You are on page 1of 24

Project Report: Importing Vehicle from Japan 2010

2010

Project Report: Importing


Vehicle from Japan
Box Hill Institute
Diploma of International Business

Author(s): Wen Li
Xiao Ying (Chelsea) Wang
Bouy Lim
Matthew Santilli
James Sterling
Ray Uamang
Jason Heydon
Box Hill Institute | Executive Summary 0
Executive Summary

As part of this project we looked at the work breakdown structure and operational project design
and analysis, which include, budget, quality, human resources, communication, risk, procurement,
systems and processes. However, due to the limited nature of this project, we would only be
discussing the relevant theories and approaches used by the current business as part of their project
and operational plan.

After completing the project report, we have found that project planning is a complex
process, involving various sub elements such as budgeting, quality analysis/control, human resource
planning, communication planning, and risk analysis/mitigation and procurement strategy.

All in all, this project report has taught us a great deal about project planning procedures
and processes, which we could carry forward into our future assignments and jobs. Through this
project report write-up process, we have learnt about the finer points involved in human resource
and communication planning, where non-performing member of the group should be made to
contribute.

Table of Contents

Executive Summary................................................................................................................................. 1

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 1


1. Introduction .................................................................................................................................... 3
1.1. Project Objective ..................................................................................................................... 3
1.2. Authorisation .......................................................................................................................... 3
1.3. Project Scope/Limitations ....................................................................................................... 3
1.4. Sources of Information ........................................................................................................... 3
1.5. Project Background ................................................................................................................. 3
2. Work Breakdown Schedule ............................................................................................................. 4
3. Operational Project Design and Analysis ........................................................................................ 5
3.1. Budget ..................................................................................................................................... 5
3.2. Quality ..................................................................................................................................... 7
3.3. Human Resources ................................................................................................................. 10
3.4. Communication ..................................................................................................................... 12
3.5. Risk Analysis .......................................................................................................................... 14
3.6. Procurement ......................................................................................................................... 17
4. Conclusion and Recommendations............................................................................................... 21
References ............................................................................................................................................ 22
Appendices............................................................................................................................................ 23

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 2


1. Introduction

1.1. Project Objective

The aim of this project is to provide students with the necessary skills to write a project plan, and
direct the student to learn the theoretical and structural basis of what it is composed of.

1.2. Authorisation

This project is authorised by Helen Bosa and David Eade from Box Hill Institute Centre for Business
programs. It is undertaken as part of the Planning Projects and Budgets unit cluster, which are the
core competency units for the Diploma of Business (Marketing) and Diploma of Business
(International Trade) students.

1.3. Project Scope/Limitations

As part of this project we would look at the work breakdown structure and operational project
design and analysis, which includes, budget, quality, human resources, communication, risk,
procurement, systems and processes. However, due to the limited nature of this project, we would
only discuss the relevant theories and approaches used by the current business as part of their
project and operational plan.

1.4. Sources of Information

Ideally, we would like to use books, periodicals and peer reviewed journal articles as much as
possible, it is however not always possible, due to the specific nature of our projects and the limited
resources made available to us. Therefore, secondary information sources from the web are often
used where primary sources are unavailable.

1.5. Project Background

Our business goal for the project was, to start a business that imports second hand cars from Japan
to Australia. The grey import or parallel import involving second hand cars from Japan are quite
lucrative due to the following reasons:

1. Cheap input cost of second hand cars from Japan.


a. Japanese government have special taxes for cars older than 10 years, which make
old second hand cars unattractive to the Japanese buyer. This stems from the fact
that the Japanese government want to promote indigenous car manufacturing
industry, and wants old environmentally polluting cars off the road.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 3


b. Resell value for most second hand cars in Japan are actually quite low, as car
purchase price only contributes to a small portion of the life-time ownership of cars
in the city, are dominated by parking and on-road costs.
c. Japanese car owners in the cities, usually purchase car for conspicuous consumption
rather than for personal transport purpose. Therefore, they are more inclined to
purchase brand new cars than second hand cars, even if they were cheaper, which
means second hand cars supply is greater than the local demand.

2. High demand for Japanese grey import cars


a. Many sports/performance cars released in Japan are not available in any other
countries, and these cars are highly sort after in many parts of the world, especially
in Australia.
b. Another reason why they are highly sort after, are due to the low purchase price and
upgradability of various car parts, i.e. engine upgrade.
c. Japanese grey import uses the same right hand drive system, which means these
second hand cars can be registered for road use, with little costly modification, as
compared to European or American second hand cars.

3. Low cost of shipments and custom duties


a. Japan has high quality ports and road transport system, which means the cost of
shipments are extremely competitive.
b. The current Australian Custom imposes very low tariffs on grey car imports, which
makes it competitive to locally sourced second hand cars.

2. Work Breakdown Schedule

The Work Breakdown Schedule (WBS) is a tabulated form of the Work Breakdown Structure. The
WBS is constructed by first starting with the end objectives, and then successively built up into
manageable components, in terms of size, scope, duration and sub tasks, etc. The WBS usually
allows the project manager to easily calculate the total HR costs of tasks and works involved in the
project, by simply multiplying the total man hours with the standardised hourly wage. The tabulation
of costs associated with each milestone and activity, allows the project manager and higher
management team to easily track spending and modify certain tasks to lower project spending.
However, unlike the Work Breakdown Structure, the cost of materials and equipments are not taken
account as part of the Work Breakdown Schedule, which needs to be accounted for as part of the
overall project budgeting process. The WBS also gives every team member a rough idea of who is

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 4


involved in which part of the project, and the timeframe given for each discrete step within the
project milestones.

Table 1. Automoticars Work Breakdown Schedule Table.

3. Operational Project Design and Analysis

3.1. Budget

As any project manager would agree, the budgeting process is the most crucial element within a
project, and often than not it is the deciding factor for whether a project gets a go ahead from the
higher management within an organisation. Therefore, in order to properly manage a project, the
project budgeting must be accurate and reflects the actual future cost of the project to be
undertaken. However, not all project costs can be accurately predicted, as the changing global and
domestic market can drastically change the prices for different materials, equipments and labour
used within a project, this usually means a certain amount of elasticity or contingency must be built
into the project budget to factor-in these future uncertainties. Also, it is of great benefit to keep the
project life-cycle or schedule as short as possible, in order to maximise the chance that the project
will come at or under budget and finishes within the project schedule.

The project budget is usually separated into several elements, such as direct costs,
estimated costs, indirect costs, income, and profit margin. However, due to the limited scope of this

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 5


project report, we would only look at the direct and indirect costs elements involved in the project
plan. For most large projects, a WBS should be prepared prior to any project budgeting process, as
this would minimise the guesswork involved, in estimating the cost associated with the resources (i.e.
HR and IT resources), equipments and time schedules involved in the project.

Direct Costs involved in a project similar to the one we are undertaking, would usually
involve the following elements:

1. Human Resources Cost - i.e. Wages, salaries, benefits and taxes, etc.
2. Suppliers/Permits/Insurances consumable items/supplies involved in the project, such as
special business/import permits, insurance coverage (i.e. marine insurance, cargo
insurances), computers, mobile phones, papers, etc.
3. Travel All travel related costs (i.e. hire car, plane tickets, accommodation costs, etc.).
4. Communication Cost All the phone (mobile, fixed) and internet (fixed and wireless internet)
costs used as part of the project.
5. Publications Printing and binding costs involved for publications, brochures, reports, etc
6. Consultant Fees Sometimes there are elements within projects where outside expert
advices are needed, which must be accounted for in the consultant fees.
7. Cost of Quality is the sum of costs a project will spend to prevent poor quality, and any
other costs incurred as a result of outputs of poor quality (i.e. waste, errors or failures, etc).

While, the direct costs involved in a project are usually quite straight forward to estimate,
the indirect costs on the other hand is not easily calculated with great degree of certainties. Indirect
costs are usually incurred by the organisation for common or joint objectives, which cannot be
identified specially with a particular activity or project (i.e. cost of having a CEO and various back-
office support staffs in an organisation, etc). However, due to the limited nature of our project, we
do not have much indirect costs involved, and we would discuss it further in the report.

As part of the risk management process in budgeting, we should make provision for possible
changes in the direct cost of project resources, materials, equipments, by introducing a contingency
factor into our overall budget of between 5 to 15 % for each direct cost category (i.e. equipment
costs, etc). The percentage contingency factor used for the direct cost category depends on these
several factors:

1. How far into the future the project activities are relatively to the time of budgeting.
We can usually work out the rate of possible increases, by looking at past trend in
pricing, then applying this rate with some adjustment to the contingency rate.
2. The importance of this equipment or resource in the project, and whether an
equivalent alternative can be found as a suitable replacement.
Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 6
3. The availability of supply contract prior to use of the material, resource or equipment
can also affect the contingency rate. As certainty of events decreases the risk
associated with the supply of goods and services, which decreases the contingency
factor percentage.

3.2. Quality

Quality management is an important part of the overall project management process, as it ensures
that all project activities are effective and efficient, with respect to the project objective and scope.
Project Quality Management (QM) forms a continuous process that starts and ends with the project,
with regular QM activity during each stage of the project. The purpose of the QM is to prevent and
avoid poor quality outputs at the completion of the project, through continuous monitoring and
application of the quality processes in all parts of the project. QM would also detect any duplication
and inefficiency (i.e. people not putting in their share of workload, etc), and remove these
bottlenecks as soon as they are found through various options. Therefore, the QM would maximise
the values for the beneficiary and produce project outputs and deliverables that would meet or
exceed their requirements and expectations.

While, it is not within the scope of the project, the project team should develop a good
working relationship with key stakeholders, in order to understand what quality means to them.
Frequently, many projects have poor outcomes, due to the project team focusing too much on
meeting the written requirements for the main required project outputs, and ignoring the other
stakeholders actual needs and expectations for the project. Therefore, not only must the project
team meet the project scope on time and on budget, but it also has to achieve general stakeholders
satisfaction with project, through meeting of both stated and implied needs. Quality characteristics
of project usually include the following elements:

Functionality is the degree by which the services or equipment performs to the


intended function.
Performance is how well a product or service should be designed to perform the
intended use.
Reliability is the ability of the service or product to perform as intended under normal
conditions without unacceptable failures.
Relevance is the characteristic of how a product or service meets the actual needs of
the stakeholders.
Timeliness- how the product or service is delivered in time to solve the problems when
its needed.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 7


Suitability defines the fitness of a product or service for its use.
Completeness is whether the service or product is complete and covers the entire
scope of services.
Consistency is whether services or products deliver the same output quality each time
and every time during its lifecycle.

In order to meet the quality characteristics, a quality plan or quality material must be used
during the project implementation phase. The quality materials ensure the project team are
delivering the project outputs, according to the quality requirements in an efficient and effective
manner (refer to table 2).

Quality Materials Description


Standards are instruction documents that detail how a particular aspect of the
Standards project must be undertaken. There can be no deviation from Standards unless
a formal variation process is undertaken, and approval granted.
Guidelines are not compulsory. They are intended to guide a project rather
Guidelines than dictate how it must be undertaken. Variations do not require formal
approval.
Checklists Checklists are lists that can be used as a prompt when undertaking a particular
activity. They tend to be accumulated wisdom from many projects.
Templates Templates are blank documents to be used in particular stages of a project.
They will usually contain some examples and instructions.
Procedures Procedures outline the steps that should be undertaken in a particular area of a
project such as managing risks, or managing time.
A description of how something works. It is different to a Procedure in that a
Process Procedure is a list of steps the what and when. A Process contains
explanations of why and how.
User Guides provide the theory, principles and detailed instructions as to how
User Guides to apply the procedures to the project.
They contain such information as definitions, reasons for undertaking the steps in
the procedure, and roles and responsibilities. They also have example templates.
Example These are examples from prior projects that are good indicators of the type of
Documents information, and level of detail that is required in the completed document.
Methodology A methodology is a collection of processes, procedures, templates and tools to
guide a team through the project in a manner suitable for the organization.
Table 2. Examples and description of some quality materials used in various projects.

While, the implementation of quality materials would ensure that everyone in the project
teams have a set of appropriate tools, to meet the requirements of the project. However,
appropriate quality control still needs to be in place, in order to check and review the quality of
project deliverables. These quality control events are usually referred to as Quality Events, which
are tabulated in table 3.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 8


Quality Events Description
Expert Review Review of project deliverable by a person whom is considered an expert
in a field. i.e. consultants or business people involved in this field.
Peer Review Review of deliverables by work colleagues. This is usually better suited
for reviewing structure than content.
Multi person Review Review carried out by independent group of people. But this is best
used when trying to gain agreement by different stakeholders, as it
usually generates a lot of different viewpoints and opinions.
Walk-through Walk through is a useful technique to validate both the content and
structure of a deliverable.
Formal Inspection Formal inspection is a review of a deliverable by an inspector whom is
external to the project team. This is useful in detecting defects within a
product or documentation
Standard Audit This type of audit is only carried out to ensure that the deliverable
meets a particular standard.
Process Review In this case a defined Business Process is reviewed to ensure all
necessary actions are being undertaken, information recorded, and
procedures followed. A "Process Review" is useful to validate the
existing processes in an organization.
Table 3. Quality Events example and description.

As part of the overall quality control, once a part of the project deliverables are rejected or
deemed unsatisfactory, then the appropriate actions must be undertaken to bring the rejected
product or services into compliance. However, the reworking usually takes substantial amount of
time and money, so it is best that it is caught early and prevented from re-occurring in the future. As
part of the error prevention process, adjustments must be made to the overall procedure and
necessary quality materials, so that the processes that produced the error or defects are eliminated.
These infrequent adjustments maybe incorporated into the overall Quality Improvement process,
which is a systematic approach to the processes of work that identifies and remove the waste, loss,
rework, frustration from the project, to produce a more effective, efficient, and appropriate project.
While, there are many different quality improvement processes, most share these same four steps:

1. Identify What you want to improve, which is usually the error or inefficiency identified
in the quality control processes.
2. Analyse Investigate the cause of problem and its implications to the project, which
maybe external or internal to the project.
3. Develop Generate potential solutions or changes that appear likely to improve the
problem or system, the project team brainstorms ideas and potential solutions to the
problem. After careful consideration the team decides and chooses the best alternative.
4. Test Make sure that any solutions are tested and before it is fully implemented.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 9


3.3. Human Resources

People or human resource (HR) is the core determinant of a projects success, and most projects are
HR resource strained. Therefore, the management of HR within a project lifecycle has a major
impact on the projects success or failure. Human resource management involves leading,
communicating, delegating, motivating, team building, recruiting and appraising, etc. The HR plan
usually contains information for each human resource category, such as:

The number of staff required.


Costing information and assumptions.
How long are they required.
Any special skills required over and above those that people in the category would normally
expected to have, as well as the required level of proficiency and the relative importance of
these skills.
Training requirements needed specifically for the project.
Office space and material requirements.
Plans for team-building activities.

Additionally, the HR management plan also needs to account for the cost required for
staffing a particular project, which would then be used as part of the project budgeting and WBS.
The initial HR cost estimation may need to account for the following factors:

Can the HR be sourced internally, provided they meet the required skill level.
If sourced externally, work out the cost range for each HR category.
Specific office and material needed by each HR category.
The physical space available for use by the HR category.
Balanced ratio for private and public work space.
Finalise all the office equipment requirements and their cost.
Cost of conducting the team building exercises

Within the HR plan is the definition of the project team structure, which defines the roles,
responsibilities and relationships of the people managing and working within a project
organisational unit. While, most HR plan would also details the steps and requirements involved in
acquiring staff, our project team was already defined and set before the commencement of the
project.

Also, to ensure that each project team members work productively within their assigned
roles, each member will undergo interviews and tests to ensure they are suitable for their job roles.
Characteristics considered in the interviews and tests include the following:

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 10


Skills and skill level
Previous work experience
Personal interests
Personal characteristics i.e. will this person get along with the rest of the project team.
Availability i.e. is this person available at the required time and location for a particular role.
Cost of hiring this person

Once the person is assigned to a particular job role, the performance of this person on their
job, is constantly evaluated, according to:

Client satisfaction
Quality of work output
Achievement of milestones
Productivity and efficiency
Teamwork

If the team member does not meet the requirement or target, then they will either be
reassigned or dropped from the team, in order to minimise cost/time wastage and disruption to the
rest of the project team.

Small project team; previous working Medium sized team; divergent


relationships; cohesive team culture; organizational groups; available skills and
experienced in project areas. staffing; familiar with project culture.
Communicate goals clearly; manage the Establish clear goals and roles;
project team as a group; foster institutionalize practices of communications
Project Leadership ownership of plans and tasks; build and good will; identify and resolve issues
relationships through communication and conflicts; delegate to workgroups, build
and consideration; set high standards and ownership and establish success metrics.
lead by example.
Identify resource requirements, assign Consider project tasks and organization first,
staff, and get them applied to the project then plan staff to fill requirements; build
Staffing Plan work; decide what before who; monitor staff plan from Gantt resource estimates;
adequacy of staffing and report status to delegate ownership of staffing plan; involve
project sponsor. team in planning process.
Identify roles, responsibilities, and Publish and maintain organization chart;
reporting relationships; discuss plans to address conflicting goals and loyalties;
Project Organisation
cope with organizational disjoints; promote team ownership of integrated
encourage informal communications. solutions.

Take responsibility for leading the team; Conduct team sessions to improve
Project Team develop strategies and plans to build communications and facilitate issue
group cohesion; work with team to identification and resolution; build team
Building
identify needed skills and behaviours to identity; solicit and address team concerns.
enhance team performance.
Table 4. The human resource planning matrix table. (http://www.hyperthot.com/pm_meth6.htm)

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 11


3.4. Communication

Effective project communications is needed to ensure that we get the right information to the right
person at the right time and in a cost-effective manner. Communications is basically the process by
which information is exchanged. Communications can be:

Written formal
Written informal
Oral formal
Oral informal

Oral communications come with a high degree of flexibility. Oral communications includes
the medium of personal contact, group meetings, or the telephone. Written communications are
precise. They are transmitted through the medium of correspondence (minutes, letters, memos, and
reports), e-mail, and the project management information system. Some people consider
nonverbal/visual communications, such as gestures and body language, as an acceptable process.

Majority of communication involved in the project, will be internal communication within


the project teams, which is expected to meet the following needs:

Responsibility what each team should do in different parts of the project.


Coordination information that enables the team members to work together efficiently.
Status information tracking the progress of project, identifying problems and enabling
team members to take corrective action.
Authorization decisions made by stakeholders that relates to the project and its
operation/progress, ensuring that all project decisions are up to date and synchronised.

The processes used for communication (i.e. teleconferencing or meeting, etc), are selected
based on the following factors:

1. Communication goals
2. Communication skills
3. Position and Status
4. Attitude, emotion, and self-interest
5. Existing relationships with receivers
6. Personality and interests
7. Sender credibility
8. Lack of responsive feedback
9. Needs

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 12


10. Reading skills

In consideration of these factors, it is therefore imperative that a proper and clear message
must be conveyed to the recipients, which may be achieved using these following techniques:

Obtaining feedback, possibly in more than one form.


Establish multiple communication channels, i.e. video conferencing.
Using face to face communication if possible.
Determining how sensitive the recipient is to the communication method.
Being aware of the expression on the recipients face during face to face meeting.
Communicating at proper time, i.e. during work hours.
Reinforcing words with actions.
Using simple to understand language.
Using redundancy, say things in two different ways.

Meeting will form a crucial part of the project communication, where crucial information
giving, receiving and listening takes place. However, if the meeting is improperly carried out, it could
be a waste of time and monetary resources. Therefore, it is necessary to ensure that every meeting
is valuable and provide the necessary exchange of information, by following this checklist:

Start on time
Develop meeting objectives or agendas.
Conduct one piece of business at a time.
Allow each member to contribute in his own way.
Silence does not mean agreement, so seek opinions.
Be ready to confront the verbal member, so that they do not talk over other members.
Test for readiness to make decision.
Make the necessary decision.
Test for commitment to the decision.
Assign roles and responsibilities after decision making
Agree on follow up and accountability date.
Indicate the next step for this group.
Set the time and date for the next meeting
End on time
Also, most importantly is the meeting necessary?

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 13


Table 5. An example of a project communication plan used for a project.

3.5. Risk Analysis

Project risk analysis is a process that enables the analysis of the risks associated with a project. If it is
properly undertaken it will increase the likelihood of successful completion of a project to cost, time
and performance objectives. The objective of the risk analysis is to gather enough information or
data about the risk issues, in order to judge the probability of occurrence and cost, schedule, and
technical consequences if the risk occurs.

First part of the risk analysis is to identify the possible threats that a project or organisation
faces. The threats could be:

Human from other organisation or individuals (i.e. competitors, etc).


Operational disruption to supplies and operations, i.e. loss of access to essential assets,
failures in distribution.
Reputational from loss of business partner or employee confidence, or damage to
reputation in the market.
Procedural from failures of accountability, internal systems and controls, fraud, etc.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 14


Project risks of cost over-runs, schedule over-runs, or insufficient product or service
quality delivered.
Financial from business failure, interest rate fluctuations, unemployment, etc
Technical from advances in local technology
Political changes in tax regimes, public opinion, government policy, foreign influence,
trade barriers, etc.

Project risks could also be identified using the following methods:

Comparisons with similar systems or project


Relevant lessons-learned studies
Experience
Data from research studies
Specialist and expert judgements
Analysis of plans and related documents
Modelling and simulations
Sensitivity analysis of alternative

Each risk category (i.e. cost, schedule, and technical) usually includes a core set of evaluation
tasks, which is related to the other two categories. Some characteristics of cost, schedule and
technical evaluations follow:

Cost Evaluation

Builds on technical and schedule evaluation results


Translates technical and schedule risks into cost
Derives cost estimate by integrating technical risk, schedule risk, and cost estimating
uncertainty impacts to resources
Documents cost basis and risk issues for the risk evaluation

Schedule Evaluation

Reflects technical foundation, activity definition, and inputs from technical and cost areas
Incorporates cost and technical evaluation and schedule uncertainty inputs to program
schedule model
Performs schedule analysis on program schedule
Documents schedule basis and risk issues for the risk evaluation

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 15


Technical Evaluation

Provides technical foundation


Identifies and describes the program risks (i.e. technology)
Analyses risks and relates them to other internal and external risks
Prioritizes risks for program impact
Quantifies associated program activities with both time duration and resources
Quantifies inputs for cost evaluation and schedule evaluation
Documents technical basis and risk issues for the risk evaluation

Describing and quantifying a specific risk and the magnitude of that risk usually requires
some analysis and modelling, which can be done using the following tools/methods:

Life-cycle cost analysis


Network analysis
Mote Carlo simulation
Estimating relationships
Risk scales
Probability analysis
Graphical analysis
Decision analysis
Work Breakdown Structure simulation

Basically, the quantitative analysis involves either measurement of uncertainty in cost and
time estimates, or probabilistic combination of individual uncertainties. Without any hard data, it
may be necessary to use qualitative rather than quantitative data to assess the potential damage. A
common form of qualitative risk rating is as follows:

High Risks Substantial impact on cost, schedule, or technical. Substantial action required to
alleviate issue. High priority management attention is required.

Moderate Risks Some impact on cost, schedule, or technical. Special attention may be
required to alleviate issue. Additional management attention may be required.

Low Risk Minimal impact on cost, schedule, or technical; normal management oversight is
sufficient.

For most projects, it is more useful to start the risk analysis process by using the qualitative
method, which better captures the whole risk spectrum, while a more detailed analysis is then
conducted using the quantitative method.
Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 16
3.6. Procurement

Procurement is an important administrative and financial function/process that allows a project to


obtain the best value for their limited financial resources for goods and services. A sound
standardised procurement process would allow us to achieve the operational strategic goals of a
project, by ensuring the effective and efficient use of financial resources in a competitive and
transparent manner through. Significant cost savings on resources and materials would usually be
generated, if the right procurement strategy is properly implemented, which may otherwise be lost
if no standardised procurement strategy was present.

Usually, most procurement process involves a certain degree of interaction with the external
business environment, which may act as the supplier of goods and services. This outside interaction
may often be abused, if it is not carefully managed and followed through with official procedures.
Like most other project management systems (i.e. Human Resources, etc), the procurement strategy
should be assessed according professionalism, fairness, reliability, transparency and competitiveness.

The procurement strategy for goods and services is usually guided by four set core principles,
which are:

Competition - The procurement policy usually calls for competition among potential suppliers.
Usually there should be at least 3 suppliers are invited to submit for quotations, proposals or bids for
the supply of goods or services. However, sometimes competitions between suppliers are waivered
under agreed circumstances, which usually include:

1. Prices for goods and services are fixed by national legislation or regulatory bodies, (i.e.
taxi fare).
2. When there is only limited source of supply meeting requirements.
3. When the company is the only that uses the standardised or approved equipments.

However, in order for these waivers to occur, the procurement officer or person in charge of
procurement must provide a written justification for this competition waiver, which must be
endorsed by the management team in a documented process.

Separation of Duties - It is important that the person in charge of procurement does not also run the
financial portfolio. In addition to this, the procurement officer should not be the person responsible
requiring the procurement action, writing of the product/service specification, soliciting bids or
proposals, approving awards and payment, and taking delivery of the items purchased. However,
when there is staffing constraints, it is often difficult to enforce the principle of separation of duties
in the procurement process. But even under such situation, one must not be assigned too many

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 17


roles, where their power could be abused in a way to benefit him or the other parties involved. It is
also essential, frequent independent reviews are carried out by team members not involved in the
project or people with higher authority.

Transparency and Openness - Transparency and openness are key principles that should govern any
procurement action. One way to ensure transparency in the procurement process is to establish a
Procurement Committee that will evaluate tenders/proposals/bids and award contract to the most
responsive bidder. A Procurement Committee can be ad-hoc or permanent, depending on the
nature of the goods or services to be procured, frequency of the procurement and the technical
competence of the staff involved. The principle of separation of duties also reinforces transparency
of the procurement process. Openness is effective when all suppliers are treated equally and receive
the same amount of information. The information related to any procurement should be readily
available for consultation and the procurement authority should be ready to provide any additional
information as required.

There are usually three modes of solicitation used in competitive procurement process;

Request for Quotations (RFQ) - This mode of solicitation is used for the procurement of low value
goods or services the value of which is below the limit requiring the meeting of a Procurement
Committee. The specifications of such goods and services are usually clearly and precisely defined
(standard goods and services).

In a request for quotations, solicitation is evaluated and awarded based on the quotation
that meets the technical specifications (including required delivery time) at the lowest price without
any negotiation with the suppliers. Thus, an RFQ is ideally used to procure standard goods and
services such as office supplies; furniture; simple and less expensive communication equipment
(telephone, fax); and security services, among others. RFQs may be faxed, mailed or collected from
the buyer or project that seeks to make the procurement.

An RFQ contains, at least, the following information:

The address of the suppliers/vendors.


The address of the project and contact person.
Date the quotation was requested.
The list of the items requested.
The expected delivery date.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 18


Request for Proposals (RFP) - A request for proposals (RFP) is ideally used in a competitive or direct
procurement of non-standard goods and services independent of the amount involved. The RFP
allows the project to enter into negotiations with the suppliers.

RFPs are always used in cases of direct procurement (waiver of competition). They can also
be used in competitive procurement when only a short list of suppliers is invited to submit
proposals. In such cases the Procurement Committee must approve the short list of suppliers before
the solicitation takes place. The Procurement Committee assesses the financial and technical
proposals on the basis of value for money and awards the contract to the supplier whose proposal
gives the project the most value. Further discussions may be held with the selected supplier for a
refinement of the final offer.

The criteria for evaluation of the proposals, including weights for each criterion, must be
determined in writing by the Procurement Committee before the solicitation takes place. The RFP is
commonly used for the procurement of non-standard goods and services such as network
installations, renovations, PBX systems, consultant services, audit services, goods that require after
sales services not covered by a warranty, among others.

The RFP must go through the Procurement Committee for all procurements over the limit
stated in a Projects Grant Agreement. In the event that the direct procurement (waiver of
competition) is used, prior approval by the Procurement Committee must be obtained in addition to
a noobjection letter from the funding agency, like ACBF.

An RFP should contain at least the following information:

Date the RFP was made.


RFP number.
Name, address of the potential suppliers.
Instructions on how to submit proposals.
Closing date.
Brief instructions concerning the format of the proposals (technical and financial).
Evaluation criteria where competition has not been waived stating the basis on which the
award will be made.
Scope of work or description of the goods or services to be procured or terms of reference.
Any other relevant information.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 19


Invitation to Bid (ITB) - As a mode of solicitation, the Invitation to Bid is used in formal competitive
procurement of goods and services whose value exceeds a defined limit in the Projects Grant
Agreement. This mode of solicitation is used when the specifications of the goods and services are
very clear and precise. Publication of the ITB is made in major newspapers.

An ITB is used for the purchase of standard goods or services such as computer equipment,
radio equipment, office equipment, etc. The ITB must go through the Procurement Committee,
which will approve the form of bid, the mode of publication, the criteria for the evaluation of the
bids, open the bids once received, and announce the winning bid on the basis of the lowest price
and most technically acceptable offer. No negotiations with suppliers are undertaken.

An ITB should contain the following information, among others:

Name and contact address of the Project procuring the good or service.
Bid invitation reference number.
List of the items required (specification and quantity).
Name of the contact person.
The delivery terms
Warranty period.
Terms of payment.
Origin of the goods, if necessary.
The required delivery time.
Criteria for evaluation of bids.
Instructions on how to submit bids.
Closing date for submission of bids.
Brief instructions concerning the format of the proposals (technical and financial).
Terms of reference or scope of the work.
Any other relevant information.

Nature of Goods or Services


Low Value

Standard Non-Standard
Amount

RFQ RFP
Value
High

ITB RFP

Table 6. Mode of Bids Solicitation matrix Table.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 20


Procurement Documentation This lists the minimum documentation to be maintained for every
item that is procured:

Purchase Requisition Request.


Justification for waiver of competition and approval, if applicable.
List of sources solicited, if applicable.
A copy of each quote, bid or proposal.
Specified conditions for acceptance or rejection of late quotes, bids or proposals.
Evaluation criteria.
Report of the Procurement Committee on the procurement process, where applicable.
Authorized/signed purchase orders or contracts.
Amendments and supporting documentation, if applicable.
Any other pertinent purchase information.

4. Conclusion and Recommendations

In this report we discussed how to ensure that a project should be properly managed through the
implementation of a project plan, which included policies and processes associated with project
budgeting and planning processes involved for quality management, human resources, and
communication method. Detailed discussion was also carried out for methods and steps involved in
risk analysis and procurement processes relevant to the long term success of a project.

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 21


References

1. Kerzner, H, (2001). Project Management: A Systems Approach to Planning, Scheduling, and


Controlling, 7th Ed, New York: John Wiley & Sons.
2. Lock, D, (1996). Project Management, 6th Ed, New York: Wiley.
3. http://www.rms.net/project_budgeting_r_pbd.htm
4. http://www.projectinsight.net/ProductInformation/Features/BudgetAndCosting.aspx
5. http://management.about.com/cs/projectmanagement/a/PM101d.htm
6. http://www.research.psu.edu/osp/PSU/Proposal/indirect.htm
7. http://www.mindtools.com/pages/article/newTMC_07.htm
8. http://www.ourcommunity.com.au/financial/financial_article.jsp?articleId=2204
9. http://www.ausaid.gov.au/publications/pdf/reviewing_project_quality.pdf
10. http://faculty.ksu.edu.sa/73811/Documents/Accounting%20Projects/project%20quality%20
planning.pdf
11. http://www.projectperfect.com.au/info_project_quality_planning.php
12. http://www.visitask.com/project-quality.asp
13. http://www.bced.gov.bc.ca/capitalplanning/projectmanagement/documents/project-
procurement-procedures-guidelines.pdf
14. http://www.eurolog.co.uk/apmrisksig/publications/minipram.pdf
15. http://www.pmforum.org/library/papers/2007/PDFs/Mishra-7-07.pdf

Box Hill Institute | Diploma of International BusinessAuthor(s): Wen Li 22


Project Report: Importing Vehicle from Japan 2010

Appendices

Box Hill Institute | /Appendices 23