Hello, readers, and welcome back to our project management career series. This series (as some of us already know) is focused on helping you prepare for a change of job or an interview, either as a project manager or a project team member.
PMP Training – Resources (Intense)
In our project management career series, we have already successfully explored the following areas:
- Project management career series – Introduction
- Project management career series – Scope management
- Project management career series – Time management
- Project management career series – Quality management
- Project management career series – Cost management
- Project management career series – Human resource management
- Project management career series – Risk resource management
- Project management career series – communication management
In our article today, we will be exploring the project procurement management and analyzing probable interview questions that could arise from them. As usual, we would also provide insight into practical ways of answering these questions.
While questions from procurement management might not be as common as other project management knowledge areas, as a project manager, it is your responsibility to have a solid understanding of all the project management knowledge area. Moreover, you never can tell what to expect in an interview setting.
Project procurement management is the act of planning, monitoring, and controlling all processes that deal with the purchase or acquisition of product or services from sources external to the project team. Put simply, procurement can be described as the ability to successfully carry out contracts and agreements. Depending on the organization you are working for and the nature of the project, you can either be the buyer or the seller, but whatever the case might be you should know your responsibilities in both scenarios.
Below are prospective project procurement management questions you can expect when interviewing for the position of a project manager.
Q: What is a contract?
A: According to PMBOK, a contract represents a mutually binding agreement that obligates the seller to provide something of value (e.g., specified products, services, or results) and obligates the buyer to provide monetary or other valuable compensation. Although a contract can be verbal or written, written contracts are preferable, as they are clear and explicit and can be used as clear evidence during a dispute. A contract clearly states the responsibilities of all parties involved in an agreement, times and conditions, deadlines.
Q: Describe the various forms of contract that you can use in a project
A: There are two main types of contract in project management. These are:
- Fixed-price contract—This is a legal agreement between a buyer and a seller to supply a product or service at a fixed amount over an agreed period of time. The fixed-price contract would always reduce risk for the buyer and transfer the cost risk of the product to the seller. This type of contract also allows the seller room for proper planning, as they are aware of the total cost of the project before commencing the project. There are, however, variations of these contract type which includes
- Fixed price contract with price adjustment (used for long-term projects and accounts for inflation)
- Fixed price contract with incentive (used for urgent projects; provides incentives to seller after meeting agreed milestone)
- Cost-reimbursable contract—This is also known as a cost-plus contract. In this type of contract, the buyer agrees to pay the seller the costs incurred by the seller in providing the services or goods. In a cost-reimbursable contract, the buyer bears the cost risk. Just like the fixed-cost contract, the following are the variations of the cost plus contract.
- Cost reimbursable with fixed fee (fixed fee is the profit of the contractor/seller)
- Cost reimbursable with percentage fee (the profit of the contractor/seller is a percentage of the cost incurred in carrying out the project)
- Cost reimbursable with incentive (incentive is used to motivate the contractor/seller in when an agreed milestone is met)
Q: When selecting a contractor or a subcontractor, explain five major selection criteria you would focus on as a project manager
A: Depending on the nature of the project, some or all of the following should be considered when selecting a contractor:
- How well does the contractor understand the project requirements?
- Does the contractor have the technical requirement to carry out the project?
- What is the financial capability of the seller?
- Has the past performances of the seller been up to standard?
- Who is to bear the risk of the project?
- How much warranty does the seller provide?
- What management approach and production technology is adopted by the organization?
- Can the seller provide credible references?
- Who has the propriety right to the work to be carried out?
Q: A make-or-buy analysis has been conducted by your organization and your analysis shows that it is more economically viable to buy than to make a product. You, however, realized that the project involves organizational confidential issues. How would you handle such situation?
A: There is nothing wrong with contracting or subcontracting a project, which includes confidential issues; however, these issues must be made known to the parties involved. Once you notice the confidentiality issue, discuss it with the management team so that it can be highlighted in the contract and a confidentiality agreement can be reached with the contractor to keep the secrecy of the information where necessary.
Q: What is an independent estimate and why is it necessary for the procuring organization to prepare one?
A: Independent estimates are estimates carried out by the buyer using a professional estimator (in-house or subcontractor) in order to have a realistic idea of the project estimate before selecting a seller/contractor. The independent estimate serves as a benchmark for all other estimates during the tender phase / seller selection phase.
Q: Change is the only common thing to all projects. As the seller’s project manager, how would you treat a change that occurs after a contract has been signed?
A: More often than not, changes will occur in contract situations. Change in itself is not bad but, if not properly handled, it can become detrimental to the project, causing scope creep. Any change to the agreed requirement of a project should be properly documented and renegotiated either as part of the ongoing contract or as a new contract depending on the scope of work involved.
Q: You have conducted a procurement performance review and you realized that the seller is behind schedule. How do you handle this scenario?
A: When signing a contract, nothing should be left to assumption. Contracts should be as detailed as possible. This means that all parties involved in the contract should be aware of the measures to be taken if the procurement is behind schedule. Measures could be as lenient as a warning and using the management/contingency reserves or as critical as canceling the contract. However, before any decision is taken, an analysis showing the reason why the project is behind schedule should always be carried out. If the project delay was caused by reasons beyond the control of the seller, such as war, government policies, unforeseen weather conditions, etc., then there might be a need to re-baseline the project schedule.
Q: How would you close procurement effectively?
A: We should always realize that what the buyer refers to as procurement is a unique project to the sellers’ team. Procurement is therefore a project and should be closed like any other project. Close procurement happens after the procurement has occurred and is important for future references, so documentation is key. It also finalizes any claims by the seller.
Q: What factors determine the contract type to be selected by an organization?
A: Various factors determine the contract type to be selected. Popular among them are cost, shareholders’ decision, project time, technical requirement and project risk. An analysis of all or some of the factors listed above helps the project manager decide the type of contract to be used.
Q: In a contract, the buyer is always a key project stakeholder for the seller but might not be the most important project stakeholder. Give an example of a project where the buyer is not the most important project stakeholder.
A: No doubt the buyer is one of the most important stakeholders, but the end user is always the most important stakeholder. It is not impossible for the buyer to also be the end user of the project, but in a case where the buyer is not the end user, the end user trumps over the buyer. A common example is the design of retail store; In this scenario, the target customers are the most important stakeholders, as they would have more relationship with the store than the store owner sometimes.
Project procurement management is another important project management knowledge area that every project manager must have a good understanding of. It focuses on all the processes necessary to ensure that procurement is successful.
An interview is an opportunity to show your understanding and mastery of project management knowledge. Project management often has a scientific approach to solving problems with a touch of flexibility, which is as a result of experience that has been developed over time. Remember, always be prepared, dress properly, listen carefully, and analyze all the data you have before providing an answer.
Never be scared of your interviewers: An interview is a formal conversation and not a monologue. Ask questions when you are confused. Remember, answering the wrong question is a failure already.
Once again, thank you for reading. Hope you have learnt some valuable techniques for your project management interview preparation. If you have any question or suggestion, do leave us a message in the comment box below.