Foundation Guide for PMP/CAPM Certification Exam

Fast PMP Exam Preparation for Working Professionals!

The Foundation Guide for PMP and CAPM

Certification Exams Series Presents

Procurement Management

Shivshanker Shenoy
PMP
www.PMExamSmartNotes.com
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Foundation Guide for PMP/CAPM Certification Exam

Copyright notice
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Acknowledgements
All the images used in this study guide are available under Creative Commons license and credit is mentioned below
individual images.

Trademark Notice
PMI is a registered trademark and service mark of the Project Management Institute, Inc.
PMP and CAPM is a registered certification mark of the Project Management Institute, Inc.
PMBOK is a registered trademark of the Project Management Institute, Inc.

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Foundation Guide for PMP/CAPM Certification Exam

Foreword
Whenever you had to study a 'heavy' book, did you wish for a simpler guide just to get the gist of the subject?
Something like a crash-course guide that you could go through and get a handle on the stuff?
I always thought about and looked for such resources whenever I had to study a new subject (the reason I love
Wikipedia). It was a similar feeling I had when I took up PMBOK guide to study.
And when I was in a position to prepare a short guide, there was no time to waste.
So here is this guide in front of you. The very fact that you have decided to read this would mean that you might be
one of these
(a) seriously preparing for PMP or CAPM exam
(b) performing the duties of a project manager (project practitioner)
(c) simply curious to know about a systematic way of project management
You will not be disappointed.
Even the basic form of the foundation guide came to well over 200 pages, so I decided to split it into modules. One
covering project management basics and one each for the 10 knowledge areas, so you can pick up the one you wish
to understand and run through it easily.

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Foundation Guide for PMP/CAPM Certification Exam

This guide, of course, comes to you free of cost. The only aim of this guide is to provide you with a quick and succinct
account of project management concepts from PMBOK guide.
For all the details of concepts highlighted in this book, do visit www.PMExamSmartNotes.com blog. It will make your
exam preparation a breeze, I promise!
PS: This study guide is best viewed in 100% (or 1:1) resolution. Zooming out beyond this may slightly blur some of
visual representations.
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Foundation Guide for PMP/CAPM Certification Exam

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Ace the exam!

Shiv Shenoy
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Foundation Guide for PMP/CAPM Certification Exam

Table of contents
What is a Contract?...................................................................................................................................................................................................................... 10
Planning Procurements on the project .................................................................................................................................................................................. 12
Conducting procurements
Anatomy of a contract

........................................................................................................................................................................................................ 13

............................................................................................................................................................................................................... 14

Managing project procurements

Closing procurements

............................................................................................................................................................................................ 16

................................................................................................................................................................................................................ 18

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Foundation Guide for PMP/CAPM Certification Exam

Image credit: David Castillo Dominici / FreeDigitalPhotos.net

Procurement Management
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Foundation Guide for PMP/CAPM Certification Exam

"How do you lay a jogging track, I wonder" said Kathy, flipping through requirements documents of the Landscaping project
she is doing for Mammoth Constructions Company. She is in the planning phase and figuring out what skills she and her
team already possess and what they dont.
"Oh, that is quite involved," said Eliz, her colleague. "I got a similar work done for Lockhead Community over other side of the
town. Let me give you a quick summary", she offered.
"First you mark the width and course of the track, then pave at least 2 inches of asphalt on top of a compacted gravel
foundation. Let it set for about two weeks. Coat the surface of asphalt with tack, a tacky binder that helps to bind the first
layer of rubber to the asphalt. Then mix the rubberized granules, strands of rubber, or recycled EPDM (ethylene propylene
diene monomer) rubber with binder and spread out over the tack coat."
"Allow the first layer to dry for approximately six hours to a day. Apply subsequent layers of rubber until the desired
thickness is achieved. You would usually require 3/8 to 1/2 of an inch. There are about five layers for granule rubber particles
and seven layers for strand rubber. It is quite a precision work, so to speak."
"Wow, that seems quite a handful, I wonder if we have necessary skill available internally to get this done," exclaimed Kathy.
"I dont think so, I'd recommend you talk to Dan from United Sports Mart. He'd be able to help", said Eliz.
"Looks like a job better done by experts. Let me talk to Todd from Legal about how we can call out for a proposal and deal
with a vendor", Kathy concluded after a pause.
Many a times it is better to let an expert vendor do the work that we do not have expertise for.

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Foundation Guide for PMP/CAPM Certification Exam

Most of the projects may not have anything to contract out. However, project manager should be open to any such
possibilities where the risk and responsibilities are given out to expert vendors. The down side would be that project
manager is still responsible to ensure that seller produces good quality work. Procurements usually reduce project's
overall profits.
You need to check contractual terms with your customer before deciding on procurement. Some customers simply do
NOT allow sub-contracting due to their Intellectual Property (IP) privacy concerns. In such cases it would be necessary
to convince them to let you contract out part of the work. The same non-disclosure-agreement (NDA) you signed with
customer will need to be signed with your vendor.

What is a Contract?
Contract is a legal document between buyer and seller. It is a
mutually binding agreement that specifies a certain amount
of work to be done by the seller, and the compensation to be
given by the buyer. It also specifies terms, conditions,
constraints and responsibilities of buyer and seller to facilitate
smooth conduct of the work mentioned in it. The other
information that a contract may contain is major
deliverables, key milestones, and work acceptance
criteria.
Image credit: NobMouse
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Foundation Guide for PMP/CAPM Certification Exam

Typically performing organization's legal team will chart out the contract and its terms and conditions. However, as a
project manager you need to make sure that the contract properly outlines the scope of work, and contains the
right measures to ensure that seller's work produced can be tested to meet the specified requirements.
Also if the project has certain regulatory obligations (such as getting environmental clearance, or security certificate)
then contract should clearly mention who will obtain such documents.

Understanding the difference of seller and buyer clearly

Remember that if you are contracting out work to a vendor then you become the buyer and vendor becomes the
seller. If your customer gave you project to undertake you would have signed a contract with him, and you (the
'performing organization') become seller and your customer becomes buyer.
A seller is also known as contractor, subcontractor, vendor, service provider, or supplier - depending on the
application area or domain.
A buyer is called a client, customer, prime contractor, acquiring organization, service requester, or purchaser.

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Foundation Guide for PMP/CAPM Certification Exam

Planning all procurements on the

project
This project management activity is to look at project scope and decide
which work should be sourced out to a vendor, or which product
should be purchased; and deciding on the type of contract and
defining how a potential vendor is selected.
Plan Procurements project management activity is about looking at ALL
of the work involved in your project, and deciding what should to be
given out to vendors. Once these are identified, next three processes
of Project Procurement knowledge area are going to be performed for
each of these contracts.
For example, Kathy from Landscaping project may have one contract
for fixing jogging tracks, one for supplying exotic plants and one for
getting manual labor with a contractor.

Image credit: Wystan

Just as a project can produce Product, Service or Result per PMBOK's definition or project, contracting or purchasing
decision could be for a Product, Service or Result!

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Contract types
There are three contract types - Fixed Price, Cost Plus and Time and Material, that you can consider. Each of these
have a different approach to how risk is shared between seller and buyer. Lot rides on the type of contract you
choose, so talking to an expert on this one will help immensely.
It is possible to abuse the buyer-seller relationship by selecting a wrong contract type. Hence, one thing to keep in
mind is to choose a contract type that is fair to both buyer and seller, the one that creates win-win scenario for both.
Fixed Price contract is the one where cost of product, service or result is fixed up front. Any additional expenses
incurred in producing the deliverables are assumed by the seller.
Cost Plus contract is also called Cost Reimbursable. This means that buyer pays seller all the cost incurred in
building the product, service or result, and some incentive for having done the work.
Time and Material (T&M) is a hybrid type of contract where buyer assumes all the cost of materials used, and
pays a rate for the time taken to carry out the work.
Read in detail about different contract sub-types in each of these contract types in this blog post http://www.pmexamsmartnotes.com/types-of-contracts/

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Foundation Guide for PMP/CAPM Certification Exam

Conducting project procurements

This project management activity is about asking potential vendors for proposals, evaluating their responses, deciding
on the right vendor (also called seller), and awarding the contract.
In project management activity to plan project procurements you have already figured out,
1. which product, result or service to procure (letting someone else do it for you)
2. the statement of work (SOW) explaining what needs to be done
3. which type of contract to use for each of your
procurement needs
4. how to evaluate responses from potential
sellers
In this project management activity you,
1. send request for proposal (RFP) to identified
potential sellers
2. evaluate their responses and select the
seller(s) you want to work with, and
3. award the contract

Image credit: Dave Dugdale

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Foundation Guide for PMP/CAPM Certification Exam

Anatomy of a contract
Among other parts a contract will have the following components -

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Foundation Guide for PMP/CAPM Certification Exam

Managing project procurements

This project management activity is about managing vendor relationships, monitoring what they produce, resolving
any issues, and making changes to contract as and when required.
The biggest problem with contracting out work is
that you do not have direct control over how the
work is done, because seller's team does not report
to you (in most cases). You need to put checks and
balances in place to understand how the work is
progressing.
This involves monitoring contract work, evaluating
the quality of project work, making changes to the
contract as and when required, and making sure
that work is done as per the terms written in the
contract.
In some organizations where project is of large
scope and involves complex work there is a separate
person in charge of administering the contract, and
project manager works with this person to integrate
project work and contracted work.

Image credit: zzkt

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Foundation Guide for PMP/CAPM Certification Exam

There may be multiple units of work contracted out to multiple sellers in bigger and complex projects. In a sense
contracted work is nothing but another small project! And you can very well imagine that some of the processes will
be applicable to you as a project manager to execute for each of the contracted work!
In bigger and complex projects there may be multiple units of work contracted out to multiple sellers. Administering
these contracts will involve project manager exercising these project management activities to get project work done in
the seller organization, controlling quality to measure the quality of seller's work, controlling changes to project when
deliverables do not measure up to expectations, and controlling project risks to keep in check the risks associated with
contracted work.
Note that a contract, although a legally bound on seller and buyer, can change when both parties mutually agree to
change them. The reason for changes could be several including changed requirements, reduced scope, inability of
seller to perform work, inability of buyer to provide required support, and altered financial/compensation terms.

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Foundation Guide for PMP/CAPM Certification Exam

Closing project procurements

This project management activity is about verifying that deliverables adhere to documented requirements, making
sure that contractual obligations are honored by both you and seller, making payments and closing each of the
procurements.
This project management activity is also about closing project procurements by ensuring that all product deliverables
meet requirements, and the technical documentation as well as test
artifacts such as test plan, test metrics, test cases, and other
deliverables as mentioned in the contract have been delivered.
A contract can only end at one of two places.
Either at your office, or in the court.
Either successfully (even prematurely, when both seller and buyer
agree to close), or in dispute (seller didnt deliver, buyer didn't pay,
seller escalated, buyer didn't respond and so on). Terms of a
premature closure are also mentioned in the contract.
If there are multiple contracts in a project, each one of them need to
be closed using this process. Contract terms may also include what is
to be done as part of closing the contract - such as accepting specific
deliverables, signing certain forms and declarations and so on.

Image credit: FutUndBeidlA&M

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Foundation Guide for PMP/CAPM Certification Exam

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About Shiv
Shiv Shenoy has worked over 15 years in technical, management and mentoring roles for
Software Services and Product Development companies in Enterprise, Web and Mobile
domains. He has helped several start-ups to conceptualize product idea, build prototype and

take it to the market with version 1.0 and beyond. He mentors professionals on project-,
product- and technology management.
Shiv is a passionate techno-manager, blogger, mentor, photography enthusiast and painter.
Shiv helps working professional that are hard pressed for time sail through PMP and CAPM

project management certification courses, by turning his own exam notes into easily
understandable, scientifically prepared, and simplified content that he publishes on the blog
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