DUBLIN BUSINESS SCHOOL
PROJECT PLANNING AND CONTROLLING – B7BU100 The Chunnel Project Case Study
ANA CAROLINA ASSIS E SOUZA SOUZA – 10130650
DUBLIN 2015
CONTENTS 1 INTRODUCTION ............................................................................................. 3 2 QUESTION 1 ................................................................................................... 3 Plan Procurements .......................................................................................... 3 Conduct Procurements ................................................................................... 5 Administer Procurement.................................................................................. 7 Close Procurements ........................................................................................ 9 3 QUESTION 2 ................................................................................................. 11 4 REFERENCES .............................................................................................. 12
2
1 INTRODUCTION
It is necessary a procurement management plan to planning, executing and controlling the procurements in the project. Procurement problems: In Eurotunnel project there were many vendors bidding for the contract. This background led the ‘winner’s curse’ of the successful bidders having the lowest and most
optimistic price estimates, against the most realistic estimates. Finally, the bidder winner could not accomplish the forecast of time and cost. 2 QUESTION 1
If I were in the condition of a manager, I would propose a simple method to manage the procurement/contract process. The main steps to follow for a successful process procurement manage are Plan, Conduct, Administer and Close procurements. Now, I will describe the main points and information for those steps to support the method that I suggested. Plan Procurements
The process of documenting project-purchasing decisions, specifying the approach and identifying potential sellers. The inputs, tools and techniques, and outputs of this process are summarized in the table below.
Figure 1 – Plan Procurements: Inputs, Tools and Techniques, and Outputs
According to the PMBOK, the plan procurement management focuses on “documenting project procurement decisions, specifying the approach, and identifying potential sellers.” This analyses the organization project by identifying products and services that can be developed internally and those that require external contributions. Upon the identification of what products and services,
3
require external parties, the plan procurement further details how to acquire it, when to acquire it, and the required quantity. The most important inputs into the procurement management processes are the project management plan, the requirement documentation, and the activity cost estimates. The project management plan, as discussed in earlier art icles, defines the requirement, need, justification, and boundary for the project. The requirement documentation, on the other hand, shows how individual requirements dovetail into the overall project need. For a project manager, a clear understanding of the requirements vis-à-vis the organization’s strength and resources will help in deciding what items or services require procurement. Finally, prospective sellers use the activity cost estimates in evaluating the reasonableness of bids and proposals. Other inputs into the plan procurement management process include the risk register, activity resource requirement, project schedule, stakeholders register, enterprise environmental factors, and organizational process assets. As project manager, we deal with a lot of contractual relationships when planning procurement. The most popular contract types are the fixed-price contract, which defines a fixed total price for a project; the cost reimbursable contract, which reimburses the seller with legitimate cost incurred during the cost of the project (this is largely used when the scope of a project cannot be determined at the start of the project);. and the time and material contract (T&M), which is a combination of the fixed-price contract and the cost reimbursable contract. It is often used for special arrangements in a fixed-cost project such as hiring expatriates, staff augmentation, or part of the contract for which the quantity cannot be defined as of the time of award. The main tools and techniques for the plan procurement management are as follows: 1. Make or buy analysis— As far as procurement management is concerned, this is the most important tool for the project manager. It analyzes whether a product or service should be produced in-house or sourced from a supplier by analysing the various costs and risks involved. 2. Meetings— As a project manager, arranging meetings with potential sellers or bidders allows the organization to make better choices and strike better deals. It also gives room for the sellers to clarify details of the procurement with the procurement team. Other important tools and techniques used for the plan procurement process are expert judgment and market research for industry and seller analysis. The outputs of the plan procurement management process are: 4
1. Procurement management plan—This is the major output of the plan procurement management process; it describes how procurement will be managed throughout the whole project and it contains information such as the type of contract to be used, how to manage suppliers, handling risk, etc. 2. Procurement statement of work— this describes the product or service in detail to allow contractors to determine if they are able to deliver. 3. Source selection criteria—these are criteria developed to be used in evaluating and selecting buyers. 4. Make or buy decision—this is the result of the make or buy analysis, detailing which activity would be accomplished by the project team or sourced from outside source. The change request, procurement documents, and the project documents update are other key outputs of the plan procurement management process. Conduct Procurements
After planning procurement, the next process a project manager has to undertake is to conduct procurement. This is defined as the process of obtaining seller bids and proposals, selecting the seller and awarding the contract to the chosen seller.
Figure 2: Conduct Procurements: Inputs, Tools and Techniques, and Outputs.
The most important inputs in the conduct procurement processes are the procurement management plan, source selection criteria, and t he seller proposal. The procurement management plan, as discussed earlier, is the key output of the plan procurement management process and details how the whole procurement management process would be managed. The source selection criteria detail information required for selection of sellers, while the seller proposals are bids submitted by sellers that will be used in selecting the successful bidders. Other 5
inputs for the conduct procurement processes include the procurement document, project documents, make or buy decisions, procurement statement of work, and organizational processes assets. As a project manager, it is important to note that, depending on the nature of the project, the seller might be involved in the preparation of the procurement statement of work, as this would provide a broader perspective from which ideas can be drawn to satisfy the project requirement. A detailed contract would then be negotiated with the seller afterwards. The tools and techniques for the conduct procurement processes are: 1. Bidder conference— As the name suggests, this is a meeting at which the prospective bidders or sellers meet with the buyer before submitting a proposal. This is to ensure that all prospective sellers have a clear idea of the procurement requirements. This also eliminates or reduces preferential treatment among bidders. 2. Proposal evaluation techniques— After proposals have been made, these are the criteria used in selecting the successful bidders. 3. Independent estimates—When carrying out procurement, it is important for the buyer to carry out independent estimates of product or services. This is used as a benchmark for comparison of the prospective sellers’ bids. Large variations among independent estimates should be noted and possible reasons for the variations identified. 4. Expert judgment—The use of expert opinion in evaluating proposals. 5. Advertising— Although this might sound very general, advertisement is the only way to increase the list of potential suppliers. This is sometimes neglected during procurement. thus limiting the number of prospective sellers. Niche advertisement, such as advertising in specific trade publications, is more effective. 6. Analytical techniques—While sellers generally try to add value to product and services rendered to increase chances of winning the bid, analytical techniques are used to identify areas of risk in a project such that they might be monitored closely to ensure a successful project and avoid cost overruns. 7. Procurement negotiations—This is used for final clarification of the requirements and structure of the contract before signing the contract. It covers areas such as authority to make changes, technical and management approaches, propriety rights, payment, project schedule, price, and contract financing. The major outputs of the conduct procurement process are the selected sellers and the agreements. The selected sellers are those whose bids have been judged competitive after the proposal evaluation. The agreement describes the 6
terms and condition of the contract. It can be called a contract, an understanding, a subcontract, or a purchase order. The main components of the agreement include the deliverables, schedule baseline, performance reporting, period of performance, roles and responsibilities, pricing, payment terms, place of delivery, acceptance criteria, product support, limitation of liability, fees and retention, penalties, incentives, insurance and performance bonds, change request, and termination clause. Other outputs of the conduct procurement process are resource calendars, change requests, and updates to the project management plan. Administer Procurement
Figure 3: Administer Procurement: Inputs, Tools and Techniques, and Outputs
According to the PMBOK, this is the “process of managing procurement
relationships, monitoring contract performance, and making changes and corrections to contracts as appropriate.” While the control procurement process
is important for all project types, it is more complicated for large projects with multiple suppliers, as it involves managing the interfaces among various providers to ensure the overall success of the project. Since procurement management involves a legal agreement (contract) between the buyer and the seller, it is important for the project management team to be aware of the legal implications when controlling procurement. The control procurement process reviews the performance of the seller with respect to the agreed contract and points the seller’s attention to variations,
especially where corrective actions are required. It also ensures that agreed payment conditions are met as specified in the contract. It is important to note that the contract condition can be amended at any time before the end of the project, as long as there is a mutual consent between the buyer and the seller. The most important inputs for the control procurement process are the procurement documents and agreements. The procurement documents hold 7
details of records required for effective control of the procurement process; the agreement, as discussed in the previous post, is an understanding between the buyer and the seller that also provides detailed information on the duties of both parties. Other inputs include the procurement documents, approved change requests, work performance reports, and work performance data. The tools and techniques for the plan procurement management are: - Contract change control system—This defines the processes by which changes can be made to procurement. Important elements of this are conflict resolution and levels of approval necessary for change authorizations - Procurement performance review—This is a structured review to ensure that the seller meets the contract requirement (scope) within the triple constrain (time, cost, and quality). This allows the project management team to quantify the work done by the seller, identify performance success and failure, and make further decisions based on the information gathered. - Inspection and audits—These are conducted during the execution of the project to ensure that the contract deliverables are fulfilled - Performance reporting - Payment systems—These systems ensure that payment is made to the seller once work has been confirmed as satisfactory by authorized personnel. - Claims administration—Claims are contested changes where the buyer and the seller cannot reach an agreement that the change occurred or on the cost of the change. Claims administration deals with resolving claims as agreed in the contract document. - Record management system—This is used by the project manager in managing contract and procurement. The outputs of the control procurement process are: Work performance information—This helps in the identification of potential problems for new procurements. Documenting the performance of a vendor increases organizational knowledge about the seller, which can help in making better decisions and managing risk. Change request—For changes requested to the project management plan. Project management plan update—Elements of the project management plan that might be updated include the procurement management plan, schedule baseline, and cost baseline. Project documents updates—The procurement document is the key document that might be updated. Organizational process assets updates
-
-
8
Close Procurements
Figure 4 – Close Procurements: Inputs, Tools and Techniques, and Outputs.
Every beginning must have an end (hopefully). Close procurement is the process of completing all procurements. At this stage, agreements and related documents are documented for future references, all open claims are finalized, and relevant records are updated. In the case of a large project with multiple procurement agreements, different procurements are closed at dif ferent phases of the project lifecycle. A termination clause is usually included in the contract in case of an early termination. Early termination could be a result of the mutual agreement of both parties or a breach of contract from one of the parties. Contract termination should always be based upon the procurement terms and conditions. There are two inputs for the close procurement process. These are the project management plan, which contains the procurement plan that details the necessary procedures for closing out procurements, and the procurement documents. The procurement documents contain all of the information gathered during the contract period, such as contract time, scope, quality, cost performance, payment records, etc. There are three main tools and techniques used when closing procurements. First, the procurement audits constitute a structured review of the whole procurement process. This identifies the successes and weaknesses of the contract and helps in planning other procurement during the project or future procurements. Second is the procurement negotiation, which is used in resolving all outstanding negotiations and disputes. Only when settlements cannot be resolved through negotiation is the court involved. Finally, the record management system is used by the project manager in keeping records of all procurement. There are two main outputs for the close procurement process: 1. Close procurements—This is a formal way of closing the agreement with the seller. This involves a formal written notice given by the procurement team to the seller confirming the end of the contract. Details of formal procurement closure are always included in the procurement plan.
9
2. Organizational process assets and updates—The procurement file, deliverable acceptance, and lessons learned are some of the organizational process that might be updated. While exploring the knowledge area of procurement, we should realize that the words “contract” and “agreement” were used interchangeably and in the context
of this article mean the same thing. We should also agree that procurement management can also be referred to as contract or agreement management. In the light of the above, I think we should explore the word “contract” from a more detailed perspective. This would involve the definition of various types of contracts and who bears the risk in the contractual agreement. A contract, as earlier defined, is a legal binding between two or more voluntary parties. There must be an offer and an acceptance before a contract can be defined as a legal entity. In procurement scenarios, the seller typically treats the contract as a project, especially when the acquisitions are not for shelf m aterials, goods, or common products. When negotiating a contract, both the seller and the buyer often attempt to minimize their exposure to risk by shifting most of the risk onto the other party. The two extreme forms of contracts are the cost reimbursable and firm f ixed price contract. The cost reimbursable contract involves the seller paying for all the legitimate costs incurred for the completion of the contract. In this type of contract the buyer bears most or all of the risk involved. On the other hand, for the fixed
price contract the seller bears all risk incurred during the contract as the prices are not negotiable after an agreement has been reached. Some variations of cost reimbursable and fixed price contracts are shown below: Cost plus fixed fee contract—Here the seller is reimbursed for all allowable costs and a fixed fee, which is a percentage of the initial estimated cost is paid to the seller. Under no conditions does the percentage or the estimated cost change unless there is a change in the procurement scope. Cost plus incentive fee contract—The seller is reimbursed for all allowable costs and also receives pre-determined incentive fees upon achieving milestones as described in the contract. Fixed price incentive fee contract—Here a fixed priced is given for the contract, but financial incentives are tied to achieving good matrices as a form of performance motivation for the seller. Fixed price with economic price adjustment contract—This contract type is used when a contract spans a considerable period of years (long-term contracts). A predefined fixed price can then be adjusted, based on certain economic conditions that occurred over the years such as inflation or a change in the foreign exchange rate.
10
Figure 5 - The two extremes on a spectrum of risk
Understanding the various types of contracts and when to use them is very important for any project manager. While you might not have to make huge financial decisions like a CFO, you will have to make buying decisions as a project manager and you should be familiar with the various contract types and their implications on the project budget. 3 QUESTION 2
Trends in modern Management In recent years, major developments in management reflect the acceptance to various degrees of the following elements: (1) the management process approach, (2) the management science and decision support approach, (3) the behavioural science approach for human resource development, and (4) sustainable competitive advantage. These four approaches complement each other in current practice, and provide a useful groundwork for project management. Project managers should be aware of the strategic position of their own organization and the other organizations involved in the project. The project manager faces the difficult task of trying to align the goals and strategies of these various organizations to accomplish the project goals. Major Opportunities for Improvement FINANCING: The Channel Tunnel project had to be financed from private
sources with no public finding to aid or guarantee the loans. This put major pressure on the project and increased the risk involved. CONTRACT AGREEMENT: A major contractual downfall that influenced the
success of the Chunnel construction was the contractual errors that were made in the estimates and risk allocation method. These errors added to an additional cost of US$ 2.25 billion. Instead of establishing specific criteria for the Chunnel Tunnel’s contractors in their initial contract, later adjustments had to be made to 11
the contract to ensure the quality and reliability of their work. This “merging” of contract criteria led to the contract being very complex. MANAGEMENT TEAM: The Chunnel project management team did not utilise
their resources and technology properly due to lack of scope definition. Very slow decision-making processes during the Chunnel Project construction lead to situations where significant budget over-expenditures occurred. Not only was this a result of poorly managed finances, but it was also partially due to an out-ofcontrol amount of changes made to the management team. Software like AUTOCAD, SOLIDWORKS and RS³ could have helped the Chunnel Tunnel Project throughout each stage of the project life cycle, which are Conception, Definition and Execution. The first two software uses a mouse-driven graphical user interface to enable engineers and designers to visualize and communicate 3D models of manufactured objects. SolidWorks works extremely well for mechanical design and similar industries requiring precise definition of 3D shapes and their design intent. RS³ could have contributed more because, is a program for 3D analysis of geotechnical structures for civil and mining applications. Applicable for both rock and soil (RS3 = Rock and Soil 3-dimensional analysis program), RS³ is a general purpose finite element analysis program for underground excavations, tunnel and support design, surface excavation, foundation design, embankments, consolidation, groundwater seepage and more. Those software mentioned above are only a small part of the contribution of the technologies we have today could have helped in the project. Today the field of computer science and graphic design is extremely supported by technological resources that can provide an entire project to reduce costs, time and faults.
4 REFERENCES
Barnett, T. (2015) Management Functions. 2nd edn. Advameg, Inc. [Online]. Available at: http://www.referenceforbusiness.com/management/LogMar/Management-Functions.html (Accessed: 12 Apr 2015). PMI (2012), A Guide to the Project Management Body of Knowledge, 5th Ed. A Guide to the Project Management Body of Knowledge (PMBOK Guide). Forth
Edition ed. [S.l.]: Project Management Institute.
12
