Section 1: Simple Procurement Resource Module Objectives...3 Part 1: Welcome and Introductions... 3

(1)

Simple

Procurement

Resources

Module:

Sample

Pages

1

Simple Procurement Resource Module:

Procurement Project Management

Section 1: Simple Procurement Resource Module Objectives ...3

Part 1: Welcome and Introductions ... 3

Section 2: Project Management and Procurement ...6

Key Competencies for you to Consider ... 6

Part 1: Project Management Key Terms ... 7

Part 2: The Purpose of Project Management in Procurement ... 11

Part 3: What is Successful Procurement Project Management ... 12

Part 4: Procurement Project Management in your Organisation ... 12

Part 5: Modern Procurement Objectives ... 13

Part 6: How do we Introduce Project Management into Procurement ... 14

Project Stage 1: The Project Lifecycle... 15

Key Competencies for you to Consider ... 15

Section 2: Project Management Plan (PMP) Contents ... 17

Part 1: Procurement Project Management Plan (PMP) Complex ... 17

Part 2: Procurement Project Management Plan (PMP) Light ... 20

Section 3: Project Management Plan (PMP) Light Example ... 22

Contents ... 22

Project Plan 1. Project Overview ... 24

Part 1: Procurement Vision ... 24

Part 2: Project Objectives ... 24

Part 3: Project Management Plan Purpose ... 24

Part 4: Scope of Works ... 25

Part 5: Business Case ... 26

Part 6: Business Case II ... 27

Part 7: Business Case Template: Financial Benefits ... 28

Part 8: Business Case: Procurement Program Financial Benefits ... 29

Part 9: Non Financial Benefits ... 30

Part 10: Major Risks Assessment ... 30

Part 11: All Risks Assessment ... 31

Part 12: Procurement Project Risk Assessment Blank ... 32

Part 13: Procurement Project Risk Assessment Blank II ... 33

Part 14: Meeting Agenda, Minutes, and Action Items ... 34

Part 15: Procurement Project KPIs ... 35

Part 16: Project Management Reviews ... 36

Project Plan 2. Project Execution ... 38

(2)

Simple

Procurement

Resources

Module:

Sample

Pages

2

Part 2: Work Breakdown Structure Diagram (WBS) ... 39

Part 3: Organisational Breakdown Structure (OBS) ... 40

Part 4: Organisational Breakdown Structure Diagram (OBS)... 41

Part 5: Project Cost Codes Diagram with Work Breakdown Structure (WBS)... 43

Part 6: Project Schedule and Key Milestones ... 44 Part 7: Project Key Resources, Duration, and Cost ... Error! Bookmark not defined. Part 8: Project Plan ... Error! Bookmark not defined. Part 9: Microsoft Project Plan Gantt Tracking View ... Error! Bookmark not defined. Part 10: Procurement Project Plan in Microsoft Excel Example ... Error! Bookmark not defined. Part 11: Procurement Project Management Budget ... Error! Bookmark not defined. Part 12: Customer and Regulatory Approvals Required ... Error! Bookmark not defined. Part 13: Communications Plan ... Error! Bookmark not defined.

(3)

Simple

Procurement

Resources

Module:

Sample

Pages

3

Section 1: Simple Procurement Resource Module Objectives

Part 1: Welcome and Introductions

Welcome to the Simple Procurement Resource Modules. This Module is part of the Simple Procurement Training and Resource series. We will do everything we can to ensure this Module is as effective and enjoyable as possible.

This Module is:

 Part of the Simple Procurement Resource series available;

 Written by an experienced Procurement Professional;

 Designed to provide a strong framework for Learning;

(4)

Simple

Procurement

Resources

Module:

Sample

Pages

4

Part 2: Procurement Project Management

Let us briefly take turns to describe our role in our organisation’s Procurement Project Management. If we answer a few simple questions we can initiate a brief but useful discussion.

 Does your organisation have a Project Management Office or Department;

 Who owns the Procurement Project Management as it exists today;

 Does Procurement understand the importance of a Project Management approach;

 Does the organisation support Project Management development in Procurement;

 What is successful Procurement Project Management to your organisation;

 Are you responsible for creating Procurement Projects and Project Management;

 Are you required to seek approval for Procurement Projects and Category Reviews;

 What are your expectations of success by using Project Management.

The purpose of Project Management in Procurement:

1. Project Management increases success by defined processes for planning and executing tasks. The Project Management approach is universally respected.

2. Procurement can benefit from increased success and respect. Adopting a Project Management approach requires consideration and planning.

(5)

Simple

Procurement

Resources

Module:

Sample

Pages

5

Part 3: Review Objectives

The strategy of this Resource Module is to offer both training to achieve success in your Project Management, and to provide the materials and templates necessary for you to make immediate progress.

The Simple Templates are important by providing the right tools to do the job successfully. This will make Procurement Project approval paths easier to achieve, and managing Projects more fruitful. This leads to improved financial and service benefits. In particular the objectives include:

Procurement Project Management Introduction Objectives:

 Understanding the role of Project Management in organisations;

 The role of Project Management in Procurement;

 What is successful Procurement Project Management;

 The Project Lifecycle;

 Project Management Framework and Planning;

 Procurement Project Plans;

 A Procurement Project Plan Template for your use;

 Milestones, Tasks, Resources, Budget, Duration;

 WBS and OBS;

 Procurement Project Briefs and gaining Approval;

 Creating and managing Project Budgets;

 Creating and managing Project Resources;

 Identifying and managing Project Risks;

 Procurement Project Management reports;

 Project ManagementTools and Templates;

(6)

Simple

Procurement

Resources

Module:

Sample

Pages

6

Section 2: Project Management and Procurement

Key Competencies for you to Consider

Understand When a Project is required and its benefits

Plan the Project

Implement, and track progress of the Project

Project Manage the Project on a daily basis

Own and manage Project Change Control

Integrate your position as Project Manager in your company

1. Projects are required generally when something new is being achieved that requires planning, time, and cost.

4

6

1

2

3

5

(7)

Simple

Procurement

Resources

Module:

Sample

Pages

7

Part 1: Project Management Key Terms

Key terms and references are useful to understand. This helps Procurement professionals communicate effectively with Project Management Professionals and understand the jargon talk. It can help individuals feel part of the Project Management community in organisations, and this is not always easy.

What is a Project:

A project is a set of tasks with a defined objective, a start and finish including time, budget, resources, and risks. The nature of a project is temporary whether short or long term.

What is Project Management:

Project Management is the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. Project management is accomplished through the appropriate application of:

 Initiating;

 Planning;

 Executing;

 Monitoring and Controlling;

 Closing.

Project Management Institute (2008) Pennsylvania: USA

The Project Lifecycle:

The Project Lifecycle can vary in different organisations. But generally follows the following basic high level steps:

 Starting or Commencing the Project;

 Preparing and Planning;

 Executing the Project;

 Closing the Project.

Managing a Project:

In managing a project there are the following key elements:

 Scope;  Quality;  Schedule;  Budget;  Resources;  Risk.

(8)

Simple

Procurement

Resources

Module:

Sample

Pages

8

Project Management Institute (2008) Pennsylvania: USA

Role of Project Manager:

This person assumes the responsibility for managing the expected outcomes and results from the project for the organisation, i.e. the overall responsible person.

Project Management Institute (PMI):

This is a Not for Profit organisation set up in late 1960s with the goal to advance standards, and practices through a membership environment. Australia has memberships in most states where events are run to support member development.

PMBOK Guide (Published by Project Management Institute):

PMBOK is the recognised standard in Project Management providing guidelines and processes in good practice. First published in the late 1980s, it has been released in later editions.

Project Management Professional (PMP):

This is a credential offered by Project Management Institute (PMI). PMP is a recognised development certificate that shows the individual has completed certain modules and passed exam material on Project Management skills.

Project Management Qualifications:

There are a number of Diploma and other University related qualifications available. These include part time, full time, short and longer term, depending on the commitment and cost accepted by the individual. Studying Project Management on an ongoing basis to is a good way to continue development and career growth.

Project Management Consultants:

There are many PM consultants who can assist in the set up of PM activities for your department. As always we need to be careful not to be oversold by salespersons. Consultants can be very useful to set up processes, policy, training, and development for beginner, intermediate, or more advanced PM activities.

Program Management:

This is a set of Projects to be managed together. Managing these together helps if they are related, have co-dependent issues, or can achieve significant efficiencies if managed together. Each organisation will need to arrange a structure to manage a number of projects. Grouping projects under a manager is required and so Programs can be established. It makes sense to group similar projects that have efficiencies, or make sense to group as a Program.

(9)

Simple

Procurement

Resources

Module:

Sample

Pages

9 Portfolio Management:

This is a set of Projects or Programs that when managed together can achieve significant efficiencies. The difference with Program Management is that Portfolio can contain Programs as well. Generally in organisational structures will create Program Management and Portfolio Management if there are enough Projects and Programs.

Project Sponsor:

The Project Sponsor will provide the support, recommendation, and possibly financial approval for the project go-ahead. With a Project Review Board the Sponsor is the senior person who will take responsibility for “vouching” for the project. This provides other senior management confidence the project has accountability from a senior person.

Project Review Board:

Review Boards may serve a number or purposes. Key objectives can include:

1. The Board made of senior management will be responsible for review and approval of Project briefs and business cases including funding and expected returns. This means they give the go-ahead and monitor performance.

2. The Project Review Board also provides governance to projects. This means project reporting and key issues are regularly reported to the Review Board for information and action. It also allows Board members to contribute to Project recommendations and support the project.

Project Management Office:

Generally speaking the Project Management Office (PMO) is a centralised function that supports or and may provide direct ownership for projects. It may well govern the Project Management approach and support training, development, policy, and include the senior project management individuals. The PMO office will be a key relationship for Procurement Project Management, and may even govern Procurement projects.

Procurement and Project Management:

Project Management increases success by defined processes for planning and executing tasks. The Project Management approach is universally respected, and so Procurement can benefit from increased success and respect. Adopting a Project Management approach requires consideration and planning.

Procurement Staff Structures and Culture:

These two points are key to successfully introducing Project Management into Procurement or into a person’s role in managing projects. Existing Procurement staff structures may or may not suit a Project Management environment, and may have to be altered to incorporate Project Management. The Procurement culture or organisational culture is also another key element in the acceptance of the Project Management approach.

(10)

Simple

Procurement

Resources

Module:

Sample

Pages

10

Functional, Matrix and Project Orientated Structures:

Organisations managing projects may have one or a mix of structures which may or may not support Project Management. These structures are good to understand how they will support a project. Where traditional structures are used with a hierarchy with management and works, budgets and regulations, it can create issues in managing projects. If the organisations has a Project focus in part or more, then understanding of project requirements, budgets, resources, ROI, controls, and required autonomy in decision making can be very helpful to managing projects.

Project Stakeholders:

Stakeholders include the Sponsor, Management, Review Board, internal and external customers, and third parties who have an active interest in the Project outcomes. Stakeholder identification is important to understand who will exert pressure or control over project decisions and performance.

Performance Measurement Methods

Procurement Projects may have many performance measures.

 % Complete;

 Milestones Complete;

 % Budget Complete to % Work Complete, i.e. 30% and 55%;

 Measure performance independently through Internal Audit, external audit.

Earned Value Concept

Earned Value measures the progress / performance of a Project by calculations based on cost and progress. Earned Value is sometimes described as the actual Budget position (cost) compared to the Work Performed. It is ideal to measure each Work Packages and measure its performance by one measure only. It may be better to measure all Work Packages by the same performance measure.

Organisations will have different measures for Earned Value. These can be displayed in numbers or graphically. Measures may include:

1. Budget Cost to Work Package Schedule; 2. Budget Cost to Work Package Progress;

3. Actual Cost to Work Package Schedule/ Progress.

(11)

Simple

Procurement

Resources

Module:

Sample

Pages

11

Part 2: The Purpose of Project Management in Procurement?

The purpose of Project Management in Procurement could be described as:

Key Questions for Procurement Professionals:

1. Why does Procurement need Project Management expertise?

2. How long would it take to set up Project Management in Procurement? 3. What outside help would be needed to set up Project Management?

4. What Projects already exist that could move into Procurement Project Management? 5. What staff could be moved into Procurement Project Management?

Project Management provides Procurement a Successful Framework to Achieve; 1. Successful Projects result in better financial returns;

2. Improved access to funding and larger scale Projects; 3. An opportunity for a Portfolio of Projects;

4. Elevation of Procurement in the organisation hierarchy;

5. Respect from stakeholders by using a recognised Project Management approach; 6. Creating clear Procurement projects and resources for future years;

(12)

Simple

Procurement

Resources

Module:

Sample

Pages

12

Part 3: What is Successful Procurement Project Management?

The modern Procurement department is responsible for creating and managing successful Procurement Projects. This includes Savings or Efficiency Plans to make significant financial and quality improvements to your company. Successful Procurement Project Management consists of:

 A clear Procurement mandate or Scope of Project work;

 Good practice Project Management operating in Procurement including;

 Project Management Framework and Planning;

 Procurement Project Briefs and gaining Approval;

 The Procurement Project Plan;

 The Procurement Project Schedule;

 Managing Project Budgets;

 Managing Project Resources;

 Identifying and managing Project Risks;

 Project Change controls;

 Project Management reports;

 Project Performance KPIs;

 Project Management Tools and Templates;

 Independent assessment/ audit proving good practice;

 Project Management training, development, and accreditation.

Part 4: Procurement Project Management in your Organisation

(13)

Simple

Procurement

Resources

Module:

Sample

Pages

13

Part 5: Modern Procurement Objectives

1. Improve your Company’s Financial Position

 The Competitive Model and Price Competition for key supply Categories;

 Benchmark Price Testing;

 Procurement Expenditure Review and Negotiation schedules; 2. Increasing Success in Sales by Supply Options

 Strategic Supply Research (SSR);

 Multiple supply Contract Options with tiered pricing; 3. Low Cost Supply Options

 Low Cost Supply to meet low price requirements; 4. Flexible Capacity and Reduced Complexity

 Build Supply Capacity to provide choices in the future;

 Develop suppliers through a Supplier Development Program;

 Reduce complexity in-house by outsourcing; 5. Reducing Supplier Risk

 Risk Profiling for key suppliers;

 Supplier Performance Reporting;

 Performance Incentives in Supply Agreements;

6. Catalogues and Supply Pricing Module (Bidding and Estimation)

 Catalogues and Contracted Price Options;

 Costing Templates and Price Reverse Engineering; 7. Contracts

 Contract Repository Module with Review Notification and Workflow;

 Contract Clause Library for drafting Agreements; 8. Procurement Performance, Policy and Process

 Measuring Procurement performance;

 Policy and Process redesign;

 Policy and Process Training Program for all or key staff; 9. Procurement Training Program

 Induction, Training, and Coaching on Systems, Processes and Policy;

(14)

Simple

Procurement

Resources

Module:

Sample

Pages

14

Part 6: How do we Introduce Project Management into Procurement?

What are the main issues do you feel your company suffers from and what possible solutions do you think are available………..

 Start a Project Management approach alone using a PM methodology agreed, i.e. PMBOK. You may choose to use a coach to support you, say 1-2 times per week. This method might allow you to feel out any issues before you involve your staff;

 Pilot 2 to 3 Procurement Projects through a Project Management approach using a consultant to Coach key staff as Project Managers;

 Invite consultants to recommend and price an option to introduce a Project Management approach into the department perhaps staged over several months including Training and Development;

(15)

Simple

Procurement

Resources

Module:

Sample

Pages

15

Project Stage 1: The Project Lifecycle

Key Competencies for you to Consider

Understand When a Project is required and its benefits

Plan the Project

Implement, and track progress of the Project

Project Manage the Project on a daily basis

Own and manage Project Change Control

Integrate your position as Project Manager in your company

1. Projects are required generally when something new is being achieved that requires planning, time, and cost.

4

6

1

2

3

5

(16)

Simple

Procurement

Resources

Module:

Sample

Pages

16

Section 1: The Project Lifecycle and Procurement

Part 1: The Project Management Lifecycle

The Project Management lifecycle is shown in many diagrams. It can be overcomplicated. The below diagram by Simple Procurement Training 2010, shows the simplicity of the Lifecycle. The lifecycle is important because it provides the Procurement professional with the framework for success. Starting or Initiating Planning Monitoring & Controlling Executing Closing

Simple Procurement: Project Management 2010

The Project Lifecycle Assists Understanding Project Management Processes:

The Project management approach will assist Procurement to accomplish projects results through the appropriate framework of the 5 key stages. All Project Management processes to be managed by Procurement will fit into one of these 5 phases of the Project Lifecycle:

 Initiating;

 Planning;

 Executing;

(17)

Simple

Procurement

Resources

Module:

Sample

Pages

17

Section 2: Project Management Plan (PMP) Contents

Part 1: Procurement Project Management Plan (PMP) Complex

Procurement Project Management Plan: …………

Project Type: Complex

(Light/ Medium/ Complex)

Page break………..

The Procurement Project Management Plan (Word Document and MS Project Chart) should include the following:

1. Project Overview;

1. Procurement Vision; 2. Project Objectives;

3. Project Management Plan Purpose; 4. Documents;

5. Scope of Works:

a) Scope Management;

b) Out of Scope; 6. Business Case including:

a) Total financial benefits; b) Net Present Value (NPV); c) Rate of Return (IRR); d) Payback Period;

e) Return as % Gross Margin/ Return as % EBIT/ NP; 7. Non Financial Benefits;

8. Assumptions & Constraints;

(18)

Simple

Procurement

Resources

Module:

Sample

Pages

18 10. Project KPIs;

11. Project Management Reviews; 12. Project and Financial Reporting;

2. Project Execution

1. Delivery Strategy; 2. Implementation;

3. WBS (Work Breakdown Structure) and Work Packages; 4. OBS (Organisational Breakdown Structure);

5. Resources Requirements and Duration; 6. Project Schedule:

a) Key Milestones; 7. Resource Allocation Matrix;

8. Project Plan (Microsoft Project/ Excel); 9. Budget;

10. Key Payment Milestones; 11. Procurement Strategy:

a) Materials and Services; b) Subcontracts;

c) Client Approvals; 12. Risk Management:

a) Risk Identification and Register; b) Risk Assessment and Mitigation; 13. Communications Plan:

a) Internal Project Team; b) Key Stakeholders; c) External Parties; 14. HR Plan;

3. Project Change Control and Monitoring

1. Change Control:

a) Change Processes and Approval; b) Scope Change;

c) Budget Change; d) Schedule Change; 2. Project Review Committee;

3. Project Performance Measurement: a) Project KPIs;

b) Stakeholder Satisfaction; c) Contract Performance;

(19)

Simple

Procurement

Resources

Module:

Sample

Pages

19 e) Financial Performance;

f) Budget, Forecast Revenue, Cost, & Margin; g) Cashflow;

4. Project Close

1. Project Close Checklist: a) Documentation Required; b) Financial Review;

c) Customer/ Stakeholder Review; d) Lessons Learned;

(20)

Simple

Procurement

Resources

Module:

Sample

Pages

20

Part 2: Procurement Project Management Plan (PMP) Light

Procurement Project Management Plan: …………

Project Type: Light

(Light/ Medium/ Complex)

Page break………..

3. Project Management Plan Purpose; 4. Scope of Works:

a) Scope Management; b) Out of Scope; 5. Business Case including:

7. Major Risk Assessment;

8. Commercial Risk of Recommended Suppliers; 9. Strategic Fit of Recommended Suppliers; 10. Project KPIs;

1. Implementation;

4. Resources Requirements and Duration; 5. Project Schedule:

b) Key Milestones;

(21)

Simple

Procurement

Resources

Module:

Sample

Pages

21 7. Budget;

8. Customer Approvals (Customer, or Legal Notification, Request for Change); 9. Communications Plan:

a) Internal Project Team; b) Key Stakeholders; c) External Parties;

1. Change Control:

b) Financial Performance;

c) Approval to Close;

(22)

Simple

Procurement

Resources

Module:

Sample

Pages

22

Section 3: Project Management Plan (PMP) Light Example

Contents

Procurement Project Management Plan: Low Cost Sourcing

Project Type: Light

3. Project Management Plan Purpose; 4. Scope of Works:

a) Scope Management; b) Out of Scope; 5. Business Case including:

7. Major Risk Assessment;

8. Strategic Fit of Recommended Suppliers; 9. Commercial Risk of Recommended Suppliers; 10. Project KPIs;

(23)

Simple

Procurement

Resources

Module:

Sample

Pages

23 a) Key Milestones;

b) Project Schedule Dependencies; c) Project Duration;

4. Resources Requirements and Duration; a) Resources Identified and Duration; b) Resource Day Rates and Cost; 5. Project Plan (Microsoft Project/ Excel); 6. Budget;

7. Customer Approvals (Customer, or Legal Notification, Request for Change); 8. Communications Plan:

a) Internal Project Team; b) Key Stakeholders; c) External Parties;

1. Change Control:

b) Financial Performance;

(24)

Simple

Procurement

Resources

Module:

Sample

Pages

24

Project Plan 1. Project Overview

Part 1: Procurement Vision

The Procurement Vision is to provide true low cost manufacturing options to increase revenue, profit margin, and competitive advantage to our products in the marketplace.

Part 2: Project Objectives

This project has objectives to achieve the Procurement Vision, namely these are;

 Provide options for low cost manufacturing;

 Establish a competitive supply model ensuring low cost product and capacity for supply;

 Benchmark prices in low cost countries to identify the most attractive markets;

 Increase revenue opportunities and product margins;

 Increase length of time in market for our products;

 Complete the above within project budget, and schedule;

 Achieve a professional project image and review from stakeholders;

Part 3: Project Management Plan Purpose

The purpose of this Project Management Plan is to document and communicate the strategy, intended outputs, responsibilities, accountabilities, and resources needed to achieve this project’s objectives.

This Project Management Plan details the Work Breakdown Structure, organisational structure, budgets, business case and required returns, key stakeholders, and more to clearly explain the project structure, objectives, and expectations. This Project Management Plan is the overall control document defining the project, and will be continuously updated to reflect changes. It is intended this document is always the key reference point.

(25)

Simple

Procurement

Resources

Module:

Sample

Pages

25

Part 4: Scope of Works

a) In Scope

Selling manufactured product depends on brand, market position, price, and sustainable margins to keep the product in the marketplace. Since price is a significant part of the sales potential equation, any ability to decrease price, increase margins, or both will add financial returns, and increased product life in the marketplace.

The specific Scope of this project includes:

 Research of low cost manufacturing regions, and low cost countries to determine pricing estimates;

 Research technology options to understand if technology is able to reduce cost, and if so, how this compares to low cost manufacturing;

 Determine appropriate suppliers who can meet the requirements including any legislative requirements, and capacity concerns;

 Estimate final pricing after competitive price testing of at least 3 suppliers;

 Provide quality audits proving quality criteria can be achieved;

 Provide Intellectual Property protection assurance;

 Assess Manufacturing Transfer capability;

 Determine key Terms and Conditions;

 Establish acceptance of draft manufacturing subcontracts;

b) Scope Management;

The Scope of this project will be maintained in accordance with the project controls. Scope changes must go through the Change Control processes to ensure satisfactory documentation and requirement are met, and there is approval for the change.

c) Out of Scope;

 Intellectual Property, and Manufacturing Process Transfer;

(26)

Simple

Procurement

Resources

Module:

Sample

Pages

26

Part 5: Business Case

The Project basic Cost Benefit analysis can be seen below. This Project shows strong financial returns derived from significantly lower manufacturing costs. This is achieved because the manufacturing zone provides:

 Low cost labour;

 Low cost materials;

 Reasonable price on imported materials;

 Tax Free Zone (TFZ), or Special Economic Zone (SEZ) benefits.

a) Financial Benefits

The Cost Benefit analysis contains the following elements to satisfy the Project Sponsor, Project Review Board and stake holders.

 Net Cost Benefit;

 Initial Investment Costs;

 Discounted Cash Flows (DCF);

 Net Present Value (NPV);

 Internal Rate of Return (IRR).

b) Net Present Value (NPV)

The Net Present Value of benefits for this Project is $AUD1.860 million over three years. See “Low cost Manufacturing Cost Benefit” table over page.

c) Rate of Return (IRR)

The Rate of Return (IRR) of this Project is 253%. See “Low cost Manufacturing Cost Benefit” table over page.

d) Payback Period

The Payback Period is Seven (7) months for this Project. See “Low cost Manufacturing Cost Benefit” table over page

e) Return (NPV) as % EBIT/ Net Profit

(27)

Simple

Procurement

Resources

Module:

Sample

Pages

27

Part 6: Business Case

Low Cost Manufacturing Cost Benefit

Discount Rate 7% Invest Year 1 Year 2 Year 3 Total

Benefits

Reduced Cost on Manufactured Items 500,000 700,000 1,000,000 2,200,000 Procurement/ Admin Saving: 1 FTE 60,000 65,000 68,000 193,000

Total Benefits 560,000 765,000 1,068,000 2,393,000

Costs

Capital Cost (2@150,000) -60,000

Manufacturing Transfer -150,000

Annual Auditing Cost -25,000 -26,000 -27,000 -78,000

Total Costs -210,000 -25,000 -26,000 -27,000 -78,000

Net Benefits/ Cash Flow -210,000 535,000 791,000 1,095,000 2,211,000 Discounted Cash Flow -$224,700 $500,000 $739,252 $1,023,364 2,037,917

Net present Value (NPV) $1,860,036

Internal Rate of Return (IRR) 253%

Payback Period 7 Months

(28)

Simple

Procurement

Resources

Module:

Sample

Pages

28

Part 7: Business Case Template: Financial Benefits

Procurement 2012 Category Review & Efficiency Targets

Revenue 155.00

Employee Costs 25.00

Materials and Services Cost Target % In 2012 Saving 2012

Category 1: Widgets 25.00 2.90 12% 84% 2.45 Category 2: Boards 5.00 1.00 20% 100% 1.00 Category 3: Tools 27.00 2.70 10% 50% 1.35 Category 4: Travel 8.00 1.50 19% 50% 1.00 Category 5: Motor Vehicle 9.00 1.30 14% 100% 1.30 Category 6: Hire Equipment 3.00 3.00 15% 100% 0.45 Category 7: Stationery 8.00 1.80 20% 50% 0.90

Total 85.00 11.70 14% 10% 8.45

2012 Financial Improvement

Cost Reduction (Efficiency) 8.45

Cost Reduction 10% 10%

Forecast EBIT 2012 35.00

Savings to EBIT 24%

Direct Costs to Implement 0.80 Return on Investment 1056%

2013 Financial Improvement

Cost Reduction (Efficiency) 11.70

Cost Reduction % 14%

Forecast EBIT 2013 45.00

Savings to EBIT 26%

Direct Costs to Implement 0.60 Return on Investment 1950%

(29)

Simple

Procurement

Resources

Module:

Sample

Pages

29

Part 8: Business Case: Procurement Program Financial Benefits

Procurement Program Summary Report Date

Value %

Revenue 2012 $ 150,000,000

Cost of Goods and Services (G&S) 2012 & % Revenue $ 80,000,000 53%

EBIT 2012 & % Revenue $ 18,000,000 12%

Procurement Program Improvement to EBIT

Annual Savings Target Improvement to EBIT $ 7,200,000 40% 2012 Savings Target Efficiency to EBIT $ 5,400,000 30% Procurement Program of Projects

Procurement Program % Complete 20%

Estimated Completion Date 20-Jul-10

G&S Expense Targeted & as % Total G&S $ 60,000,000 75% Target Efficiency Gain Full Year Annual Benefit $ 7,200,000 12% Number Procurement Projects & Top 5 as % Savings 15 78% Return on Investment (ROI)

Resource Investment to Achieve Target $ 650,000

Investment % Benefit 9%

(30)

Simple

Procurement

Resources

Module:

Sample

Pages

30

Part 9: Non Financial Benefits

There are many non financial benefits from this project. Some of these include:

1. Reduced product portfolio and complexity including undesirable manufacturing processes; 2. Benchmarking data to understand Asia Pacific’s markets;

3. Additional capacity when circumstances require it;

4. Sustainable reductions in many areas of manufacturing cost;

5. Understand Internal versus External costs known as the Make or Buy Model more precisely through this costing exercise;

6. Understand our own costs, direct and overhead better; 7. Access higher skills in certain manufacturing process;

8. Understand advantages competitors have in low cost markets and future market trends;

Part 10: Major Risks Assessment

Procurement Project Risk assessment and Risk mitigation planning is important to Procurement professionals to demonstrate risks have been identified and solutions are proposed to reduce these risks. Risk management, reporting, and Contingency planning are included here to properly plan this Procurement projects.

Management and stakeholders require to see Risk identified in a way they can understand with financial and non financial values attached. This provides for Risk to be accepted when it becomes real, and for Contingency planning where financial allocations can be made to accept this Risk. In this Project we are seeking to:

1. Identify Major Risks in formal Risk Registers;

2. Assess financial Risks, their likelihood, and potential cost;

3. Assess non financial Risks, or critical events which may threaten the Procurement project benefits, costs, & schedule;

4. Identifying preventive measures to avoid or reduce Risks; 5. Identifying measures to transfer/share Risk;

(31)

Simple

Procurement

Resources

Module:

Sample

Pages

31

Procurement Project Risk Assessment Estimated Impact Contingency

Risk Category No. Description Reduce Strategies Owner Time Cost Tech Prob

% CxP Final

Customer _{Perceived Changes} ₁ _{Lower Value} _Education _J.M _- _- _- _20% _- _-

Approval 2 Required Achieve Approval J.M - $30,000 - 10% $3,000 - Commercial _Price ₆ _{Price Inclusions} _{Price Detail Review} _B.I _- _$500,000 _- _40% _$200,000 _$200,000

Contract Terms 7 Contract Inclusions Risk Detail Review B.I Yes $300,000 - 30% $90,000 $90,000 Exchange Rate 8 Exchange Risk Rate Hedge J.M - $200,000 - 50% $100,000 - Quality _{Manufacturing Quality} ₉ _{Quality Control} _{QC Processes} _B.I _Yes _TBA _- _50% _- _-

Testing Budget 10 Budget Low Increase Budget B.I Yes $100,000 - 100% $100,000 $100,000 Testing Skills 11 Skills Low Increase Budget B.I Yes $100,000 Yes 100% $100,000 $100,000 Manufacturing

Transfer Timeframe 16 Timeline Low Increase Timeframe J.M Yes $200,000 - 75% $150,000 $50,000 Skills Available 17 Skills Low Increase Budget J.M Yes $50,000 Yes 75% $37,500 $37,500 Technical _{Skills Available} ₂₀ _{Skills Low} _{Increase Skills} _J.M _- _$60,000 _Yes _75% _$45,000 _$45,000 Regulatory _{Approval Timeframe} ₂₃ _{Timeline Insufficient} _{Increase Resources} _J.M _Yes _$80,000 _- _50% _$40,000 _-

(32)

Simple

Procurement

Resources

Module:

Sample

Pages

32

Procurement Project Risk Assessment Estimated Impact Contingency

Risk Category No. Description Reduce Strategies Owner Time Cost Tech Prob % CxP Final

Customer Commercial Quality Manufacturing Transfer Technical Regulatory

(33)

Simple

Procurement

Resources

Module:

Sample

Pages

33 Part 13: Procurement Project Risk Assessment Blank

Project Name: Project Number: Project Sponsor: Project Owner:

Identification Major Risk Assessment Management Evaluation ID Description Risk

(34)

Simple

Procurement

Resources

Module:

Sample

Pages

34 Part 14: Meeting Agenda, Minutes, and Action Items

Meeting Date: Activity Name:

Activity #: Functional Manager:

Attendees: Absent:

ID Agenda Items Key Discussion Points

Decisions Agreed

(35)

Simple

Procurement

Resources

Module:

Sample

Pages

35 Part 15: Procurement Project KPIs

This Procurement Project has set KPIs to be used to improve performance and help understanding. This will assist the Project responsibility and strategy. The KPIs below can be considered a basic starting point which will evolve to create meaningful KPIs to show Project performance.

Procurement Low cost Sourcing Project KPIs YTD/ F/Cast Budget Benchmark Financial

1. Return on Investment (ROI) 2. Net Present Value (NPV)

3. Rate of Return (IRR)/ Payback Period 4. Return as % EBIT/ NP

5. EBIT Benefit Current Year/ 3 Years 6. Cash Flow Current Year/ 3 Years 7. Earned Value

Progress Schedule

1. % Work Schedule Complete

2. Forecast Final Completion against Schedule

Budget

3. % Budget to Date Expensed

4. % Budget Expensed v % Work Schedule Complete 5. % Budget Expensed as % of Total

6. Forecast Final Cost against Budget

Procurement Strategy & Project Management

1. Improved Competitive Ability through Cost 2. Reduction in Category Supplier Number

Reducing Supplier Risk

1. Performance Bonds/ Supplier Incentives in place 2. % Quality Testing framework Complete

3. % Risk Impacts Identified 4. % Audits Completed

(36)

Simple

Procurement

Resources

Module:

Sample

Pages

36 Part 16: Project Management Reviews

1. Monthly Review Meetings

A Project KPI report will be provided by the Project Manager for each monthly review. In addition a full progress report will be provided with details of each Work Package progress and commercial status including Schedule and Budget. All reports are provided to stakeholders and attendees one week before the review meeting.

2. Quarterly Review Meetings

The Project KPI report will be provided by the Project Manager, with a full progress report with details of each Work Package progress. All reports are provided to stakeholders and attendees one week before the review meeting. In addition the following will also be provided:

1. % Complete by Work Package or Milestone or similar; 2. % Work Schedule complete;

3. Forecast Final Completion against Schedule;

4. % Budget Used by Work Package or Milestone or similar; 5. Forecast Cost to Complete against budget;

6. A full Cashflow report

7. Forecast Return on Investment;

8. Forecast Payback Period/ Internal Rate of Return.

Simple versions of KPIs for Performance Review Meetings 1. % complete;

2. Milestones complete;

3. % budget complete to % work complete, i.e. 30% and 55%;

4. Measure performance independently through Internal Audit, external audit, etc.

Project reporting Templates can include a number of formats depending on requirements. Often there are many common performance criteria to be reported in Project Reports. These might include the following:

(37)

Simple

Procurement

Resources

Module:

Sample

Pages

37

Procurement Project % Work Schedule Complete

Budget Actual % Budget Spent

Forecast

Work Package/ Milestone 1 100% $6,000 $7,000 117% $7,000 Work Package/ Milestone 2 100% $4,000 $4,500 113% $4,500

Work Package/ Milestone 3 50% $4,000 $1,000 $3,000

Work Package/ Milestone 4 30% $2,000 $500 $2,000

Work Package/ Milestone 5 0 $4,000 $4,000

Total $20,000 $20,500

(38)

Simple

Procurement

Resources

Module:

Sample

Pages

38

Project Plan 2. Project Execution

Part 1: Work Breakdown Structure and Work Packages (WBS & WP) The WBS (Work Breakdown Structure) for this Project includes:

 The Work Breakdown Structure has been identified in the Project Organisation stage.

 It has identified tasks from the Scope of Work that make up the project.

 The Work Breakdown will start at the high level and be broken down further and further in a descending order to more defined tasks or components.

 The WBS is defined as the most detailed parts called Work Packages which have been assigned to parties for work, and the WBS has allocated responsibility for these tasks to those accountable.

 This breakdown and assigned accountability is important to this project as it aligns required work by technical parties/ departments to commercial objectives, milestones and targets/ budgets. This will prove important when variance analysis is performed if the project is not on target, to identify which party/ task is behind schedule;

The Work Packages for this Project

The Work Packages are documented in line with our company standards and procedures. Where our company has Project Management standards and procedures these have been used. Where none existed then the following has been used to ensure good Project Management practice. Work Packages have been:

 Separately identified and clearly defined;

 Assigned to one department;

 Start and Complete dates, and Milestones at a detailed level to allow controls and reporting analysis against targets to be performed;

 Budget which should be agreed including internal costs, external costs, materials;

 Subcontract or similar activities should be able to be identified to determine cost and risk to the project;

 Resource commitments may be requested and agreed at this stage to ensure the assigned department is capable of delivering the Work Package;

 Work Packages may be broken down further by the assigned department under their organisation structure, however this is their choice and does not change the assigned ownership, schedule of dates and responsibilities;

(39)

Simple

Procurement

Resources

Module:

Sample

Pages

39 Part 2: Work Breakdown Structure Diagram (WBS)

v

The Simple Training Work Breakdown Structure by Procurement

L e v e l T w o L e v e l F o u r (O rg a n is a tio n ) L e v e l O n e Procurement Project (Freight) Legal Works L e v e l F iv e ( W o rk P a c k a g e & A s s ig n m e n t) Price/ T&C Negotiation Performance Period Supplier Qualification RFP/ RFQ/ Tender Supplier Selection

Analysis RFP/ RFQ/ _Tender _{Probation Period}Performance

Business Case Supplier Selection Procurement Price Testing Auditing GL Reconcile Validated Interim Report Analysis Legal Dept. Procurement Technical Dept. Legal Dept. Procurement CFO/ CEO/ Board Procurement Quality Dept. L e v e l T h re e Performance Validated v v Interim Report Audit Validation Expense Analysis

(40)

Simple

Procurement

Resources

Module:

Sample

Pages

40 Part 3: Organisational Breakdown Structure (OBS)

The Project OBS (Organisational Breakdown Structure)

 The project organisation is shown;

 Cost allocation is shown;

 Responsibility for Work Packages is assigned including the departments responsible and how cost is allocated to them to perform tasks, even if these are coded back to the project;

 Responsibilities need to be made clear so that Single Ownership Principle applies even where several departments may work together to achieve Work Packages;

 Outsourced Costs and Subcontract Costs are able to be identified within the departments responsibility;

The OBS can identify the Project organisation, which typically includes:

 Program Manager if multiple Projects belong to the Program, so if there are several Procurement Projects, then there may be a need for a Program Manage role

 Project Manager for the individual Project;

 Contract and Risk function;

 Technology function;

 Quality function, and Corporate function such as HR, IT, Purchasing;

 Procurement.

Why Create WBS and Work Package detail in your Procurement Project?

This will provide key credibility, accuracy, and respect for this Procurement Project. It may take some time and study to perform this correctly. Your organisation might not understand Project Management, and you may be leading the way. In either case, managing Projects to an acknowledged professional standard will help greatly.

1. Work Package Examples

Work Package examples include the most defined work assignments such as price negotiation, Technical assessment, Quality Standard Operating Procedure (SOP) implementation, auditing, etc.

2. Earned Value Analysis

This covers project performance compared to budget based on forecast progress and current performance. Earned Value is a universal concept along with Gross Margin, Net Margin, Return on Investment, and Payback period.

(41)

Simple

Procurement

Resources

Module:

Sample

Pages

41 Part 4: Organisational Breakdown Structure Diagram (OBS)

v

The Simple Training Organisation Breakdown Structure by Procurement

L e v e l T w o L e v e l F o u r (O rg a n is a tio n ) L e v e l O n e Procurement Project (Freight) Legal Works L e v e l F iv e ( W o rk P a c k a g e & A s s ig n m e n t) Price/ T&C Negotiation Performance Period Supplier Qualification RFP/ RFQ/ Tender Supplier Selection Analysis Performance Probation Period RFP/ RFQ/ Tender Business Case Supplier Selection Procurement Price Testing Auditing Interim Report Analysis Legal Dept. Procurement Technical Dept. Legal Dept. Procurement CFO/ CEO/ Board Procurement Quality Dept. L e v e l T h re e Performance Validated v v Procurement Interim Report Procurement Audit Validation Expense Analysis Procurement Procurement Procurement Quality Dept. Procurement Tech. Dept. Procurement Legal Dept. Legal Dept.

Further breakdown 2-3 of each if needed

Procurement

(42)

Simple

Procurement

Resources

Module:

Sample

Pages

42 Notes:

The Net Cost Benefit is simply the benefits minus the costs including the initial investment. Initial Investment Costs are the one off payments for the capital investment. The payments may be one off or staggered over the years and included in the cost benefit. They should be clearly separated for review.

The Discounted Cash Flows (DCF) is simply the Net Benefits or Cash Flow, but discounted (reduced) at a rate which takes into account Finance/ Inflation and other costs. This means the benefits in future years must be reduced to give a value for today, i.e. $100 next year is discounted because it is only worth $93 today, and so on year after year.

In the case below, a 7% rate issued. The formula easily calculates the Discounted Cash Flow. Bear in mind if each year is discounted at 7% then the benefit for a number of years is eroded, so the discount rate does have a significant impact in reducing the benefit. Always argue the discount rate to 7% or less if possible. 10% may greatly reduce benefits for some investment decisions.

The Net Present Value (NPV) is the sum of Discounted Cash Flows and again is easily calculated with a formula.

The Internal Rate of Return (IRR) is the return of the Investment for the generated Discounted Cash Flows (DCF). We can see all these terms in the Cost Benefit following.

Notes:

 Investments/ initial costs should be separate and increased by discount factor not decreased (as they are already negative outflows) so use 1*1.07 instead / 1.07;

 Discounting cash flows year by year separately gives a lower value than the NPV (discounted together);

 NPV with Investment discounted formula might be =NPV(7%,B41:D41)+(A41*1.07)

(43)

Simple

Procurement

Resources

Module:

Sample

Pages

43 Part 5: Project Cost Codes Diagram with Work Breakdown Structure (WBS)

v

The Simple Training Work Breakdown Structure & Cost Code by Procurement

L e v e l T w o L e v e l F o u r (O rg a n is a tio n ) L e v e l O n e Procurement Project (Freight) L e v e l F iv e ( W o rk P a c k a g e & A s s ig n m e n t) Supplier Qualification RFP/ RFQ/ Tender Supplier Selection Analysis Performance Probation Period RFP/ RFQ/ Tender Procurement Price Testing Auditing Interim Report Analysis Legal Dept. Procurement Technical Dept. Legal Dept. Procurement CFO/ CEO/ Board Procurement Quality Dept. L e v e l T h re e v v Tech. Dept. Procurement Legal Dept.

Further breakdown 2-3 of each if needed

Procurement

Cost Code Consultancy

Cost Code Timesheet Cost Code Timesheet Cost Code Travel

Cost Code Timesheet Cost Code Timesheet

Cost Code Timesheet

(44)

Simple

Procurement

Resources

Module:

Sample

Pages

44 Part 6: Project Schedule and Key Milestones

The Procurement Schedule can be seen below. The Project Milestones can be seen below including the duration to achieve each. The duration of the Project is 256 days. This can be altered by changing the activity list or durations if necessary.

There are 12 Activity Lists. Dependencies are listed inside the Activity Lists. Generally Dependencies are limited to inside Activity Lists. Contingency estimated at 10% is built in to each task.

Low Cost Sourcing Activities

Milestone Type Activity Duration Activity Cumulative ID Milestone List

1 Determine Products to be Outsourced Finance 57 Days 2 Finalise Commercial Key Terms and Conditions; Mgmnt. 161 Days 3 Regulatory Audit Regulatory 191 Days 4 Final Shortlist of 4 Suppliers Mgmnt. 205 Days 5 Quality Audit Report including Risks Quality 235 Days 6 Select Successful Two Suppliers Mgmnt. 242 Days 7 Report Status & Timing for Manufacturing Transfer Directors 249 Days 8 Commence Manufacturing Transfer Transfer 256 Days

ID Activity List Depend

1 Determine Products to be Outsourced - 57 Days

1.1 Target Revenue, Margin & Market Share Agreed - 10 Days 1.2 Costing/ Margins to be Complete & Validated 1.1 40 Days 1.3 Product List Agreed by Management 1.2 7 Days 57 2 Parent Company Check for Existing Strategies - 7 Days 57

3 Research Technology for Cost Reducing Options - 20 Days 57

4 Research Low Cost Manufacturing Countries 30 Days 87

4.1 Determine First Supplier List 1.2 10 Days 4.2 First Assess Commercial, Regulatory, & Capacity 4.1 20 Days 4.3 Assess Manufacturing Transfer Capability - 15 Days 4.4 Assess Manufacturing Capacity - 5 Days

5 Create Product Specification Packages 14 Days 87

5.1 Product Specs, Pack Sizes, Forecast Volumes 1.2 7 Days 5.2 Bill of Materials, Key Material Prices 5.1 7 Days

(45)

Simple

Procurement

Resources

Module:

Sample

Pages

45

5.3 Method of Manufacture 5.1 2 Days

5.4 Quality Testing Methods, Specs., Packaging 5.1 5 Days

5.5 Logistics Information 5.1 3 Days

6 Finalise Commercial Key Terms and Conditions 74 Days 161

6.1 Create Competitive Pricing Process 12 + Companies 5 30 Days 6.2 Estimate Final Unit Pricing 6.1 7 Days 6.3 Determine Site Transfer Costs and Process 6.1 14 Days 6.4 Establish Agreement of Manufacturing Subcontracts 6.2, 6.3 30 Days 6.5 Risk Agreement Signed 6.2, 6.3 16 Days

7 Regulatory Audit 30 Days 191

7.1 Review Licensing 6.1 30 Days

7.2 Capability to Meet Regulatory Requirements 6.1 30 Days 7.3 Performance Bonds. Incentives Agreed. Intell. Prop. 6.1 30 Days

8 Final Shortlist of 4 Suppliers 7 14 Days 205

9 Quality Audit Report incl. Risks 8 30 Days 235

9.1 Quality Audit. Supplier Response & Risk Assess - 30 Days

10 Due Diligence Report 7 Days 235

10.1 Establish Ownership, Financial Status, Credit Report 7 7 Days

11 Select Successful Two Suppliers 7 Days 242

11.1 Contract Award to 2 Successful Suppliers 10 3 Days 11.2 Technical Agreement to 2 Successful Suppliers 11.1 4 Days 12 Report Status & Timing for Manuf. Transfer 11.2 7 Days 249

12.1 Commence Manufacturing Transfer 12 7 Days 256

Project Summary Minimum Days Required

256 Days 256