A Guide to Project Management

43 4 updates to the risk response plan risks may

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Unformatted text preview: ment Planning .1 Make-or-buy analysis. This is a general management technique and a part of the initial scope definition process that can be used to determine whether a particular product can be produced cost effectively by the performing organization. Analysis should include both indirect as well as direct costs. For example, the "buy" side of the analysis should include both the actual out-of-pocket cost to purchase the product as well as the indirect costs of managing the purchasing process. A make-or-buy analysis must also reflect the perspective of the performing organization, as well as the immediate needs of the project. For example, purchasing a capital item (anything from a construction crane to a personal computer) rather than renting or leasing it may or may not be cost effective. However, if the performing organization has an ongoing need for the item, the portion of the purchase cost allocated to the project may be less than the cost of the rental. .2 Expert judgment. Expert technical judgment will often be required to assess the inputs to this process. Such expertise may be provided by any group or individual with specialized knowledge or training and is available from many sources, including: Other units within the performing organization. Consultants. Professional and technical associations. Industry groups. .3 Contract type selection. Different types of contracts are more or less appropriate for different types of purchases. Contracts generally fall into one of three broad categories: 150 NAVIGATION LINKS ACROYMNS LIST ACRONYMS LIST ACROYMNS LIST A Guide to the Project Management Body of Knowledge (PMBOK Guide) 2000 Edition 2000 Project Management Institute, Four Campus Boulevard, Newtown Square, PA 19073-3299 USA Chapter 12--Project Procurement Management Fixed-price or lump-sum contracts--this category of contract involves a fixed total price for a well-defined product. To the extent that the product is not well defined, both the buyer and seller are at risk--the buyer may not receive the desired product or the seller may need to incur additional costs to provide it. Fixed-price contracts may also include incentives for meeting or exceeding selected project objectives, such as schedule targets. Cost-reimbursable contracts--this category of contract involves payment (reimbursement) to the seller for its actual costs, plus typically a fee representing seller profit. Costs are usually classified as direct costs or indirect costs. Direct costs are costs incurred for the exclusive benefit of the project (e.g., salaries of full-time project staff). Indirect costs, also called overhead costs, are costs allocated to the project by the performing organization as a cost of doing business (e.g., salaries of corporate executives). Indirect costs are usually calculated as a percentage of direct costs. Cost-reimbursable contracts often include incentives for meeting or exceeding selected project objectives, such as schedule targets or...
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