answer the 4 question attach

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Week03-PPMChapter03CNChapter03.pdf

Project Procurement Management Chapter 03: Plan Procurements (1 of 2)

Contract Negotiations Chapter 03: The Contract

Negotiation Process

Week 3

Question: What components make up the definition of a project? What does it take for a project to be considered fully-funded/fully-defined?

Answer: “In order for any project to be fully defined, such definition must also include the ‘make or buy’ choices, a decision as to who will perform the work. At the point where a project has taken a position with respect to the scope of the effort to be performed, such definitions should also include an understanding of what major critical elements of the project will be sent to another company or organization for performance.” (PPM, p. 23)

Who should make that decision and how should it be carried out?

Procurement Planning

Question: Is there a difference between what is planned in a project and what is committed to?

Project Definition and Finality  Understand the work that must be done  Plan its segments

 Know to what you are committed and MUST do

 Define who and when the work will be done

Is this any difference than planning a project and creating a WBS?

Procurement Planning – Scope Definition

The only way to put finality into a project is to define the Scope of Work, and then avoid the inadvertent acceptance of ‘minor refinements:’

Late changes in scope are easily identified. It is the ‘minor refinements’ that eventually build to be major scope changes that can cause problems. These small refinements are known in the field as ‘Scope Creep.’” (PPM, p. 24)

Procurement Planning – Scope Creep

Project Procurement Management Figure 3.1: Scope Definition must include “make” of “buy” choices

The Central Issue: “Why are we in business?” “What are we in business to do?”

“What is our Core Competency?”

When and Who Decides What gets ‘Outsourced?’  Selling – Sr. Management, particularly for “assets”

 Buying, ‘Outsourcing’ – initially aligned with organization strategy

Procurement Planning – ‘Make or Buy?’

The Analysis  An initial analysis or direction – WILL evolve over time  The must or the may

Three Categories  Must “Make” Work

 May “Make” or May “Buy” Work

 Must “Buy” Work

Procurement Planning – ‘Make or Buy?’

Project Procurement Management Figure 3.2: The Project Make or Buy Decision Process

The Must Make  An easy decision  Proprietary position or

technology

 Unique staff capabilities

 Staff availability  Easier to control!!!!!!

Procurement Planning – ‘Make or Buy?’

The Must Buy  An easy decision  Better capabilities or technology

from others

 Proprietary process, equipment, or product

 Easier to have delivered, complete

Procurement Planning – ‘Make or Buy?’

The May Make or Buy  A hard decision  Indeterminate capabilities or technology from organization or others

 Lack of proprietary process, equipment, or product

 Time-dependent…to meet the project and organizational needs

Procurement Planning – ‘Make or Buy?’

Factors Impacting the Decision: 1. Management tends to ignore the make-or-buy problem. 2. Many make-or-buy analyses are based on invalid cost comparisons, due

to the excessive use of historical cost data when estimates of future costs should be employed.

3. American businesses lose more money in making things that should be bought than buying things that should be made.

4. Nevertheless, millions of dollars are lost annually by buying items that could be made more economically.

Procurement Planning – ‘Make or Buy?’

Lemar Lee, Jr. and Donald W. Dobler, Purchasing and Materials Management, (New York: McGraw-Hill Book Company, 1965), p. 308.

PMBOK Chapter 12 Section 12.1: Plan Procurement Management

Procurement Planning – ‘Make or Buy?’

Project Procurement Management Chapter 03: Plan Procurements (1 of 2)

PPM Week 3 Discussion Question

Question 03a: Discuss the elements of the Make or Buy decision (i.e., may make, may buy) and how they are impacted by issue of Full Funding of Procurements.

Question(s): Why do so many people fear negotiating contracts?

Seven (7) Most Typical Responses:  It’s too hostile and intimidating  I like to avoid conflict

 I do not know enough about contracts

 I do not know enough about the legal or technical aspects  I am not articulate enough

 I do not want to develop a new challenging skill

Negotiation Avoidance

The Intuitive Approach:  The no clue, no plan approach  Fly-by-the-seat-of-your-pants approach

 The ad-hoc approach

 The think-outside-the-box approach  The who needs a stinking plan approach

The Expected Approach: Typically characterized as structured, planned formal documents, and yielding more consistent negotiated results

Negotiation Approaches

Typical Buyers’ Objectives:  Acquire necessary supplies, services, or solutions of the desired quality,

on-time, and at the lowest reasonable price  Establish and administer a pricing arrangement that results in payment of

a fair and reasonable price

 Satisfy needs of the end-user (customer)

Typical Sellers’ Objectives:  Grow profitable revenue (long term vs. short-term)

 Increase market share within their respective industry  Deliver quality supplies, services, or solutions to achieve customer loyalty

Negotiation Objectives

Plan the Negotiation 1. Prepare yourself and your team – Know your strengths and weaknesses 2. Know the other party

Gather intelligence: Reputation, Negotiator, Needs, Past Negotiations

3. Know the big picture – Begin with the end in mind 4. Identify the objectives – Yours and the other party

5. Prioritize the objectives – Personal, Professional Terms & Conditions (T & C’s)

6. Create options – Do not assume only one solution exists, think creatively 7. Select fair standards – Use accepted standard to avoid a battle of wills

8. Examine alternatives – Best-case, Most-likely, Worst-case (walk-away)

9. Select strategy, tactics & countertactics – Seek win-win, not win-lose 10. Develop a solid and approved negotiation plan

Create a Summary Document of the above Items

Negotiation Process

Conduct the Negotiation 11. Determine who has authority – Who leads, who follows, for both parties 12. Prepare the facility – Home court advantage vs. neutral ground…or

Per Mark McCormack, it’s easier to walk out of someone else’s office than to throw them out of yours.

13. Set the agenda – And stick to it…by agreement 14. Introduce the team – Get to know the other party

15. Set the right tone – Focus on predetermined strategy

16. Exchange information – Understand all forms of communication 17. Focus on the Objectives – Again, and again, and again

18. Use strategy, tactics & countertactics – Negotiate how you set out 19. Make counteroffers – Adjust as necessary 20. Document the Agreement or Walk away

Negotiation Process

Documentation and Contract Formation 21. Prepare a negotiation memorandum – Be specific and factual, no opinions 22. Deliver memorandum – Obtain concurrence

23. Offer to write the contract – When the seller – use prior acceptable language

24. Prepare the contract – Seek review/concurrence from negotiation team 25. Prepare negotiation results summary –

Internal summary of what transpires/changed during the process

26. Obtain required reviews and approvals – From your leadership

27. Deliver the contract – Await response: signature or clarification(s)

28. Provide copies to those affected – Executed contract 29. Document lessons learned –

Define what went well…But more importantly, what didn’t go well, why, and how it was resolved

Negotiation Process

Concluding Thoughts Dr. Chester Karass – “You don’t get what you deserve, you get what you have the ability to negotiate.”

Contract Negotiation, p.83

Dr. Rick Thompson – “You don’t get…. unless you ask!”

Negotiation Summary

Contract Negotiations Chapter 03: The Contract

Negotiation Process

CN Week 3 Discussion Question

Question 03b: What actions can/should be taken to develop stronger negotiation skills? Do they differ by specific role/position within a company? Why or why not?

Project Procurement Management Chapter 03: Plan Procurements (1 of 2)

Contract Negotiations Chapter 03: The Contract

Negotiation Process

Week 3

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