BR - PRM1006 - Project Procurement Management: PM1S1

Submitted to Prof. Keishia Fletcher

ASSIGNMENT 2

Mirza Abdul Junaid Baig A00273876

Q1. Describe the main processes of project procurement management.

A1. Project procurement management involves the processes required to acquire goods and services from
external sources to support project execution. Here are the main processes of project procurement
management:

1. Plan Procurement Management: This process involves defining how project procurement will be
managed and executed, including identifying what items will be procured, how they will be procured,
and what criteria will be used to select vendors.

2. Conduct Procurement: This process involves obtaining bids or proposals from vendors and selecting a
vendor to provide goods or services for the project. This includes managing the bidding process,
evaluating proposals, selecting a vendor, and negotiating contracts.

3. Control Procurement: This process involves monitoring the vendor's performance to ensure that they
meet the contract terms. This process includes tracking payments, monitoring vendor performance,
and managing changes to the procurement contract.

4. Close Procurement: This process involves completing the procurement contract and ensuring that all
deliverables have been received and accepted. This process includes verifying that all agreement terms
have been met, ensuring that all payments have been made, and closing the procurement contract.

Throughout these processes, it is crucial to ensure that the project plan manages procurement and that all
procurement activities align with the overall project objectives. Effective communication and collaboration with
vendors are also essential to ensure that procurement activities are completed on time and within budget and
that the goods or services being procured meet the project requirements.
Q2. Explain four (4) advantages that outsourcing offers that encourage many companies to adopt it.

A2. Outsourcing is the practice of hiring external companies or individuals to perform services or tasks that are
normally done in-house. Here are four advantages that outsourcing offers, which is encouraging many
companies to adopt it:

1. Cost savings: Outsourcing can be more cost-effective than maintaining an in-house team, particularly
for specialized or one-off projects. Outsourcing allows companies to reduce costs associated with hiring
and training employees, providing benefits and office space, and purchasing equipment and software.

2. Increased flexibility: Outsourcing allows companies to scale up or down depending on their needs.
They can easily add or reduce resources as required and focus on their core business activities.

3. Access to expertise: Outsourcing allows companies to access specialized skills and knowledge they may
need in-house. This is particularly useful for complex projects that require specific technical or industry
expertise.

4. Improved efficiency: Outsourcing can help companies improve their efficiency and productivity by
allowing them to focus on their core business activities while outsourcing non-core functions to experts
in those areas. This can reduce turnaround times and improve the quality of output.

Outsourcing can provide companies various benefits, including cost savings, increased flexibility, access to
expertise, and improved efficiency. However, it is essential to carefully select the right outsourcing partner and
manage the outsourcing relationship effectively to achieve the desired outcomes.

Q3. The US $200,000 contract for a 10-month project specifies that the seller will bill the buyer $20,000
monthly. Last month, the vendor made good progress and achieved 1.5 times the scope it was expected to
achieve last month. Therefore, the vendor bills the buyer $30,000 instead of $20,000. What should the buyer
do?

A3. The buyer should review the contract terms and determine if the vendor's actions are within the terms of
the agreement.

If the contract states that the vendor will be paid based on the progress made on the project, then the vendor
may be within their rights to bill for the additional work completed. In this case, the buyer should pay the
vendor the $30,000 as agreed upon.

However, if the contract states that the vendor will be paid a fixed amount of $20,000 per month regardless of
the progress made on the project, then the buyer may have grounds to dispute the additional charge. The
buyer should review the contract and consult their legal team to determine the appropriate action.

In either case, the buyer needs to communicate with the vendor to understand their reasoning for the
additional charge and work together to reach a mutually acceptable resolution.
Q4. A cost-plus-incentive-fee (CPIF) contract has an estimated $300,000 with a predetermined fee of $30,000
and a share ratio of 80/20. The actual cost of the project is $260,000. How much profit does the seller make?

A4. The problem asks us to calculate the profit made by the seller in a CPIF contract, given the estimated cost,
predetermined fee, share ratio, and actual project cost.

The profit made by the seller in a CPIF contract can be calculated using the formula:

Profit = (Actual Cost - Estimated Cost) x Share Ratio + Predetermined Fee.

To calculate the profit made by the seller in a CPIF contract, we need to use the formula:

Profit = (Actual Cost - Estimated Cost) x Share Ratio + Predetermined Fee.

Here, the estimated project cost is $300,000, and the actual price is $260,000.

Therefore, (Actual Cost - Estimated Cost) = $260,000 - $300,000 = -$40,000. Since the actual cost is less than
the estimated cost, we have a negative value for (Actual Cost - Estimated Cost).

This means that the seller has saved money on this project.

The share ratio is given as 80/20. This means that 80% of any savings or overruns will go to the buyer, and 20%
will go to the seller.

Therefore, Share Ratio = 20/100 = 0.2. Substituting these values in our formula, we get:

Profit = (-$40,000) x 0.2 + $30,000.

Profit = -$8,000 + $30,000.

Profit = $22,000.

Therefore, the profit made by the seller in this CPIF contract is $22,000.

Q5. A cost-plus-percentage-cost (CPPC) contract has an estimated cost of $240,000 with an agreed profit of
10% of the costs. The actual cost of the project is $260,000. What is the total reimbursement to the seller?

A5. To calculate the total reimbursement to the seller in a cost-plus-percentage-cost (CPPC) contract, we need
to use the formula:

Total reimbursement = Actual cost + (Actual cost x Agreed on profit percentage).

In this case, the estimated cost is $240,000, the actual price is $260,000, and the agreed profit is 10% of the
costs. Substituting these values into the formula, we get:

Total reimbursement = $260,000 + ($260,000 x 10%) Total reimbursement = $260,000 + $26,000 Total
reimbursement = $286,000.

Therefore, the total reimbursement to the seller is $286,000. This includes the actual cost of the project
($260,000) plus the agreed profit of 10% of the costs ($26,000). In a CPPC contract, the seller's profit is
calculated as a percentage of the actual costs, so the profit increases as the prices increase. This can incentivize
the seller to improve the project's costs, which is a potential disadvantage of this type of contract.