CAPM Exam & PMP Exam Study Notes:
Project Procurement Management
Written By: Alvin the PM | Last Updated: June 12, 2021
Topic: CAPM Exam & PMP Exam Certification Study Notes
Listed below are my CAPM Exam & PMP Exam Study Notes for Project Procurement Management that I’ve used to pass my own CAPM Exam, and which I also intend to use for my 2021 PMP Exam Preparation.
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Please Note: These notes are meant to be a supplementary aid, and not as your primary study material for your CAPM Exam and/or PMP Exam. This is meant to help clarify any confusing topics and explain the most challenging concepts which are difficult to understand & remember. Please reference your own Exam Prep Book or your PMBOK Guide for further detail.
I’ve listed the Knowledge Area below, with an explanation of the following:
1) Overview of each Process Group
2) Reference Section & Page in PMBOK 6th Edition
3) ITTO Summary & Analysis (Input, Tool, Technique, Output)
>> Any items marked with an * asterisk are the unique ones & critical topics to master
4) Key Concepts & Helpful Exam Prep Information
Overview of Procurement Management
Risk Management is split up into the following three (3) Process Groups:
1) Plan Procurement Management (PL)
2) Conduct Procurements (EX)
3) Control Procurements (M&C)
Purpose: This focuses on the processes for procuring materials, products or services from external resources
Key Concepts:
1. Different types of Agreements are: Contract, SLA, MOA, or Purchase Order
2. Contract outlines what the Seller will be providing, while ensuring compliance with any rules and regulations.
3. Procurement is heavily associated with Legal Obligations and Penalties. Keep in mind that the Project Manager does NOT typically sign legal agreements
Process #1: Plan Procurement Management
1.1 Procurement Management: Plan Procurement Management (PL)
– Pg. 466, PMBOK 6th Edition
Purpose: Creating your Procurement Management Plan which outlines your contract payment and delivery method:
– Decide on make vs buy decision: Will we make the product by ourselves? Or, will we buy it from outside?
– What Contract Type will we use? (Fixed Price, Cost Reimbursable, T&M?)
– Create Procurement SOW (Statement of Work) & Procurement Documents (Bid Documents)
ITTO Analysis: Plan Procurement Management
1) What do You Need? (Input)
– Project Charter, Business Documents, Project Management Plan, Project Documents, OPA/EEF
>> Business Documents: Business Case, Benefits Management Plan
>> Project Management Plan: Scope, Quality, and Resource Mgmt Plans; Scope Baseline
>> Project Documents: Requirements Documentation & Traceability Matrix; Milestone List; Team Assignments; Resource Requirements; Risk & Stakeholder Register
2) What is the Result? (Output)
– *Procurement Management Plan; Procurement Strategy, Bid Documents, Procurement Statement of Work; Source Selection Criteria; Make-or-Buy Decisions; Independent Cost Estimates; Change Requests; Updates to Project Documents, OPA Updates
3) How Do You Accomplish It? (Tool/Technique)
– *Source Selection Analysis, Expert Judgment, Data Analysis & Gathering, Meetings
>> Data Analysis: *Make-Buy Analysis
>> Data Gathering: *Market Research
Key Concepts:
1. Why are Business Documents required for Planning Procurement Management?
The business goals outlined in the Business Case & Benefits Management Plan need to be aligned with our strategy for procuring resources & the procurement dates.
For example, if the business goal is to launch our product by the end of Q4 this year, the procurement of our Equipment to manufacture our products needs to be well received before this date.
2. Source Selection Analysis – What criteria do we want to use for selecting our Vendor? Is it Schedule, Cost? Financial Stability? Technical Expertise? Quality of prior Performance? On-Time Delivery?
Key Terms to Remember:
1. Procurement Management Plan – What activities do we need to follow for procuring material or services?
2. Procurement Strategy – What is our “strategy” for how we will procure the material/resources? This addresses the following:
>> Delivery Methods (How will the materials be delivered from the Vendor?)
>> Contract Payment Types (What Contracts will we use?)
>> Procurement Phases (How will we execute the procurement in the different phases of our project?)
3. Bid Documents: Used to obtain proposals from potential Vendors. Bid Documents include the following types:
–> Request for Information, RFI (Obtaining more information about the services from a Vendor)
–> Request for Quotes, RFQ (Obtain information on the costs and how the Vendor will satisfy your needs)
–> Request for Proposal, RFP (To determine a solution for the project’s problem)
4. Procurement Statement of Work – Created from the Scope Baseline and defines the elements to include inside the Vendor contract
5. Source Selection Criteria – How well does our Vendor satisfy our needs? You choose the Vendor you want to work with based upon this criteria, which may include:
(1) Vendor capability and capacity, Costs, Dates for Delivery
(2) Technical ability, Experience, Qualifications
(3) Financial Stability
(4) Management Experience
6. Make vs Buy Decision – Will we “buy” the material/service from an outside service? Or, will we “make” it in-house?
Contract Types Explained
FIXED PRICE CONTRACTS
Definition – Contract in which the Seller bears the risk since the material or service is purchased at a Fixed Price
TYPES OF FIXED PRICE CONTRACTS
1. Purchase Order – A simple type of contract, in which only one party signs the contract
2. FFP, Firm Fixed Price – This is a contract in which the pricing will NOT change; Most commonly used contract, and most favored by organizations
>> There could be changes to pricing if the scope changes. BUT.. if the scope doesn’t change, then shouldn’t be any pricing changes
3. FPIF, Fixed Price Incentive Fee – There is an ‘incentive’ to the Seller. The final price is determined based on the relationship of final costs to targeted total cost.
>> Seller has a Fixed Price, but he has an incentive to complete the project in advance, cheaper, or at a higher quality.
>> Gives buyer and seller flexibility; Allows some deviation from performance with financial incentives after achieving a metric
4. FPAF, Fixed Price Award Fee – Buyer pays the Seller a Fixed Price + Award based upon the Seller’s Performance
5. FP-EPA, Fixed Price, with Economic Price Adjustments
– If project takes more than a few years, due to the valuation of money and uncertainties regarding the economy, this adds a clause to allow for an Economic Price Adjustment
Contract Types Explained
COST REIMBURSABLE CONTRACTS
Definition – Seller is reimbursed for all legitimate actual costs, such as travel, material, and services, and is also given an additional fee (the Seller’s profit)
>> The risk is on the buyer!
>> Also known as Cost Plus Contracts
TYPES OF FIXED PRICE CONTRACTS
1. CPFF, Cost Plus Fixed Fee – Buyer pays the seller all actual fees for executing the project’s work, in addition to a ‘Fixed’ fee, which is a % of the project’s initial estimated cost
2. CPPC, Cost Plus Percentage of Costs – Buyer pays the Seller all Costs, plus a % of the costs.
3. CPIF, Cost Plus Incentive Fee – Buyer pays the Seller all costs, in addition to a fee which is based upon the Seller satisfying performance criteria outlined in the contract (cost, schedule, or technical performance).
4. CPAF, Cost Plus Award Fee – Buyers pays the following fees:
>> All Costs + Base Fee + Award Based Upon Performance
>> The Award is only given to the Supplier based upon SUBJECTIVE EVALUATION of the Supplier’s performance
Contract Types Explained
TIME & MATERIALS CONTRACTS
Definition – Contract in which the Buyer pays per hour, or per item.
Example: Service/Labor contracts
Hybrid of Cost Reimbursable and Fixed Plus Contracts
Can have a ‘not to exceed’ clause in the contract so you don’t exceed a specific value
Process #2: Conduct Procurements
1.2 Procurement Management: Conduct Procurements (EX)
– Pg. 482, PMBOK 6th Edition
Purpose: This process is about obtaining Quotes from Vendors and choosing the final Vendor
ITTO Analysis: Conduct Procurements
1) What do You Need? (Input)
– *Procurement Documentation, *Seller Proposals, Project Management Plan, Project Documents, OPA/EEF
>> Project Management Plan: Baselines (Cost); Different Management Plans (Configuration, Procurement, Risk, Requirements, Communications, Scope Management Plan)
>> Project Documents: Logs (Lessons Learned, Risk Register & Stakeholder Register); Project Schedule; Requirements Documentation
2) What is the Result? (Output)
– *Selected Sellers; *Agreements; Change Requests; Updates to Project Documents, Project Management Plan, & OPA
3) How Do You Accomplish It? (Tool/Technique)
*Advertising; *Bid Conferences; Expert Judgment; Data Analysis; Interpersonal & Team Skills
>> Interpersonal & Team Skills: Negotiation
>> Data Analysis: Proposal Evaluation
Key Concepts:
1. Negotiation – This should typically be led by Supply Chain/Procurement, as they have the role & governing responsibility for signing Vendor
**Remember – the agreements are legally binding
2. What is typically contained inside an Agreement?
– The Agreement is a binding agreement between the Buyer and Seller for a product or service
– An Agreement includes the following components:
>> Procurement SOW; Project Schedule; Payments and Pricing; Acceptance Criteria; Warranties; Any incentives and penalties; Bonds; Approvals with subcontractors; Terms & Conditions and Clauses
Key Terms to Remember:
1. Procurement Documentation: These are used so that the Buyer and Seller can agree upon the Contract for procuring materials or services.
>> Bid Documents (RFI, RFP, RFQ)
>> Procurement Statement of Work (SOW)
>> Independent Cost Estimates (Use to verify the proposals sent from the Suppliers)
>> Source Selection Criteria (What criteria will we rank each Supplier?)
2. Seller Proposals: This will be the main input which will be reviewed by the team against the Source Selection Criteria to make the decision of which Supplier to use
3. Advertising – Obtain other Vendors through ads
4. Bidder Conferences – This is a meeting between the Buyer and Seller before proposals are submitted, and helps clarify what the requirements & goals are for the procurement.
>> All Sellers are intended to be treated equally
5. Proposal Evaluation – Your Team reviews submitted proposals against the Source Selection Criteria
6. Selected Sellers – These are the final Vendors you will be using.
Process #3: Control Procurements
1.3 Procurement Management: Control Procurements (M&C)
– Pg. 492, PMBOK 6th Edition
Purpose: You’ll be managing your relationships with your Vendors and monitoring their performances, as well as ending any contracts.
Throughout this process, you’ll be verifying and making sure that the project’s requirements are being met in accordance with the signed contract, and once all work has been completed, closing all contracts.
Alvin’s Exam Tip: This process is focused on Claims Administration, meaning directing the contract work with your Vendor and making sure all obligations are being met.
Alvin the PM
ITTO Analysis: Control Procurements
1) What do You Need? (Input)
– *Agreements, *Procurement Documentation, *Approved Change Requests, *Work Performance Data, Project Management Plan, Project Documents, OPA/EEF
>> Project Management Plan: Schedule Baseline; Requirements, Risk, Procurement, and Change Management Plan
>> Project Documents: Logs (Assumption, Lessons Learned, Risk and Stakeholder Register); Milestone List, Quality Reports, Requirements Documentation & Traceability Matrix
2) What is the Result? (Output)
*Closed Procurements; *Work Performance Information; *Procurement Documentation Updates; Change Requests; Updates to Project Documents, Project Management Plan, and OPAs
3) How Do You Accomplish It? (Tool/Technique)
– Expert Judgment; *Claims Administration; *Inspection; *Audits; Data Analysis
>> Data Analysis: *Performance Reviews; *Earned Value Analysis; *Trend Analysis
Key Concepts:
This process is performed by BOTH the buyer and seller.
1. Claims Administration – What is a Claim? Changes which the buyer and seller are at a standstill and cannot agree upon
– Process if claims aren’t resolved:
Claims > Disputes > Appeals
2. Procurement Documentation – SOW, payment information, Vendor performance, drawings, etc
3. Work Performance Data – This corresponds to Vendor data regarding their progress on their ongoing activities as well as incurred versus paid costs
4. Work Performance Information – Information for how the Seller is performing by comparing received deliverables, achieved performance, and incurred costs
Key Terms to Remember:
1. Closed Procurements – Closing out your Vendor contracts
>> Buyer provides Seller with formal written notice the completion of the contract
>> What document specifies that the contract can be closed out? Contract’s Terms & Conditions
2. Trend Analysis: Examining forecasts using the Estimate At Completion (EAC)
Conclusion
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Cheers, Alvin