Risk Related Contract Decisions

In the plan risk responses process, we covered the strategies we would use to handle negative and positive risks. In those response strategies, one of them was “Transfer” for Negative Risks and “Share” for Positive Risks. In either case we are going to involve a third party to handle the risk. In fact, even in case of Mitigate as a strategy for negative risks, we may involve third party to minimize the effects of a risk.

So, whenever a third party is involved in our project, it would be a prudent idea to sign a formal contract to ensure that both the vendor (providing us with the service) and our team know what is expected out of one another. This process of involving a third party vendor to share some part of our project work is achieved using the “Procurement Management” knowledge area.

The processes in the Procurement Management Knowledge Area that we will use are:
a. Plan Procurements
b. Administering Procurements
c. Conducting Procurements
d. Closing Procurements

It would be a good idea to revise the above 4 chapters and/or read the Procurement Management knowledge area of the PMBoK Guide once before the exam as there maybe a few questions from this area. For your quick review, I have summarized the process below.

Plan Procurements:

• The purpose of this process is to document project purchasing decisions including approach, identify potential sellers, types of contracts to use etc.
• The output of this planning process is the Procurement Management Plan
• A Statement of Work (SoW) is created outlining the scope of work that needs to be executed by the third party vendor
• Make or buy decisions are made
• Source selection criteria are defined (Based on which a vendor will be chosen)
• All documents related to Procurements are created
• At the end of this step, we are all set to actually transfer/share the subset of project work to the vendor

The inputs used in this process are:

• Scope baseline
• Requirement documents
• Teaming agreements
• Risk register
• Risk related contract decisions
• Activity resource requirements
• Project schedule
• Activity cost estimates
• Cost performance baseline
• Enterprise environmental factors and
• Organizational process assets

The tools and techniques used in this process are:

• Make or buy decisions
• Contract types
• Expert judgment

It would be a good idea to revise the 4 chapters on Procurement Management in this blog and/or read the Procurement Management knowledge area of the PMBoK Guide once before the exam as there maybe a few questions from this area

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