the methods to fit the organization’s culture and situation.
8. Try the new methods on a small scale.
9. Evaluate the results.
10. If the methods are good enough, adopt them.
b) Control Quality
Quality assurance deals with using correct policies and convincing
stakeholders that the project team is capable of producing good output.
Quality control (the current subject), on the other hand, deals with
comparing specific project measurements with stakeholders’ standards.
Quality control consists of:
• Monitoring the project to ensure that everything is proceeding according to
plan
• Identifying when things are different enough from the plan to warrant
preventive or corrective actions
• Repairing defects
• Determining and eliminating root causes of problems
• Providing specific measurements for quality assurance
• Providing recommendations for corrective and preventive actions
• Implementing approved changes as directed by the project’s integrated change
control system.
Monitor the project quality Project managers using quality control focus on
project inputs, processes, and outputs. When considering inputs, a project
manager wants to ensure that workers assigned are capable of doing their work
Quality Control Terms Many terms with specific meanings are used in project
quality control. Figure shows pairs of terms that are sometimes confused
Quality control tools: A variety of quality control tools can be
used effectively on projects. Some of the most common tools and
their primary uses on projects are shown in above figure.
 Financial Issues
Cost control is obviously a financial issue. Cost, schedule, and
scope are often so closely intertwined that they are monitored and
controlled at the same time, and changes in one impact the others.
Because of the close interrelationships between them, cost,
schedule, and scope are envisioned here as financial issues.
a) Control Scope
Control scope is “the process of monitoring the status of the project
and product scope and managing changes to the scope baseline”.
A scope change is “any change to the project scope. A scope change
almost always requires an adjustment to the project cost or
schedule.”
Variance analysis is “a technique for determining the cause and
degree of difference between the baseline and actual performance”
b) Control Schedule and Costs
Schedule and cost control are very similar in concept to control in
other knowledge areas. The project manager should start with the
approved cost and schedule baseline. Next, the current status of the
schedule and cost should be determined.
c) Earned Value Management for Controlling Schedule and Costs
Earned value management is “a methodology that combines scope,
schedule, and resource measurements to assess project
performance and progress". Earned value allows a project team to
understand their project’s progress in terms of cost and schedule as
well as to make predictions concerning the project’s schedule and
cost control until the project’s conclusion. Earned value is used as
a decision-making tool.
 Finishing the project
Terminate project early
Ideally, all projects continue until successful conclusion, with all
deliverables meeting specifications and pleasing customers.
However, this is not always the case. Sometimes, a project is
terminated before its normal completion. Early termination can be
by mutual agreement between the contractor and buyer, because
one of the parties has defaulted (for cause), or for convenience of
the buyer.
Mutual Agreements On some projects, by close-out, not all of the
deliverables are yet completed. Remaining deliverables need to be
integrated into another project, stopped altogether, or continued as
a lesser project or a further phase of the finishing project. If both
parties agree to stop the project before its planned completion, a
negotiated settlement may take place.
Terminations for Default: Terminations for default often result
from a problem with the project’s cost, schedule, or performance.
A buyer can also decide to terminate a project early because he or
she has lost confidence in the contractor who is performing the
project
Terminations for Convenience of Buyer: Projects can also be
cancelled for the convenience of the buyer. This can happen
through no fault of the contractor. Sometimes, the buyer faces
unexpected difficulties or changing priorities. If a customer’s
needs change, it might decide that the resources assigned to a
project could be more profitably applied to a different project.
 Finish Projects on Time
Customers are asked both to accept the project deliverables and to
provide feedback. Lessons learned are captured and shared.
Contracts are closed. Participants are reassigned and rewarded.
Reports are created and archived. Success is celebrated, and the
project team ensures that customers receive the ongoing support
they need to successfully use the project deliverables.
A few key challenges arise at the end of projects. One is to keep
the right workers engaged until project completion. Some of the
final activities are administrative. Often, new projects are starting
up that are more exciting.
a) Write Transition Plan
A project manager may decide to create a transition plan to help
the customer successfully use the project deliverables. Project
transition plans are a sort of instruction manual on how the
customer should use the project deliverables once the project team
has completed its work.
A transition plan helps to ensure:
• Quality problems are avoided during the transition.
• The project deliverables transition into their service or
operational role.
• The needed maintenance, upgrades, and training take place.
 Knowledge Management
If a company does extensive project work and uses project
management capability as an organizational strength, it is important
to keep developing expertise in it. One way to develop and expand
expertise is to capture and reuse the knowledge developed.
Knowledge is “a conclusion drawn from information after it is
linked to other information and compared to what is already
known.”
To increase knowledge and the successful use and reapplication of it,
organizations often create a lessons learned knowledge base. For this
database to be useful, it is important to communicate project
successes and failures from all aspects of the project process.
Captured throughout the life of the project, recommendations to
improve future performance can be based on technical, managerial,
and process aspects of the project. In addition, part of the project
closeout process should include facilitating a lessons learned session
for the entire project, especially on unsuccessful projects.
 Secure Customer Feedback and Approval

Knowledge management should occur throughout the project life,

but it may be most apparent as a project comes to a close. Project
customers, whether internal or external to a company, can provide
valuable feedback concerning both the project process and
results. Ask them what they think! Below Figure is a simple form
for asking project customers for their opinions.
Perform administrative and contract closure
Many organizations have formal procedures for closeout reports
and archiving project records. The closeout report usually
includes a summary status of the project that can be gleaned from
progress reports. The closeout report also normally includes
lessons learned. Finally, the closeout report often contains a
review of the project’s original justification.
Did the project accomplish what it was originally approved to
do? This is an important question because many projects change
along the line. The exact timing, costs, and deliverables may have
changed, but did the project still accomplish its goals? Finally, the
project manager needs to ensure that the records are in a
workable format and stored in a manner that will allow others in
the organization access for lessons learned, financial audits, or
other uses.
Organizations often create templates for closeout
reports such as the one in figure.