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Commercial and Procurement: Project Management

Introduction

Project management refers to the process of selection and coordination of the resources necessary for the procurement and development of a project right from its inception to completion. Project management is a common scenario in the global workplace. There are people who have the necessary resources but lack the corresponding acumen to carry out successful project management. (Science Direct 1996).

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Project procurement management represents an important process in an organization’s overall management procedures. High-performance organizations are widely known for their professional and technical nature of handling projects. However for a successful project procurement to take place there must be a mechanism set for mutual agreement between the client and the firm. The most important thing here is to understand the client’s requirement in the first phase of the procurement. (Teerajetgul & Chareonngam 2009) This can be done by looking at the factors tabled below.

factors Explanation references
Time/duration How long the project should last. © 2008 Cooper Kauffman Ltd – Site by KC Graphics
cost The amount of money that should be spent for the whole project to complete. © 2008 Cooper Kauffman Ltd – Site by KC Graphics
security How safe is the project in terms of physical and technical manipulation © 2008 Cooper Kauffman Ltd – Site by KC Graphics
Quality The quality of a project refers to the manner in which the firm is able to derive perceived benefits i.e. reliability, relevance and understandability © 2008 Cooper Kauffman Ltd – Site by KC Graphics
Nature /scope What type of project to be run is it a construction, service etc © 2008 Cooper Kauffman Ltd – Site by KC Graphics
Location/Site The geographical area © 2008 Cooper Kauffman Ltd – Site by KC Graphics
Source of Finance Where the firm is likely to get the capital for the work © 2008 Cooper Kauffman Ltd – Site by KC Graphics
Appointment of Project officials The project must be done under the direction of an official. © 2008 Cooper Kauffman Ltd – Site by KC Graphics

Explanation

Client assessment is the heart of project procurement. If the client requirement is not properly assessed then a firm is likely to develop an incompatible project, if this is the case then the contractor is likely to incur unnecessary costs and time. (Jayantha&Wimalasiri 2000)

Time/duration

Time is an essential element factor in client requirement assessment, most clients would agree on projects which do not necessarily take short period but projects which are done on timeframe perceived to be in the best interest of the organization. Long periods are not encouraged. It is important that the firm agrees on the best time possible. (Pitsis&Veenswijik2007)

Cost

Some organizations appraise projects on the basis of capital consumption, projects requiring lump sums are automatically omitted to pave way for the most convenient ones. It is the prerogative of the client to choose which project suits his/her budget. Cost can be determined through cost-benefit analysis to assess which project is economically feasible. Most clients have incurred heavy financial losses as a result of allowing the contractor to decide on every aspect of finance affecting the whole project. (Pitsis&Veenswijik2007)

Quality

In each and every project clients will insist on quality. Poor quality projects are likely to inconvenience the clients and may therefore cost a firm dearly. Professional project managers normally capitalize on project quality no matter how long or what amount is required to complete the project. Quality project refers to projects with little or no problems at all; the associated risks are carefully assessed to provide valid assumptions on their occurrences. The project is meeting the organizational standard for performance and that the employees are conversant with nature of operation. (Hartman 2008)

Nature/scope

The firm is required to obtain a detailed requirement concerning the nature of a project that the client wants to carry out, the extent and scope will provide the contractor with additional information about the project requirement. It may be that the client is in the service industry or the product industry. Careful analysis of client will provide an important insight about the nature of the project. (Pitsis&Veenswijik2007)

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Methods of procurement

There quite a number of procurement methods used by different organizations in the global workplace, some of these are tabled below:

Procurement Method Characteristics References
Traditional Design-Bid-Build -it is the most popular
-It yields the most claims of litigation
http://www.allenmatkins.com/events/SC-Procurement/SD-procurement.htm
Design-Build -owners have little claim exposure
-risks are shifted to the builder
http://www.allenmatkins.com/events/SC-Procurement/SD-procurement.htm
Design Sequence -its relatively risky
-not frequently used
http://www.allenmatkins.com/events/SC-Procurement/SD-procurement.htm.
Best and Final Offer (BAFO) Resemble the design-build
Reduces risks further
http://www.allenmatkins.com/events/SC-Procurement/SD-procurement.htm.
Construction management The owner physically involves him/herself in the construction process
Management Contracting -the organization allows an independent firm to handle and manage its functions in the organization.

Explanation

Management contracting is an element of business process outsourcing. Under this method it’s the prerogative of the firm to determine which contractor best fulfills the preset assessment criteria. If a firm qualifies then it will perform the contracted functions on behalf of the organization. Care should be taken to avoid outsourcing very sensitive responsibilities that are likely to plunge the company into risky competitive situation. (Hartman 2008)The following benefits may be derived from management contracting:

A firm may not have the required competence and skills for the performance of the identified function. When experts from outside are invited then the employees can use this as an opportunity to acquire more knowledge and learn more. (Pitsis&Veenswijik2007)

The organization can dedicate time to key management functions and therefore concentrate on value-adding activities within the organization. (Hartman 2008)It also helps the organization to reduce the risk associated with project to the contractor.

Construction management

On the other hand construction management refers to the owner personally undertaking the project. In this case the risks and benefits inherent in the process are born and accrued by the contractor. Certain organizations are not willing to subcontract projects to third parties perhaps for some strategic reasons to the entire organization. (Florence&Linda2006)Where this is the case it would be convenient to carry out the contraction process by the firm itself.

Project Duration Value Nature
Africa online Four months Transparent revenue collection Integrated revenue system.
Amazon.Com Six months Streamlined transactions System application of accounting
Chelsea FC One year Mobile Air ticketing Sporting activity
KLM -express Two years booking Airline Company

Narration

Africa Online

The company invited several bidders for the project. This project was commissioned by the company’s independent subsidiary located in the central region of Africa with its head office in Kenya. Our company was invited to tender and fortunately we won the tender, my responsibility as the project assistant was to oversee the overall success of the system. (Pheng&Ben1997)

Africa Online is an information technology firm that specializes in providing internet services including supplying new and used Japanese modems. It was experiencing a difficulty in revenue management and a decision was reached during their previous annual general meeting that it was to adopt a new revenue technique that would not only see the company properly accounting for its income but also setting an example in the industry as a value and a pioneer of innovative consumer of technology in the business environment. The project took four months to complete. (Florence&Linda2006)

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Amazon.Com

Amazon.Com is a group of companies registered in North America with branches strategically spread all over Western Europe and includes countries like France etc. Amazon.Com is a manufacture of books and magazines. In the recent past we were hired under the so-called business process outsourcing to developing its integrated accounting system that comprised the new System Application of Accounting. (Pheng&Ben1997)This allows the user to make orders immediately as sales are made. The project took us six months to complete.

Chelsea FC

This is one of the biggest football clubs in England with an outstanding performance in the English Premier League. During the year 2005 under the leadership of Jose Mourinho the club was experiencing some ticketing problems, a decision was reached that there was a need to install a system of mobile air ticketing that could allow football fans to buy tickets through their mobile phones without the need to travel to Thomas Cook their only travel agent. This saw the club becoming the only choice and subsequently winning the English Premier League. This project took us one year with total cost incurred amounting to $ 5m. (Zinkin&Booer1968)

KLM -Express

This is an airline company located in the southern Europe, where we were hired to install an online booking system where clients could be able to book anywhere at their convenience. The value of the project was that it increased marketing across the global divide. The project took us two years to complete. (Pitsis&Veenswijik2007)

The differences and similarities between the question methods and the selected organizations

KLM vs. Africa Online

These are two organizations that use two different IT techniques. In the first place KLM recognizes the fact that there is no need for requests for proposals. To them they believe that organization needs to understand the nature, capability, and structure of a firm in order to develop a new system and that RFP is therefore not a must. While the Africa Online believes in the use of a proposal when considering a selection of a new project. They believe that the use of a proposal is cost saving as well as time. (Hummels1994)

KLM on the other side proposes that when an organization is considering developing a project there is need to be a high user involvement. This will make the employees involved to understand the system and thus promote a culture of maximum participation. On the other side Africa Online excludes the end-users and thus complicates the process by making the end-users not understand the basics. The project development will be limited to specific people in the organization. This is discouraging especially in a growing organization where employees would want to sharpen their skills. (Koll 2005)

Again on the other hand KLM believes in a theory of design-build bid system that will try to incorporate the human behavior and institutions requirements for now and in the future. Amazon insists on traditional systems which have been used over and over again. This makes KLM more flexible and convenient. This is because the current global world is dynamic and that organizations should be better equipped to handle any changes that come with opportunities. This can only be achieved when there is room for flexibility. (Hummels1994)

Criticism of the current procurement methods

We have discussed that the current global world is moving to the business process outsourcing as the major procurement method. (Koll 2005) Well this method has received the following criticism:

Business outsourcing has engaged several entities in price wars and adverse competitive strategies. By outsourcing core business functions to the third party, the business is exposing its strategy to the external environment. For competition reasons it’s a highly regrettable action and may plunge a firm into impossible situation.

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Business outsourcing has always led to conflicts in certain organizations since the contracting organization may develop systems that are incompatible with the organization’s culture and are therefore not user-friendly. (Hummels1994)

The firm may not be able to control some of its core activities as they will fall under the contractor. This can be detrimental to a firm especially where the environment is so competitive and a close monitoring is required on a daily basis. The firm can lose the big picture. (Pheng&Ben1997)

Business outsourcing has been viewed in the wider spectrum as costly, some outsourcing companies are very expensive and that adjusting to this level especially at this time when most businesses are suffering from the global economic crunch can be a nightmare to many entities. This is why businesses are advised to be careful when making contracting and purchase decisions to avoid being implicated in serious financial losses. (Peter&Sanjeev 2008)

It is also argued that the outsourcing companies do not have knowledge about the nature of the company and therefore it may be inconvenient to allow another party to perform what it does not understand on your behalf. Critics also assert that business outsourcing is a killer to the culture of innovation and creativeness. Employees will never be creative. (Koll 2005)

Executive summary

The major objective of studying this topic is to provide the students with adequate knowledge about how an organization can carry out credible procurement systems. In the modern world procurement has become very instrumental in establishing strong relationships between the firms and their suppliers. Long-term contracts are normally capital intensive and therefore it’s the responsibility of the organization to ensure that there is a high probability of recouping benefits once it commences. This can only be realized if the firm’s procurement system is worthy enough to warrant the perceived performance. (John 2004)

Different firms have diverse management styles, important decisions are made by higher-level managers however it’s equally important that participatory management is adopted where all employees are involved in the decision-making process. Procurement should not only be left for specific managers but also everybody should be involved, this will eliminate the element of stereotyping or vested interest in the process. All sources should be evaluated including requests for proposals and where possible attention is paid to the supplier with a track record in the industry. (Eddie 2001)

Modern organizations have developed web sites where they can be able to view quite a number of suppliers in the industry in terms of competence and price. As many firms become automated online business is receiving focus attention and it should be in the interest of the firm to consider the value achieved from the whole process. Electronic procurement provides the advantage of cost savings as well as time. It will ensure that the vendor listing is screened in the organization’s database for any eventuality. By reading this paper there is no doubt that one will gain adequate procurement knowledge. (Yeung 2007)

Conclusion

Project management constitutes to a very important area in business, it is the responsibility of an organization to ensure that there are procedures in place to undertake a project right from its inception to completion. However businesses should be cautious enough to determine which procurement methods are desirable as well as beneficial to the organization and its associated stakeholders. The contemporary environment requires organizations to be strategic enough to ensure that they are ubiquitously making sufficient gains to secure sustainable performance in the industry. This can only be achieved when a firm remains secretive enough and outsourcing core business functions does not feature anywhere in the company’s procurement procedures. Procurement is important in the modern economic world as small businesses may not be able to develop their own systems. However care should be taken to ensure that a system developed is actually compatible with the organizational structure and that its user friendly to all employees. Organizations should ensure that they enter into contracts that are valid and are assured of their benefits sought. Different procurement methods are discussed in this paper and the responsibility of the whole firm lies in choosing the most appropriate one. If an organization has an effective system of sourcing quotations it will fail automatically.

In cases where the firm is unable to carry out all these it’s equally important that it consults with others in the industry through experts to help arrive at a solution. There is also an option of using the press or visiting the website of different organizations. This can be made easier by strategic planning. If this is highly exhaustive in the company agenda then there is no doubt that it will score highly.

Recommendation

Any company that wants to carry out procurement should be able to determine the best method that offers the firm the anticipated benefits as well as yielding good rate of return for shareholders.

References

Science Direct 1996, ‘Options for applying BPR in the Australian construction industry, international journal of project management, Vol 14, no 6, pp 379-85

Teerajetgul, W &Chareonngam, C 2009,’Tacit knowledge utilization in Thai construction projects’, journal of knowledge management, vol 12, no1, pp164-74

Pitsis, S, Veenswijik, M 2007,’Managing public-private management: paradoxes, complexity, and project design’, internal journal of project management, vol 126, no 6, pp 591-00

Hartman, F 2008,’Preparing the mind for dynamic management,’ international of project management, vol 26, no 3, pp 258-67

Florence, Y&Linda, H 2006,’Risks faced by Singapore firms when undertaking construction projects in India’, International journal of project management, vol 24, no 3, pp 261-70

Pheng, S&Ben, L 1997,’East meetswest: leadership development for construction project management’, journal of managerial psychology, vol12, no 6, pp 383-00

Hummels, H 1994,’Management and the use of Business: towards an investigative ethics’, international journal of value Based management, vol 7, no 3, pp 239-53

Koll,O ,Arch,G&Mulhlbacher,H 2005,’Balanced versus focused responsiveness to core constituencies and organizational effectiveness’, European journal of marketing,vol39,no 9,10,pp 1166-83

John,G,McDaniel,Beth,A&Desimone D 2004,’Putting it all together and entering practice’, journal of the American optometric,vol 75,no 5,pp 319-33

Yeung,F, etal 2007, ‘The definition of alliancing in construction as a Wittgenstein family-resemblance concept’ ,International journal of project management,vol 25,no3,pp219-31

Eddie,W 2001, ‘Network communication in the construction industry’,Corporate communication:An international journal,Vol 6,no 2,pp 61-70

Jayantha,S,Wimalasiri,Alexander,K 2000, ‘A comparative study of employee involvement initiatives in Hong Kong and the USA’,International journal of manpower,vol 21,no 8,pp 614-34

Peter ,B,Sanjeev,J&Yukika,A 2008, Building strategic partnerships for managing innovation outsourcing’,Strategic Outsourcing:An international journal,vol 1,no 2,pp 100-121

Zinkin,M,Booer,G 1968,’Statistic for Business planning’,Journal of the Royal statistical society,Vol 131,no 1,pp 61-74

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