PMP Study – Part 25 – Planning Project Procurement – Flashcards
Unlock all answers in this set
Unlock answersquestion
About purchasing the required resources, on time and at an appropriate cost, to meet the needs of the project scope
answer
What is project procurement management?
question
1) Managing contracts with suppliers and clients by developing and controlling any changes 2) Ensuring the project team fulfills its contractual obligations
answer
What are the two main important procurement activities?
question
The party that provides monetary compensation for a product or service - can also be known as, a client, customer, prime contractor, contractor, acquiring organization, governmental agency, service requestor, or purchaser
answer
Define a Buyer
question
The party providing a service or product. In exchange the seller receives monetary compensation - can also be know as a contractor, subcontractor, vendor, service provider or supplier
answer
Define a Seller
question
The legally binding document used in project procurements between a seller and a buyer - can also be know as an agreement, understanding, sub-contract or purchase order
answer
Define a Contract
question
A buyer or seller can set conditions that reduce the risk of incorrect scope or requirements. They can also tailor contract terms to reduce many project risks that are foreseeable
answer
How are contracts related to risk management?
question
Concerned with predicting what procurements are needed for the project based on analyzing what the project team can accomplish itself and what external acquisitions are required. Those predictions are recorded and a logical approach to take for those required acquisitions is decided on including identifying potential sellers. All considerations of risks involved with contracting out are also ascertained during planning
answer
What is involved in the Plan Procurements process?
question
A process where you interact heavily with sellers - get responses, from sellers, selecting the ones to use and enter into procurement contracts with them
answer
What is involved in the Conduct Procurements process?
question
Concerned with managing the procurement relationships, monitoring contracts and making changes or corrections when needed. Applies to both supplier and the seller to ensure that all contractual obligations are met and that legal rights of both parties are protected and where necessary making changes to the contracts
answer
What is involved in the Administer Procurements process?
question
When a contract comes to the end of its life cycle the Close Procurement process is used to ensure that all the terms of the contract are acceptable, accurate and concluded. Its important to ensure that the work stated in the contract has been completed accurately and satisfactorily - both parties should have acted in accordance with the contract
answer
What is involved in the Close Procurements process?
question
1) Scope statement 2) Work breakdown structure (WBS) 3) WBS Dictionary 4) Requirements documentation 5) Teaming agreements 6) Risk register 7) Risk-related contract decisions 8) Activity resource requirements 9) Project schedule 10) Activity cost estimates 11) Cost performance baseline 12) Enterprise environmental factors 13) Organisational process assets
answer
What are the Inputs to the Planning Procurements process? (13 points)
question
1) Resource needs associated with contractual or legal obligations 2) A variety of project requirements that affect procurement planning such as - Health, safety and security - Performance - Environmental practices - Insurance - Intellectual property rights - Equal employment opportunities - Licenses or permits
answer
What information can be found in Requirements Documentation as an Input for the Planning Procurements process? (2 points)
question
They determine where, when and how particular materials or services will be acquired between two parties and act as legal, contractual agreements between a buyer and seller that defines the roles and responsibilities of each party including the scope of the work or product the seller must supply, the specific roles for buyer and seller and completion requirements
answer
What are Teaming Agreements used for?
question
Identifies high-priority risks that may be best managed through procurement contracts and all available information about the risks identified for a project including the probability and priority of risks, the risk owners and planned risk responses
answer
What information can be found in the Risk Register as an Input for the Planning Procurements process?
question
These decisions may determine the nature of procurements as they include decisions related to insurance, bonding, service provision agreements or other agreements in which each party's responsibility for specific risks is specified
answer
What information can be found in the Risk Register as an Input for the Planning Procurements process?
question
1) Marketplace conditions 2) Product and service availability 3) Previous relationships with suppliers 4) Typical terms and conditions 5) Unique local requirements
answer
What are examples of enterprise environmental factors that could be Inputs to the Planning Procurements process? (5 points)
question
1) Procurement policies, procedures and guidelines 2) Management systems 3) Pre-existing seller lists
answer
What are examples of organisational process assets that could be Inputs to the Planning Procurements process? (3 points)
question
1) Make-or-buy Analysis 2) Expert Judgment 3) Contract types
answer
What tools and techniques are used during the Planning Procurements process? (3 points)
question
Involves determining whether its best for the project team to complete particular work within the project organization or to purchase services or products from outside sources
answer
What is make-or-buy analysis as used during the Planning Procurement process?
question
1) Availability - Are required skills and materials available internally, or difficult to obtain externally 2) Cost - Which option is less expensive
answer
What are the two most important factors in make-or-buy decisions?
question
1) Time - Which option is better for the schedule 2) Risk - Different levels of risk are associated with completing work internally or outsourcing 3) Business strategy - Typically its best to outsource processes or products that fall outside the core competencies of the performing organisation 4) Control - If control of quality of intellectual property it's probably preferable to complete work in-house
answer
What are less critical factors that influence make-or-buy decisions? (4 points)
question
1) A decrease in labor costs and lower material prices 2) Enables organizations to benefit for the procurement knowledge of other more specialized organisations
answer
What are the benefits of outsourcing? (2 points)
question
1) Loss of control over the work that's outsourced 2) A less flexible schedule
answer
What are the disadvantages of outsourcing? (2 points)
question
1) Define the product, service or result 2) Calculate the costs of in-house production - Important to include all costs such as staffing, materials and overheads such as electricity and heating 3) Calculate the costs of outsourcing - Include the price of goods or services as well as the administrating costs associated with the purchasing or contracting process 4) Compare the costs
answer
What are the general steps when conducting a make-or-buy analysis? (4 points)
question
Buy or Lease?
answer
If the outcome of a make-or-buy analysis is to outsource (buy) what is the next decision?
question
Leasing Cost = principal cost + interest - tax write-offs
answer
Define Leasing Costs
question
1) Technical 2) Legal 3) Purchasing
answer
What are examples of expert judgment can be used during the Planning Procurements process? (3 points)
question
1) Must contain an offer - Must describe the product or service being offered, as well as all the requirements for the buyer to accept the product 2) Must provide payment terms - The terms of payment for products or services and conditions such as when work must be invoiced and the types of credit extended and any discounts that aren't already in place between the buyer and sellers 3) Must be accepted - A contract is only legally binding once the contracting parties have agreed to it - preferably in writing 4) Must be properly executed - Involves both parties abiding by the terms included in the contract. Only staff with the authority and capacity to do the work should perform contracted work
answer
For a contract to be valid it must what? (4 points)
question
1) Cost plus award fee 2) Cost plus fixed fee 3) Cost plus incentive fee 4) Firm fixed-price 5) Fixed price plus incentive fee 6) Fixed price with economic price adjustment 7) Time-and-materials
answer
What are the different types of contracts?
question
The seller is reimbursed for their costs but the profit comes via an award which is earned by meeting subjective performance criteria set by the buyer.
answer
How does a cost plus award fee contract work?
question
The buyer pays actual costs plus a fixed fee as a profit margin.
answer
How does a cost plus fixed fee contract work?
question
The buyer pays the actual costs, and offers a pre-determined incentive to reward exceptional performance thus motivating the seller to reduce costs. Cost variances from original estimates are shared based on a pre-negotiated formula.
answer
How does a cost plus incentive fee contract work?
question
The buyer pays an agreed price.
answer
How does a firm fixed-price contract work?
question
The buyer pays an agreed price and offers an incentive for exceptional performance. Some price variance is allowed and is based on a pre-established profit formula. Cost overruns beyond a ceiling amount are the responsibility of the seller.
answer
How does a firm price plus incentive fee contract work?
question
The buyer pays an agreed price, but the price is linked to economic or market-related factors.
answer
How does a firm price with economic price adjustment contract work?
question
The buyer pays the agreed rates - which can be fixed or flexible - for the time, labour, and materials that are used.
answer
How does a time-and-materials contract work?
question
The buyer carries a high risk of cost overruns because the award depends on the costs.
answer
What is the biggest risk issue with a cost plus award fee contract?
question
The buyer carries all the risk.
answer
What is the biggest risk issue with a cost plus fixed fee contract?
question
The buyer carries most of the risk, but the seller risks losing the incentive fee.
answer
What is the biggest risk issue with a cost plus incentive fee contract?
question
The seller carries all the risk.
answer
What is the biggest risk issue with a firm fixed-price contract?
question
The buyer and seller share some of the risk but the seller carries the risk of cost overruns beyond a ceiling amount. Risk is usually higher for the seller.
answer
What is the biggest risk issue with a fixed price plus incentive fee contract?
question
Both the seller and buyer are protected from economic or market-related factors. Both are still subject to other risks that might affect cost.
answer
What is the biggest risk issue with a fixed price with economic price adjustment contract?
question
If rates are fixed, the seller carries the risk of cost increases. If they are flexible, the buyer carries the risk of rate increases. The buyer also carries the risk of schedule and budget overruns resulting from poor planning.
answer
What is the biggest risk issue with a time-and-materials contract?
question
1) Firm fixed-price 2) Fixed-price plus incentive fee 3) Fixed-price with economic price adjustment
answer
What are the different types of fixed-price contracts? (3 points)
question
1) Cost plus fixed-fee 2) Cost plus incentive fee 3) Cost plus award fee
answer
What are the different types of cost-reimbursable contracts? (3 points)
question
1) Procurement management plan 2) Procurement statement of Work (SOW) 3) Make-or-buy decisions document 4) Change requests 5) Procurement documents 6) Source selection criteria
answer
What are the Outputs of the the Planning Procurements process? (6 points)
question
1) Procurement documents - A description of the main types of documents to be used during the project - e.g. request for quotation or request for tender 2) Seller selection policies and criteria - Gives an overview of the requirements for choosing suppliers 3) Supplier management methods - The procedures for locating suppliers and for negotiating contracts with them 4) Risk management and mitigation methods - Describes how the project will use insurance policies and performance bonds to protect against supplier failures 5) Assumptions and constraints - Describes any assumptions or constraints that are relevant to procurements, in particular to seller selection criteria and policies 6) Responsibilities regarding procurements - Confirms who is responsible regarding procurement activities e.g. who issues purchase orders 7) Project integration activities - Methods for coordinating procurements with the other components of the project management plan - e.g. the budget and schedule
answer
What information categories should be included in a Procurement Management Plan? (7 points)
question
A description of the product, service or result that will be procured under a specific contract - also known as a contract SOW - based on the description of the work in the scope baseline - must be detailed enough so that prospective sellers can determine whether they'll be able to meet the requirements
answer
What is the Procurement Statement of Work (SOW)?
question
To enable prospective sellers to prepare and submit appropriate offers
answer
What is the purpose of a SOW?
question
A description of the buyer's requirements clearly, completely and concisely and include 1) Product requirements - Specifications and features - Required quality level and standards 2) Supply requirements - Quantity - Location - Timing - Contract type
answer
What should be included in a SOW?
question
1) The outcome of make-or-buy decisions 2) Justification for these decisions
answer
What is recorded in the make-or-buy documentation? (2 points)
question
To communicate the buyer's requirements to prospective sellers
answer
What is the purpose of procurement documents?
question
1) The relevant procurement SOW 2) The terms of the contract to be used
answer
What two items should always be included in procurement documents?
question
Request for information (RFI) - Used to solicit information about the capabilities of prospective sellers
answer
What is an RFI and it's purpose?
question
Invitation for bid (IFB) - Used to solicit competitive prices from prospective sellers - the term bid implies that sellers must complete mainly on price
answer
What is an IFB and it's purpose?
question
Request for quotation - Where the buyer asks the seller to supply the price for a simple commercial product or services
answer
What is an RFQ and it's purpose?
question
Request for tender (RFT) - Where the buyer requirements are more complicated but still clearly defined, and a price is sufficient response
answer
What is an RFT and it's purpose?
question
Request for proposal (RFP) - The buyer invites the seller to submit a proposal for completing the specified work
answer
What is an RFP and it's purpose?
question
Invitation for negotiation (IFN) - The buyer calls on prospective sellers to join in price and solution negotiations
answer
What is an IFN and it's purpose?
question
Seller initial response (SIR) - A prospective seller states their intentions to respond to a buyer's request or invitation
answer
What is an SIR and it's purpose?
question
Purchase order (PO) - A type of unilateral contract from the buyer to the seller indicating to the seller the purchase has been approved
answer
What is an PO and it's purpose?
question
The level of detail in the procurement document is usually proportional to the value of the required product or service and the risk associated with it
answer
How much detail should be included in procurement documentation?
question
The measures used to rate or score seller proposals in terms of their suitability. For simple purchases where a number of sellers are equally acceptable purchase price is generally used to select a supplier. If the purchase is more complex other criteria like reputation and reliability may be used and considered more important criteria than price
answer
What is Source Selection Criteria?
