DUBLIN BUSINESS SCHOOL

PROJECT PLANNING AND CONTROLLING – B7BU100

The Chunnel Project Case Study

ANA CAROLINA ASSIS E SOUZA – 10130650

DUBLIN 2015

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CONTENTS 1 INTRODUCTION ............................................................................................. 3

2 QUESTION 1 ................................................................................................... 3

Plan Procurements .......................................................................................... 3

Conduct Procurements ................................................................................... 5

Administer Procurement .................................................................................. 7

Close Procurements ........................................................................................ 9

3 QUESTION 2 ................................................................................................. 11

4 REFERENCES .............................................................................................. 12

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1 INTRODUCTION It is necessary a procurement management plan to planning, executing and controlling the procurements in the project. Procurement problems: In Eurotunnel project there were many vendors bidding for the contract. This background led the ‘winner’s curse’ of the successful bidders having the lowest and most optimistic price estimates, against the most realistic estimates. Finally, the bidder winner could not accomplish the forecast of time and cost.

2 QUESTION 1 If I were in the condition of a manager, I would propose a simple method to

manage the procurement/contract process. The main steps to follow for a

successful process procurement manage are Plan, Conduct, Administer and

Close procurements. Now, I will describe the main points and information for

those steps to support the method that I suggested.

Plan Procurements

The process of documenting project-purchasing decisions, specifying the

approach and identifying potential sellers. The inputs, tools and techniques, and

outputs of this process are summarized in the table below.

Figure 1 – Plan Procurements: Inputs, Tools and Techniques, and Outputs

According to the PMBOK, the plan procurement management focuses on

“documenting project procurement decisions, specifying the approach, and

identifying potential sellers.” This analyses the organization project by identifying

products and services that can be developed internally and those that require

external contributions. Upon the identification of what products and services,

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require external parties, the plan procurement further details how to acquire it,

when to acquire it, and the required quantity.

The most important inputs into the procurement management processes are the

project management plan, the requirement documentation, and the activity cost

estimates. The project management plan, as discussed in earlier articles, defines

the requirement, need, justification, and boundary for the project. The

requirement documentation, on the other hand, shows how individual

requirements dovetail into the overall project need. For a project manager, a clear

understanding of the requirements vis-à-vis the organization’s strength and

resources will help in deciding what items or services require procurement.

Finally, prospective sellers use the activity cost estimates in evaluating the

reasonableness of bids and proposals. Other inputs into the plan procurement

management process include the risk register, activity resource requirement,

project schedule, stakeholders register, enterprise environmental factors, and

organizational process assets.

As project manager, we deal with a lot of contractual relationships when planning

procurement. The most popular contract types are the fixed-price contract, which

defines a fixed total price for a project; the cost reimbursable contract, which

reimburses the seller with legitimate cost incurred during the cost of the project

(this is largely used when the scope of a project cannot be determined at the start

of the project);. and the time and material contract (T&M), which is a combination

of the fixed-price contract and the cost reimbursable contract. It is often used for

special arrangements in a fixed-cost project such as hiring expatriates, staff

augmentation, or part of the contract for which the quantity cannot be defined as

of the time of award.

The main tools and techniques for the plan procurement management are as

follows:

1. Make or buy analysis—As far as procurement management is concerned, this

is the most important tool for the project manager. It analyzes whether a product or service should be produced in-house or sourced from a supplier by analysing the various costs and risks involved.

2. Meetings—As a project manager, arranging meetings with potential sellers or bidders allows the organization to make better choices and strike better deals. It also gives room for the sellers to clarify details of the procurement with the procurement team.

Other important tools and techniques used for the plan procurement process are expert judgment and market research for industry and seller analysis. The outputs of the plan procurement management process are:

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1. Procurement management plan—This is the major output of the plan

procurement management process; it describes how procurement will be managed throughout the whole project and it contains information such as the type of contract to be used, how to manage suppliers, handling risk, etc.

2. Procurement statement of work— this describes the product or service in detail to allow contractors to determine if they are able to deliver.

3. Source selection criteria—these are criteria developed to be used in evaluating

and selecting buyers. 4. Make or buy decision—this is the result of the make or buy analysis, detailing

which activity would be accomplished by the project team or sourced from outside source.

The change request, procurement documents, and the project documents update

are other key outputs of the plan procurement management process.

Conduct Procurements

After planning procurement, the next process a project manager has to undertake

is to conduct procurement. This is defined as the process of obtaining seller bids

and proposals, selecting the seller and awarding the contract to the chosen seller.

Figure 2: Conduct Procurements: Inputs, Tools and Techniques, and Outputs.

The most important inputs in the conduct procurement processes are the

procurement management plan, source selection criteria, and the seller proposal.

The procurement management plan, as discussed earlier, is the key output of the

plan procurement management process and details how the whole procurement

management process would be managed. The source selection criteria detail

information required for selection of sellers, while the seller proposals are bids

submitted by sellers that will be used in selecting the successful bidders. Other

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inputs for the conduct procurement processes include the procurement

document, project documents, make or buy decisions, procurement statement of

work, and organizational processes assets.

As a project manager, it is important to note that, depending on the nature of the

project, the seller might be involved in the preparation of the procurement

statement of work, as this would provide a broader perspective from which ideas

can be drawn to satisfy the project requirement. A detailed contract would then

be negotiated with the seller afterwards.

The tools and techniques for the conduct procurement processes are:

1. Bidder conference—As the name suggests, this is a meeting at which the

prospective bidders or sellers meet with the buyer before submitting a proposal. This is to ensure that all prospective sellers have a clear idea of the procurement requirements. This also eliminates or reduces preferential treatment among bidders.

2. Proposal evaluation techniques—After proposals have been made, these are the criteria used in selecting the successful bidders.

3. Independent estimates—When carrying out procurement, it is important for the

buyer to carry out independent estimates of product or services. This is used as a benchmark for comparison of the prospective sellers’ bids. Large variations among independent estimates should be noted and possible reasons for the variations identified.

4. Expert judgment—The use of expert opinion in evaluating proposals.

5. Advertising—Although this might sound very general, advertisement is the only way to increase the list of potential suppliers. This is sometimes neglected during procurement. thus limiting the number of prospective sellers. Niche advertisement, such as advertising in specific trade publications, is more effective.

6. Analytical techniques—While sellers generally try to add value to product and services rendered to increase chances of winning the bid, analytical techniques are used to identify areas of risk in a project such that they might be monitored closely to ensure a successful project and avoid cost overruns.

7. Procurement negotiations—This is used for final clarification of the requirements and structure of the contract before signing the contract. It covers areas such as authority to make changes, technical and management approaches, propriety rights, payment, project schedule, price, and contract financing.

The major outputs of the conduct procurement process are the selected sellers

and the agreements. The selected sellers are those whose bids have been

judged competitive after the proposal evaluation. The agreement describes the

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terms and condition of the contract. It can be called a contract, an understanding,

a subcontract, or a purchase order. The main components of the agreement

include the deliverables, schedule baseline, performance reporting, period of

performance, roles and responsibilities, pricing, payment terms, place of delivery,

acceptance criteria, product support, limitation of liability, fees and retention,

penalties, incentives, insurance and performance bonds, change request, and

termination clause.

Other outputs of the conduct procurement process are resource calendars,

change requests, and updates to the project management plan.

Administer Procurement

Figure 3: Administer Procurement: Inputs, Tools and Techniques, and Outputs

According to the PMBOK, this is the “process of managing procurement

relationships, monitoring contract performance, and making changes and

corrections to contracts as appropriate.” While the control procurement process

is important for all project types, it is more complicated for large projects with

multiple suppliers, as it involves managing the interfaces among various

providers to ensure the overall success of the project. Since procurement

management involves a legal agreement (contract) between the buyer and the

seller, it is important for the project management team to be aware of the legal

implications when controlling procurement.

The control procurement process reviews the performance of the seller with

respect to the agreed contract and points the seller’s attention to variations,

especially where corrective actions are required. It also ensures that agreed

payment conditions are met as specified in the contract. It is important to note

that the contract condition can be amended at any time before the end of the

project, as long as there is a mutual consent between the buyer and the seller.

The most important inputs for the control procurement process are the

procurement documents and agreements. The procurement documents hold

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details of records required for effective control of the procurement process; the

agreement, as discussed in the previous post, is an understanding between the

buyer and the seller that also provides detailed information on the duties of both

parties. Other inputs include the procurement documents, approved change

requests, work performance reports, and work performance data.

The tools and techniques for the plan procurement management are: - Contract change control system—This defines the processes by which

changes can be made to procurement. Important elements of this are conflict resolution and levels of approval necessary for change authorizations

- Procurement performance review—This is a structured review to ensure that the seller meets the contract requirement (scope) within the triple constrain (time, cost, and quality). This allows the project management team to quantify the work done by the seller, identify performance success and failure, and make further decisions based on the information gathered.

- Inspection and audits—These are conducted during the execution of the project to ensure that the contract deliverables are fulfilled

- Performance reporting - Payment systems—These systems ensure that payment is made to the seller

once work has been confirmed as satisfactory by authorized personnel. - Claims administration—Claims are contested changes where the buyer and the

seller cannot reach an agreement that the change occurred or on the cost of the change. Claims administration deals with resolving claims as agreed in the contract document.

- Record management system—This is used by the project manager in managing contract and procurement.

The outputs of the control procurement process are: - Work performance information—This helps in the identification of potential

problems for new procurements. Documenting the performance of a vendor increases organizational knowledge about the seller, which can help in making better decisions and managing risk.

- Change request—For changes requested to the project management plan. - Project management plan update—Elements of the project management plan

that might be updated include the procurement management plan, schedule baseline, and cost baseline.

- Project documents updates—The procurement document is the key document that might be updated.

- Organizational process assets updates

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Close Procurements

Figure 4 – Close Procurements: Inputs, Tools and Techniques, and Outputs.

Every beginning must have an end (hopefully). Close procurement is the process

of completing all procurements. At this stage, agreements and related documents

are documented for future references, all open claims are finalized, and relevant

records are updated. In the case of a large project with multiple procurement

agreements, different procurements are closed at different phases of the project

lifecycle. A termination clause is usually included in the contract in case of an

early termination. Early termination could be a result of the mutual agreement of

both parties or a breach of contract from one of the parties. Contract termination

should always be based upon the procurement terms and conditions.

There are two inputs for the close procurement process. These are the project

management plan, which contains the procurement plan that details the

necessary procedures for closing out procurements, and the procurement

documents. The procurement documents contain all of the information gathered

during the contract period, such as contract time, scope, quality, cost

performance, payment records, etc.

There are three main tools and techniques used when closing procurements.

First, the procurement audits constitute a structured review of the whole

procurement process. This identifies the successes and weaknesses of the

contract and helps in planning other procurement during the project or future

procurements. Second is the procurement negotiation, which is used in resolving

all outstanding negotiations and disputes. Only when settlements cannot be

resolved through negotiation is the court involved. Finally, the record

management system is used by the project manager in keeping records of all

procurement.

There are two main outputs for the close procurement process: 1. Close procurements—This is a formal way of closing the agreement with the

seller. This involves a formal written notice given by the procurement team to the seller confirming the end of the contract. Details of formal procurement closure are always included in the procurement plan.

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2. Organizational process assets and updates—The procurement file, deliverable acceptance, and lessons learned are some of the organizational process that might be updated.

While exploring the knowledge area of procurement, we should realize that the

words “contract” and “agreement” were used interchangeably and in the context

of this article mean the same thing. We should also agree that procurement

management can also be referred to as contract or agreement management.

In the light of the above, I think we should explore the word “contract” from a more

detailed perspective. This would involve the definition of various types of

contracts and who bears the risk in the contractual agreement.

A contract, as earlier defined, is a legal binding between two or more voluntary

parties. There must be an offer and an acceptance before a contract can be

defined as a legal entity. In procurement scenarios, the seller typically treats the

contract as a project, especially when the acquisitions are not for shelf materials,

goods, or common products.

When negotiating a contract, both the seller and the buyer often attempt to

minimize their exposure to risk by shifting most of the risk onto the other party.

The two extreme forms of contracts are the cost reimbursable and firm fixed price

contract. The cost reimbursable contract involves the seller paying for all the

legitimate costs incurred for the completion of the contract. In this type of contract

the buyer bears most or all of the risk involved. On the other hand, for the fixed

price contract the seller bears all risk incurred during the contract as the prices

are not negotiable after an agreement has been reached.

Some variations of cost reimbursable and fixed price contracts are shown below: Cost plus fixed fee contract—Here the seller is reimbursed for all allowable costs

and a fixed fee, which is a percentage of the initial estimated cost is paid to the seller. Under no conditions does the percentage or the estimated cost change unless there is a change in the procurement scope.

Cost plus incentive fee contract—The seller is reimbursed for all allowable costs and also receives pre-determined incentive fees upon achieving milestones as described in the contract.

Fixed price incentive fee contract—Here a fixed priced is given for the contract, but financial incentives are tied to achieving good matrices as a form of performance motivation for the seller.

Fixed price with economic price adjustment contract—This contract type is used when a contract spans a considerable period of years (long-term contracts). A predefined fixed price can then be adjusted, based on certain economic conditions that occurred over the years such as inflation or a change in the foreign exchange rate.

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Figure 5 - The two extremes on a spectrum of risk

Understanding the various types of contracts and when to use them is very

important for any project manager. While you might not have to make huge

financial decisions like a CFO, you will have to make buying decisions as a project

manager and you should be familiar with the various contract types and their

implications on the project budget.

3 QUESTION 2

Trends in modern Management

In recent years, major developments in management reflect the acceptance to

various degrees of the following elements: (1) the management process

approach, (2) the management science and decision support approach, (3) the

behavioural science approach for human resource development, and (4)

sustainable competitive advantage. These four approaches complement each

other in current practice, and provide a useful groundwork for project

management. Project managers should be aware of the strategic position of their

own organization and the other organizations involved in the project. The project

manager faces the difficult task of trying to align the goals and strategies of these

various organizations to accomplish the project goals.

Major Opportunities for Improvement

FINANCING: The Channel Tunnel project had to be financed from private

sources with no public finding to aid or guarantee the loans. This put major

pressure on the project and increased the risk involved.

CONTRACT AGREEMENT: A major contractual downfall that influenced the

success of the Chunnel construction was the contractual errors that were made

in the estimates and risk allocation method. These errors added to an additional

cost of US$ 2.25 billion. Instead of establishing specific criteria for the Chunnel

Tunnel’s contractors in their initial contract, later adjustments had to be made to

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the contract to ensure the quality and reliability of their work. This “merging” of

contract criteria led to the contract being very complex.

MANAGEMENT TEAM: The Chunnel project management team did not utilise

their resources and technology properly due to lack of scope definition. Very slow

decision-making processes during the Chunnel Project construction lead to

situations where significant budget over-expenditures occurred. Not only was this

a result of poorly managed finances, but it was also partially due to an out-of-

control amount of changes made to the management team.

Software like AUTOCAD, SOLIDWORKS and RS³ could have helped the

Chunnel Tunnel Project throughout each stage of the project life cycle, which are

Conception, Definition and Execution. The first two software uses a mouse-driven

graphical user interface to enable engineers and designers to visualize and

communicate 3D models of manufactured objects. SolidWorks works extremely

well for mechanical design and similar industries requiring precise definition of

3D shapes and their design intent.

RS³ could have contributed more because, is a program for 3D analysis of

geotechnical structures for civil and mining applications. Applicable for both rock

and soil (RS3 = Rock and Soil 3-dimensional analysis program), RS³ is a general

purpose finite element analysis program for underground excavations, tunnel and

support design, surface excavation, foundation design, embankments,

consolidation, groundwater seepage and more.

Those software mentioned above are only a small part of the contribution of the

technologies we have today could have helped in the project. Today the field of

computer science and graphic design is extremely supported by technological

resources that can provide an entire project to reduce costs, time and faults.

4 REFERENCES Barnett, T. (2015) Management Functions. 2nd edn. Advameg, Inc. [Online]. Available at: http://www.referenceforbusiness.com/management/Log-Mar/Management-Functions.html (Accessed: 12 Apr 2015).

PMI (2012), A Guide to the Project Management Body of Knowledge, 5th Ed.

A Guide to the Project Management Body of Knowledge (PMBOK Guide). Forth

Edition ed. [S.l.]: Project Management Institute.