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4E1 Project Management

4E1 Project Management. Purchasing and Procurement 2. Tenders. Asking potential vendors for proposals Allows transparency in procurement Aims to reduce price, improve quality through competition Used in private and public sectors Proposals AKA tenders, bids, quotations Considerations

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4E1 Project Management

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  1. 4E1 Project Management Purchasing and Procurement 2

  2. Tenders • Asking potential vendors for proposals • Allows transparency in procurement • Aims to reduce price, improve quality through competition • Used in private and public sectors • Proposals AKA tenders, bids, quotations • Considerations • Cost, time, effort (vendor and customer) • Legal obligations • Existing suppliers • Different types • Public, restricted, negotiated

  3. Invitation to Tender (ITT) • Requests for Tenders (RFT, RFP) • Also Request for Expressions of Interest (EoI) • Also Requests for Information (RFI) • Must state • What is to be provided • Quality requirements • Delivery and payment terms • Any special contractual conditions • Different types of bid • Indicative, offer, BAFO • May be sealed

  4. Evaluating Tenders • Criteria • Vary from single/simple to many/complex • Weighted ranking • Simple Multi-Attribute Rating Technique (SMART) • Formal and informal evaluation • Stakeholders involved • Rules of the game • Private sector, public sector • Managing risks

  5. Weighted Ranking • A widely used formal evaluation technique • Useful when there are multiple comparable options • Costs (rewards?) must be known • Requires formulation of distinct assessable criteria • Often used in purchasing • Capital assets e.g. earth-moving equipment • Materials e.g. concrete, aluminium sheeting • Services e.g. contractors, consultants

  6. Weighted Ranking - Complications • Criteria may be hard (objective) or soft (subjective) • Usually a mixture • Information may be • Uncertain • Missing • Fuzzy • These can all be handled • Dealing with uncertainty using PERT-type scoring • Dealing with soft criteria using scales

  7. Weighted Ranking: Step 1 • Identify all criteria • Value trees, stakeholders, … • Classify each criterion as qualifying or award • Qualifying - absolute (“must”) requirements • Hardness must be at least 40B (Rockwell scale) • Must be able to lift at least 2.5 tonnes • Must comply with ISO9200 • Award – important but non-essential (“should”) • Supplier should have local maintenance capability • Cost should be <€450,000

  8. Weighted Ranking: Step 2 • Assignweights to award criteria • 10: criterion is extremely important • 1: criterion is fairly unimportant • 0 is not a permissible value (why?) • Use care when quantifying soft values • Lay out on a grid/spreadsheet (see over)

  9. Weighted Ranking: Step 3 Option 1 Option 2 Option 3 Class. Weight Criterion CRITERION 1 CRITERION 2 CRITERION 3 CRITERION 4 CRITERION 5 CRITERION 6 CRITERION 7 Q Q A A A A A 8 7 5 4 2

  10. Weighted Ranking: Step 4 • Evaluate options under each criterion • Decide range of scores in advance • Scoring and weights should be independent • Multiple evaluators • Consensus • Averaging • Psychology of group decision-making

  11. This brings us to… Option 1 Option 2 Option 3 Class. Weight Criterion 8 7 5 4 2 Yes Yes 9 7 2 8 4 Yes No Yes Yes 9 6 5 8 10 CRITERION 1 CRITERION 2 CRITERION 3 CRITERION 4 CRITERION 5 CRITERION 6 CRITERION 7 Q Q A A A A A Option 2 fails to meet an qualifying criterion and is eliminated

  12. Weighted Ranking: Step 5 • For each option • For each criterion, multiply weight by score • Sum the results to give option’s weighted score • Take care in interpreting the result • Observe any rules (e.g. public sector)

  13. Weighted Ranking – Final Outcome Perfect Score Option 1 Option 3 Class. Weight Criterion Q Q A A A A A CRITERION 1 CRITERION 2 CRITERION 3 CRITERION 4 CRITERION 5 CRITERION 6 CRITERION 7 8 5 5 4 2 10 80 10 50 10 50 10 40 10 40 9 72 7 35 2 10 8 32 4 8 9 72 6 30 5 25 8 32 10 20 Select option 3 179 TOTAL 157 260 60% 69% % TOTAL

  14. Negotiation • Negotiation is formal, explicit, interpersonal communication aimed at agreement • It involves • representatives of all interested parties • conflicts of interest • Negotiation is a specific skill • Ability to compromise and communication skills also required • Negotiation may be adversarial or cooperative (partnership)

  15. Negotiation • Strategies • Win-win, win-lose or win-don’t care? • Depends on goals • Power in negotiation depends on knowledge of other party’s “best alternative to no agreement” (BATNA) • Timing is important • Analysis of buyer and seller’s strengths and weaknesses • Knowledge of market • Understanding of dependency relationships

  16. Negotiation - Positions of Strength Need is urgent Monopoly Indifferent about business Exceptional product Good information Need is not urgent Many alternative suppliers Suppliers keen to get business Buyer is only buyer. There are substitutes. Seller Buyer

  17. Ethics • Temptations • Smaller inducements • Pens, bottle of wine, gimmicks • Larger inducements • Golf outings, visits to plants in exotic locations, entertainment • Corruption • Bribes - cash and/or kind, kickbacks • Clear written policies

  18. Timing • Lead times! • Include key orders in the project plan • Delivery time as a task (may be on critical path) • Contractual implications • Expediting • Routine approach: flagging, reminders • Urgent expediting • Alternative sourcing • Escalating • When does the Project Manager get involved?

  19. e-Procurement • Electronic purchasing e.g. via Internet, EDI, ERP, etc. • Advantages • Convenience, speed, wider reach, improved information • Issues • Security: fraud, confidentiality, etc. • Legal: contracts, enforcement, etc. • Related concepts • Vendor-managed inventory • Intelligent agents • Just-in-time delivery • Evaluated receipt settlement

  20. Irish Government e-Procurement www.e-tenders.gov.ie/

  21. Examples of RFTs

  22. Searching for Tenders

  23. Examples of Tenders

  24. Supplier Electronic Commerce Network (Infrastructure) Purchaser Response to Fulfilment Request Shipping Notice Electronic Purchasing Product Service Information Request Purchase request Payment or payment advice Electronic Market (Txn Handler) Response to information request Purchase acknowledgement Shipping notice Purchase/Service delivery Payment acknowledge Payment Remittance Notice Electronic Funds Transfer Electronic Funds Transfer Supplier’s bank Transaction Handler’s Bank (Automated Clearance House) Purchaser’s bank

  25. Purchasing Organisation in Projects The Client Project Manager Project Engineer H.O Purchasing Agent Suppliers Shipping Agent Site Manager Overseas supplier Subcontractors Overseas Purchasing Agent Local Suppliers Role of the purchasing department

  26. Summary: Key Points • Purchasing is important in most projects • Projects may use the company purchasing function • Or do their own • There is a standard purchasing cycle • There are different approaches to purchasing • There are many skills involved, including: • Negotiation • Relationship management • Administration

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