Project Management Professional (PMP)® Exam Prep Course … · Project Management Professional...

Project Management Professional (PMP)® Exam Prep

Course 12 - Project Procurement Management

Looking Glass Development, LLC(303) 663-5402 / (888) 338-7447

4610 S. Ulster St. #150 Denver, CO [email protected]

Project Procurement Management

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management

Processes to purchase or acquire the products, services, or results needed from outside the project team to perform the work.

Unless otherwise noted, consider yourself the BUYER.

© Copyright and all rights reserved – Looking Glass Development, LLC.

Planning Process Group

12. Project ProcurementManagement

12.1Plan

ProcurementsManagement

Executing Process Group


12.2Conduct

Procurements

Monitoring and Controlling Process Group


12.3Control

Procurements

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementProcurement PMIisms

All product and project management requirements for the procurement work should be specifically stated in the contract.

If it is not in the contract, it can only be done if a formal change order to the contract is issued.

If it is in the contract, it must be done or a formal change order to the contract must be issued cancelling it.

Changes must be submitted and approved in writing.

Contracts are legally binding; both parties are obligated to perform per the terms of the contract.

Contracts should diminish project risks.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementProcurement Terms

Force Majeure — This is a situation which may be considered an act of God, and is an allowable excuse for either party not meeting contractual requirements. Usually the risk is covered by the seller for which they will often carry insurance.

Liquidated Damages — These are estimated damages for specific defaults, described in advance.

Retainage — This is an amount of money—usually 5% to 10%—withheld from each payment. This money is paid when all the final work is complete. Its purpose is to help ensure proper completion.

Time is of the Essence — This phase means delivery dates are strictly binding and will be stringently enforced. The seller is placed on immediate notice that any delay is considered a material breach.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________


Material Breach — The breach is so large that it may not be possible to complete the work under contract.

Work for Hire — The work provided will be owned by the buyer.

Privity — Simply means a contractual relationship.

Price — The amount charged to the customer. It is defined as the cost plus profit.

Profit — The amount of money given to the seller above and beyond the costs incurred to produce a product. Typically, the seller has a target margin desired to sell a product.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________


Cost — This is how much an item costs the seller to create, develop, or purchase a product. A buyer’s cost includes both the seller’s cost plus profit and is the same as the price.

Target price — This is another way of saying planned or expected price. It is used as a point of comparison with the final actual price paid.

Sharing ratio —The sharing ratio describes how cost overruns will be split between the buyer and seller.

Ceiling price — This is the highest price the buyer will pay for a product or service.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________


Master services agreement — An MSA is a governing agreement that is used for the overall engagement. MSAs are often used on large projects where parts of the project is managed using an agile method and other parts use a more traditional method. Any adaptive work is placed in an appendix or supplement which allows changes to occur on any adaptive scope without impacting the overall contract.

Point of Total Assumption — Relates only to fixed price incentive fee contracts and refers to the amount above which the seller bears all the loss of a cost overrun. Costs that go above the PTA are assumed to be due to mismanagement.


PTA =(Ceiling Price—Target Price)

Buyer’s Share Ratio + Total Cost

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.1 Plan Procurement ManagementIdentify which project needs can best be met

by purchasing or acquiring products, services or results outside the project organization.Consider potential sellers, permits, licenses.Project schedule greatly influences, and is

influenced by, purchase and acquisition decisions.Review risks & types of contracts.


Planning Process Group


12.1Plan

ProcurementsManagement

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.1 Plan Procurement Management


Inputs.1 Project charter.2 Business documents.3 Project management plan.4 Enterprise environmental factors.6 Organizational process assets

Tools & Techniques.1 Expert judgment.2 Data gathering.3 Data analysis.4 Source selection analysis.5 Meetings

Outputs.1 Procurement management

plan.2 Procurement strategy.3 Bid documents.4 Procurement statement of

work.5 Source selection criteria.6 Make-or-buy decisions.7 Independent cost estimates.8 Change requests.9 Project document updates.10 Organizational process assets

updates

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementSource Selection Analysis In least cost, the lowest cost provider wins. Typically only

recommended in situations where the team is dealing with a commoditized product.

Qualifications only looks for the provider who best meets the defined need regardless of cost. Often leads to providers who meet the need, but risks exceeding the project budget.

Quality-based/highest technical proposal score asks the providers to submit a proposal with both technical and cost details. Each proposal is then evaluated against a predefined weighted scoring mechanism.

Quality and cost-based selection allows cost to be included as a factor or variable in the process. It is often similar to the a scored proposal, but cost is one of the variables.

In a sole source selection the buyer asks a specific seller to prepare technical and financial proposals

The fixed budget method requires you to disclose your available budget to the sellers who are then invited to provide proposals that meet that budget.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementProcurement Management Plan

Describes managing procurement from developing procurement documentation through contract closure.

Types of contracts. Roles and responsibilities, authority. Coordination. Constraints and assumptions. Timeframes. Pre-qualified sellers.Metrics.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementBid Documents

Request for Information — An RFI is used when more information on the goods and services to be acquired is needed from the sellers. It does not commit the buyer or seller in any way, and will typically be followed by an RFQ or RFP.

Request for Quotation — An RFQ is used when more information is needed from the vendor about how the seller would satisfy the requirements and how much it would cost. An RFQ can commit the seller to a price in many situations.

Request for Proposal — An RFP is the most open ended of the choices. It simply states the buyer has a problem or need and asks the potential seller to provide information about how they would solve this problem, typically with included cost information. This is also the most formal of the “request for” documents. It often contains specific procurement rules for content, timeliness and response form.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementProcurement Statement of Work

Comes from the project scope baseline. A single project could have multiple SOWs with

each defining only their limited portion of the project scope and a related contract.

Terms of Reference - A TOR typically includes: Tasks the contractor is required to perform. Any required coordination requirements. Standards with which the contractor will have to

comply.Any data the contractor must submit for approval.A detailed list of all data and services that will be

provided to the contractor by the buyer.The schedule for the procurement.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management3 Types

Procurement Statement of WorkPerformance — This type conveys what the final

product should be able to do rather than how it is built, or what the design characteristics are.

Functional — This type conveys the end purpose or result, rather than the specific procedures or approach. Functional procurement statements of work may include a statement of the minimum essential characteristics of the product.

Design — This type conveys precisely what work is to be done.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementProcurement Documents


Procurement Management Plan

Procurement Strategy

Statement of Work

Bid Documents

How procurement work will be coordinated and integrated with other project work, particularly with resources, schedule, and budget

Procurement delivery methods

Description of the procurement item

Request for information (RFI)Request for quote (RFQ)Request for proposal

Timetable for key procurement activities

Type of agreements Specifications, quality requirements and performance metrics

Procurement metrics to manage the contract

Procurement phases Description of collateral services required

Responsibilities of all stakeholders

Acceptance methods and criteria

Procurement assumptions and constraints Performance data and other reports required

Legal jurisdiction and currency used for payment

Quality

Information on independent estimates Period and place of performance

Risk management issues Currency; payment schedule

Prequalified sellers, if applicable

Warranty

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementA CONTRACT is an agreement between two or more

parties for the doing or not doing of something specified enforceable by law which may be written or verbal.

Contract Type – The type of contract used is dependent on the degree of uncertainty facing the project.


Seller’s Risk HighLow

CPPC

Cost PlusPercentage

Of Costs

CPFF

Cost PlusFixed Fee

CPIF

Cost PlusIncentive

Fee

FPPI

Fixed PricePlus

Incentive

FFP

Firm-FixedPrice or

Lump Sum

High Buyer’s RiskLowCost-Reimbursable / T & M Fixed Price

Contract Types

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.2 Conduct Procurements

Process of obtaining seller responses, selecting a seller, & awarding a contract.Consider:

– Project risks and contractual agreements.– Activities resource requirements.– Activity cost estimates.– Cost and schedule baselines.


Executing Process Group


12.2Conduct

Procurements

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.2 Conduct Procurements


Inputs.1 Project management plan.2 Project documents.3 Procurement documentation.4 Seller proposals.5 Enterprise environmental factors.6 Organizational process assets

Tools & Techniques.1 Expert judgment.2 Advertising.3 Bidder conferences.4 Data analysis.5 Interpersonal and team skills

Outputs.1 Select sellers.2 Agreements.3 Change requests.4 Project management plan

updates.5 Project document updates.6 Organizational process

assets updates

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementNegotiating Tactics

Attacks — To criticize or condemn another person or organization.Personal insults — Making derogatory

comments about another to distract from the issue or objective.Good Guy / Bad Guy — One person is helpful

to the other side and the other is difficult.Deadline — Setting a hard deadline to

complete the negotiations.Lying — Not telling the truth to the other

party.Limited Authority — Claiming the power to

negotiate only within certain boundaries.© Copyright and all rights reserved – Looking

Glass Development, LLC.

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementNegotiating Tactics

Missing Man — Being unable to make the decision because the appropriate party is not present.

Fair and Reasonable — Asking the other party to accept the current offer as it is a fair offer to all parties.

Delay — This is a stall tactic used to push the decision to the last minute.

Extreme Demands — Using unreasonable standards to get the other party to agree to more reasonable standards.

Withdrawal — This is a removal from the negotiation either physically or emotionally.

Fait Accompli — It’s a done deal, or assuming something is included.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________


Understanding of need.

Life-cycle cost.

Technical capability.

Management approach.

Production capacity &interest.


Source Selection Criteria Financial capacity.

Technical approach.

Business size & type.

References.

Intellectual & otherproperty rights.

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.3 Control Procurements

Manage procurement relationships.

Monitor contract performance.

Make changes & corrections as needed.

Both the buyer & seller administer contract.

Both parties must meet obligations.

Manage interfaces amongproviders on large projects.


Monitoring and Controlling Process Group


12.3Control

Procurements

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement Management12.3 Control Procurements


Inputs.1 Project management plan.2 Project documents.3 Procurement

documentation.4 Agreements.5 Approved change requests.6 Work performance data.7 Enterprise environmental

factors.8 Organizational process

assets

Tools & Techniques.1 Expert judgment.2 Claims administration.3 Data analysis.4 Inspection.5 Audits

Outputs.1 Closed procurements.2 Work performance information.3 Procurement documentation

updates.4 Change requests.5 Project management plan updates.6 Project document updates.7 Organizational process assets

updates

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Procurement ManagementNegotiate Settlements

Contested claims Special case of contract closure.

Mutual agreement or default.

Terms are in the contract.

Buyer may have to compensate seller.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________


Project Procurement Management – Summary

Three (3) Processes. Know components in each process. You are THE BUYER unless otherwise stated. Recognize scenarios to use each type of contract. Buyer/Seller risk for types of contracts.Use and importance of evaluation criteria.


_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

_____________________________________________________________________________________

Review Questions:

1. Once signed, a contract is legally binding unless: A. It is declared void by appropriate legal counsel. B. One party fails to meet its financial obligation C. One party fails to deliver the contracted good or service. D. It is in violation of applicable law.

2. You are leading a project that requires you to purchase goods and services from

a third party. You negotiate and sign a contract and the contractor provides the desired product. However, you feel the product does not meet specifications. The contract is considered to be which of the following:

A. Closed B. Null and void C. Incomplete D. Complete

3. Which of the following represents the primary purpose of contract negotiations?

A. To define objectives and stick to them. B. Provide protection for the relationship. C. Gain the greatest financial return. D. Gain the most from the other side.

4. You are leading a large IT project for your organization. The head of the

accounting department has just come to you with a problem. A routine audit of your project has found a complaint that has being made against it. The contract does not specify how to correct this situation, but you are being held accountable to do so. Which of the following would be the best course of action?

A. Stop payments until the problem is corrected. B. Initiate legal proceedings to recover the overpayments and void the

contract. C. Work with the seller to alter the contract to require improved payment

oversight. D. Continue to make the payments.

5. Which of the following statements about change control is true and correct?

A. Changes rarely benefit the project. B. A firm fixed price contract minimizes the need for change control. C. The contract should include procedures to accommodate changes. D. More detailed specifications eliminate the causes of changes.

6. Which of the following best explain the purpose of incentive clauses in contracts? A. Reduce risks for the buyer by shifting them to the seller. B. Synchronize objectives. C. Help the seller control costs. D. Help the buyer control costs.

7. Which of the following activities is the best thing for a project manager to do

when completing the conduct procurements process found in the procurement management knowledge area?

A. Update and evaluate risks. B. Update the budget and schedule. C. Answer the sellers' questions about bid documents. D. Select a contract type.

8. Which of the following activities occurs during the plan procurements process?

A. Advertising B. Answering sellers' questions about the bid documents C. Make or buy decisions D. Proposal evaluation

9. Which of the following is a key objective during contract negotiations?

A. Negotiate a price that meets or exceeds the buyers expectations. B. Obtain a fair and reasonable price. C. Ensure that an effective procurement management process is established. D. Ensure that all project risks are thoroughly delineated.

10. Which of the following best describes the role of the project manager during the

procurement process? A. The project manager is secondary to the contracting manager. B. The project manager is the primary negotiator. C. The project manager tells the contract manager how the contracting

process should be handled. D. The project manager supplies an understanding of the risks of the project.

11. Which of the following is not required in a contract?

A. Acceptance B. Procurement statement of work C. Address of the buyer D. Buyer's signature

12. In which of the following processes would you find bidder conferences? A. Plan procurement management B. Conduct procurements C. Administer procurements D. Monitor procurements

13. You are leading a project that has a number of work packages that are being

completed by external resources. One work package is being completed by a contractor working on a cost reimbursable contract. You have determined that the scope of the project must be expanded for this contractor. Additionally, you are concerned about cost control and would like to change the contract to a firm fixed price contract. All of the following are the seller's options except:

A. Starting over with a new contract. B. Negotiating a fixed price contract that includes all the desired work. C. Completing the original work and rejecting the additional scope. D. Completing the original work using the original cost reimbursable contract

and then negotiating a new firm fixed price contract for the additional work.

14. Which of the following is a reason for centralized contracting?. A. Deeping expertise. B. No single location. C. Increased loyalty to the project. D. Easier access to expertise.

15. You are leading a large project and are attempting to negotiate a complex

contract. In the middle of the meeting the selected seller informs you that "they need to finish up in the next 90 minutes so they can catch an airplane." What kind of negotiating strategy is this?

A. Extreme demands B. Delay C. Good cop, bad cop D. Deadline

16. You have been tasked with establishing a records management system for a large project. You are trying to make sure all the records from the procurements are properly documented and indexed. Which of the following are you not concerned about?

A. Negotiation process B. Proposal C. Procurement statement of work D. Terms and conditions

17. You have been asked to lead a mid-sized project for your organization. Your

sponsor is very concerned about one particular seller that must be used on the project and wants to make sure you are minimizing the risk to your organization. You suggest using a firm fixed price contract. Which of the following explains the recommendation?

A. Schedule risk will be fixed. B. Cost risk will be lower C. The buyer owns most of the risk. D. Risk is shared equally by all parties.

18. You are leading a project that has been in process for 13 months. You are

nearing the completion of a major deliverable that was completed by an external resource using a cost reimbursable contract. You have entered the close procurements process. Which of the following must you remember to do?

A. Make sure the seller is not adding work to the contract. B. Make sure the seller is not adding resources. C. Audit the seller's cost submittals. D. Decrease the risk rating of the project.

19. You have been asked to lead a mid-sized project for your organization. Your

sponsor is very concerned about one particular seller that must be used on the project and wants to make sure you are minimizing the risk to your organization. You suggest using a firm fixed price contract. In a firm fixed price contract, the fee or profit is:

A. Specifically stated as a line item in each invoice. B. Determine through negotiation at the end of the contract. C. Unknown. D. Part of the negotiation involved in paying every invoice.

20. You are leading a large engineering project for your organization. As part of the standard reporting process you are required to submit earned value calculations such as SPI, CPI and TCPI. One day your sponsor comes into your office concerned about your largest contractor gaining extra profit on the CPFF contract. You explain that they should not be worried about this issue. Which of the following best justifies this statement?

A. All cost invoices are being audited. B. The seller only receives their fee once the project is completed. C. You are making sure the seller does not cut scope. D. There can only be a maximum 10% increase if there is an unexpected

overrun.

21. You are the project manager on a project that is part of a large space program. Another project manager on the program has just come to you for advice. Their project currently has limited scope definition and she is very concerned about protecting the organization from financial risks. Which is the best contract type to choose?

A. Firm fixed price B. Cost plus fixed fee C. Cost plus percentage of cost D. Cost plus incentive fee

22. You are leading an especially difficult team attempting to complete a large project

that has significant risk to the organization. You are in the middle of your standard Monday morning meeting where you are attempting to determine whether the team should produce a particular deliverable themselves or outsource it to an external party. In what part of the procurement process are you currently?

A. Plan procurement management B. Conduct procurements C. Control procurements D. Close procurements

23. Your team is meeting and discussing the proposals received to produce a large

required deliverable. The team is about equally split on which provider they prefer. In what part of the procurement process are you currently?


24. In what part of the procurement process are you in if you are attempting to complete procurement negotiations?


25. You are leading a project and have just lost a critical internal resource due to

illness and long-term disability. The work is very important and cannot be done by an internal resource. You have decided to make use of an external contractor to complete the deliverable. Time is of the essence and the deliverable must be completed quickly. Under these circumstances, which of the following would be the most helpful to add to the contract?

A. A force majeure clause B. Schedule targets C. A clear procurement statement of work D. Incentives

26. With which type of contract is the seller to be most likely concerned about project

scope? A. Cost plus fixed fee B. Cost plus incentive fee C. Fixed price plus incentive fee D. Firm fixed price

27. You are leading a very complex project. Part of your job required you to negotiate

the contract with a large reseller. Throughout the negotiations you required minutes to be kept which you also required the reseller to sign as true and accurate. Now, several months later the seller is claiming they are not required to complete certain components of work because they appear in your notes and not the contract. In this case the seller is:

A. Generally incorrect, because all signed agreements must be upheld. B. Correct because there was a tender and agreement. C. Generally correct, because both parties are only required to perform what

is in the contract. D. Incorrect, because both parties are required to comply with what they

agreed upon.

28. You are the project manager on a large petrochemical project. You have awarded the primary contract to build the required facility to a large European engineering firm. Within the contract is specific language that requires the contract to submit a work plan to you for approval prior to initiating work. However, the seller has failed to provide one prior to commencing work. Which is the best thing for you to do?

A. Develop the work plan and provide it to the contractor. B. File a letter of intent. C. Issue a default letter. D. Stop the project until the contractor develops a work plan.

29. Which type of contract is best if you do not have the manpower to audit the

submitted contractor invoices? A. Firm fixed price B. Fixed price plus incentive fee C. Cost plus incentive fee D. Cost plus fixed fee

30. You are leading a contracting team for a project making use of three external

contractors. You submit a deliverable that the project manager believes is substandard. The project manager refuses to accept the deliverable and refers you to the technical specifications section of the contract that specifically addresses the deliverable in question. You examine the specification and agree the deliverable failed to meet the specification. What is the best thing to do?

A. Call your team together to review the contract. B. Work with the project manager to issue a change order. C. Enter into negotiations with the project manager to change the contract. D. Review the requirements and the WBS with your team.

31. Once signed, a contract is legally binding unless:

A. One party is unable to perform. B. Both parties are unable to perform. C. It is declared null and void by counsel. D. It is in violation of applicable law.

32. All of the following statements concerning procurement documents are incorrect except which one:

A. Well-designed procurement documents can simplify comparison of responses.

B. Procurement documents must be rigorous with no flexibility to allow consideration of seller suggestions.

C. In general, procurement documents should not include selection criteria. D. Well-designed procurement documents do not include a procurement

statement of work.

33. A seller is working on a cost reimbursable contract when the buyer decides they would like to expand the scope of services and change to a fixed price contract. All of the following are the seller's options except which one:

A. Completing the original work on a cost reimbursable basis and then negotiating a fixed price for the additional work.

B. Completing the original work and rejecting the additional work. C. Starting over with a new contract. D. Negotiating a fixed price contract that includes the work.

34. The sponsor is worried about the seller deriving extra profit on the cost plus fixed

fee contract. Each month he requires the project manager to submit CPI calculations and an analysis of the cost to complete. The project manager explains to the sponsor that extra profits should not be a worry on this project because:

A. The team is making sure the seller does not cut scope. B. All costs invoiced are being audited. C. There can only be a maximum 10% increase if there is an unexpected

cost overrun. D. The fee is only received by the seller when project is completed.

35. The sponsor and the project manager are discussing what type of contract the

project manager plans to use on the project. The sponsor points out that the performing organization spent a lot of money hiring a design team to come up with the design. The project manager is concerned that the risk for the buyer be as small as possible. An advantage of a fixed price contract for the buyer is:

A. Cost risk is lower. B. Cost risk is higher. C. There is little risk. D. Risk is shared by all parties.

36. You are in the middle of a complex negotiation when the other party says, `We need to finish in one hour because I have to catch my plane." That person is using which of the following negotiation strategies?

A. Good guy, bad guy B. Delay C. Deadline D. Extreme demands

37. Your company has an emergency and needs contracted work done as soon as

possible. Under these circumstances, which of the following would be the most helpful to add to the contract?

A. A clear procurement statement of work. B. Requirements as to which subcontractors can be used. C. Incentives. D. A force majeure clause.

38. The project team seems to like to argue; they have argued about everything.

Luckily the project set in place a reward system and team-building sessions that will help and encourage the team to cooperate more. The latest thing they are arguing about is whether they should complete a work package themselves or outsource the work to someone else. What part of the procurement process must they be in?

A. Conduct procurements B. Plan procurement management C. Administer procurements D. Claims administration

39. Your program manager has come to you, the project manager, for help with a bid

for her newest project. You want to protect your company from financial risk, and you have limited scope definition.

A. Firm fixed price B. Cost plus percentage of cost C. Time and material D. Cost plus fixed fee

40. Negotiations between two parties are becoming complex, so Party A makes some notes that both parties sign. However, when the work is being done, Party B claims they are not required to provide an item they both agreed to during negotiations because it was not included in the subsequent contract. In this case, Party B is:

A. Incorrect, because both parties must comply with what they agreed on. B. Correct, because there was an offer. C. Generally correct, because both parties are only required to perform what

is in the contract. D. Generally incorrect, because all agreements must be upheld.

41. Your project has just been fast-tracked and you are looking to quickly bring in a

subcontractor to complete networking. There is no time to issue a request for proposal, so you choose to use a company you have used many times before for software development. A primary concern in this situation is:

A. Collusion between subcontractors. B. The subcontractor's qualifications. C. The subcontractor's evaluation criteria. D. Holding a bidder conference.

Answer Key:

1. D Answer D. A contract is not legally binding if it violates applicable law. However, contract terms typically spell out what will happen if other conditions are not met.

2. D Answer D. If the seller completes the work specified in the procurement statement of work the contract is considered complete. That does not mean the same thing as closed. The close procurements process still must occur.

3. B Answer B. According to PMI you are always looking for the win/win situation. You are also want to have the relationship last through the entire project. A contract will not force anyone to stick to objectives. It can only spell out the penalties if the objectives are not met.

4. D Answer D. Remember, the question is really asking what would you do first. In this case, you would first continue the payments otherwise you would be in violation of the terms of the contract. You cannot simply void a contract. While altering the contract might be a good idea, it is not what you would do first.

5. C Answer C. Changes will occur no matter what. It is therefore critically important that any contract outline how changes are to be made so you can best handle them. All of the other choices are myths!

6. B Answer B. Incentives are specifically intended to help the seller and buyer synchronize objectives. Sellers are typically motivated by financial means. By providing special gains, typically financial to the seller, the buyer can motivate the seller towards specific important targets.

7. C Answer C. During the conduct procurements process, you normally answer questions submitted by the sellers. The risk analysis processes are done before the procurement process begins, as procurement is a form of risk mitigation and transference. Selecting a particular contract type is part of plan procurements.

Changes to the schedule and budget may be an output of the administer procurements process.

8. C Answer C. PMBOK Guide p. 466-481 - Everything other than the make or buy decision where you actually choose to procure a good or service occur in the plan procurement management process.

9. B Answer B. Contract negotiations are about managing expectations and ensuring the relationship can be maintained throughout the project. They are also about getting a win-win situation in terms of price. This means the buyer gets a fair and reasonable price.

10. D Answer D. This is a question where all of the options are less than perfect. However, the best or closest option is that the project manager supplies an understanding of the risks of the project.

11. C Answer C. The options in this question make it difficult. Acceptance is a fancy way of saying a signature from both parties, the procurement statement of work is simply what you will be purchasing. The buyer's signature is required, but not enough. The address of the buyer is not necessarily required.

12. B Answer B. PMBOK p. 460 - Conduct procurements where you would find bidder conferences. Expect a number of questions where you have to know which process a tool or technique is from.

13. A Answer A. The seller does not have the choice to simply start over. The existing contract is binding and cannot be nullified by a single party.

14. C Answer C. Remember, the objective is to select the answer that is best. The best answer in this case is increase loyalty to the project. A common problem with contracting is that when it is not centralized there is very little loyalty to the project.

15. D Answer D. This is an example of setting a deadline where the negotiations would end.

16. A Answer A. To answer this question you need to know what a records management system is and that it would not be used to keep track of negotiations. The negotiations process is not a document.

17. B Answer B. Remember, unless otherwise specified you are always the buyer. In a firm fixed price contract the costs will theoretically be lower unless there is significant scope change.

18. C Answer C. There is no guarantee that the risk rating for the project has changed because of the closed project. You should have already ensured the seller is only delivering against the contract, so no additional work or resources are valid. The only thing that makes sense is that you need to audit the cost submittals because this is a cost reimbursable contract.

19. C Answer C. Unlike a cost plus contract, in a firm fixed price contract you have no idea how much of the firm fixed price is profit.

20. A Answer A. Cutting scope on a cost plus fixed fee contract will decrease profits. A CPFF contract also does not tend to limit fee increases. The fee in a CPFF contract is usually paid out on a continuous basis throughout the contract. However, one way to change the profits in a CPFF contract is to invoice for things chargeable to the project.

21. B Answer B. Of all the choices given only a cost plus fixed fee contract limit financial risk. A cost plus incentive fee might, but the incentives are not the best guarantee.

22. A Answer A. PMBOK Guide p. 473 - This is a basic make versus buy question. Therefore you are in the plan procurement management process.

23. B Answer B. PMBOK Guide p. 488 - Selected sellers is an output of the conduct procurements process.

24. B Answer B. PMBOK Guide p. 488 - Procurement negotiations are part of interpersonal and team skills an a tool and technique used in the conduct procurements process.

25. D Answer D. PMBOK Guide p. 477 - A clear procurement statement of work is always required but that does not ensure it will be done quickly. Incentives are best for aligning the objectives of the buyer and the seller.

26. D Answer D. PMBOK Guide p. 471 - In a firm fixed price contract the seller has all the cost risk. The only way they can make a profit is if they are able to clearly define and maintain the project scope.

27. C Answer C. PMBOK Guide p. 460-462 - In most situations the seller is only required to comply with what is described in the contract.

28. C Answer C. Any time a seller does not perform according the contract the project manager must take action. The best action would be to simply contact the seller and find out what is happening, but that is not one of the choices.

29. A Answer A. PMBOK Guide p. 471 - A firm fixed price contract does not require detailed review of invoices. Your primary concern is the deliverables as you are paying a fixed rate.

30. D Answer D. Calling your team together to review the contract is close, but it is not correct. The best answer is to review the requirements and the WBS asthe WBS, with its included WBS dictionary, clearly describe the deliverables.

31. D Answer D. PMBOK Guide p. 461 - A contract is always binding unless both sides agree to terminate it or it violates applicable law.

32. A Answer A. PMBOK Guide p. 461 - Often the seller is required to inform the buyer of anything that is missing or unclear in the procurement documents. It is in the buyer's best interest to discover missing items, since it will save the buyer money and trouble to correct the problem early. Procurement documents must contain terms and conditions and selection criteria, as well as documentation of all the work that is to be done. This is so the seller can price the project and know what is most important to the buyer. Well-designed procurement documents can simplify comparison of responses. This is an important point for the real world and the best answer.

33. C Answer C. PMBOK Guide p. 461 - The seller can try to negotiate changes or simply continue the original contract and refuse the request to complete additional work, but the seller cannot unilaterally decide to start over with a new contract. Both parties have to agree to this option through negotiations.

34. B Answer B. PMBOK Guide p. 472 - Cutting scope decreases profits on this type of contract, so that would not be a way for the seller to generate extra profits. CPFF contracts generally do not limit fee increases and the fee in a CPFF contract is usually paid out on a continuous basis during the life of the project. One of the ways to change the profit in a cost plus fixed fee contract is to invoice for items not chargeable to the project. Therefore, all invoiced costs should be audited.

35. A Answer A. PMBOK Guide p. 471-472 - If you had trouble with this one, you need to remember that the questions are asked from the buyer's perspective unless otherwise noted. The seller has the most cost risk in a fixed price contract, and the buyer's risk is lower.

36. C Answer C. Putting a time limit on the negotiation is an example of a deadline negotiation strategy.

37. C Answer C. If you follow the proper project management process, you always have good definition of scope. In this situation, you are in a time crunch. Both good scope definition and incentives are required to make it happen. Which provides the better answer? Along with good scope definition, you need the seller to share your need for speed. Incentives bring the seller's objectives in line with the buyer's and thus would be the most helpful. Good scope definition alone does not ensure speed.

38. B Answer B. PMBOK Guide p. 479 - Did you notice that much of this question is irrelevant? Did you also notice that the words "make-or-buy decision" were not used in the question? Instead, the question used the definition of make-or-buy. Watch out for this on the exam. A make-or-buy decision is needed before the rest of the procurement process can occur. Therefore, the situation must be taking place in one of the early steps of the procurement process. Plan procurements is the correct choice.

39. D Answer D. PMBOK Guide p. 471-472 - Of those given, the only contract that limits fees for large projects with limited scope definition is the cost plus fixed fee.

40. C Answer C. Party B is only required to deliver what is defined in the contract.

41. B Answer B. Although you have used this contractor before, how can you be sure the company is qualified to do the new work since it is not exactly like the previous work? This is the risk you are taking.

Project Management Professional (PMP)® Exam Prep Course … · Project Management Professional...

Documents

Transcript of Project Management Professional (PMP)® Exam Prep Course … · Project Management Professional...