Revised Project
TW7809
Larson8e_CH12_PowerPoint_Accessible.pptxChapter Twelve
Outsourcing: Managing Interorganizational Relations
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Where We Are Now
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2
Learning Objectives
12-1 Understand the advantages and disadvantages of outsourcing project work.
12-2 Describe the basic elements of a Request for Proposal (RFP).
12-3 Identify best practices for outsourcing project work.
12-4 Practice principled negotiation.
12-5 Describe the met-expectations model of customer satisfaction and its implications for working with customers on projects.
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Chapter Outline
12.1 Outsourcing Project Work
12.2 Request for Proposal (RFP)
12.3 Best Practices in Outsourcing Project Work
12.4 The Art of Negotiating
12.5 A Note on Managing Customer Relations
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12.1 Outsourcing Project Work
Outsourcing
Has traditionally been applied to the transferring of business functions or processes (for example, customer support, IT, accounting) to other foreign companies.
Is now being applied to contracting significant chunks of project work.
Apple and Motorola work closely with manufacturers in China to develop next-generation smartphones.
Toyota and DaimlerChrysler collaborate with suppliers to develop new automobile platforms.
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Reclining Chair Project
FIGURE 12.1
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Advantages and Disadvantages of Outsourcing Project Work
Advantages
Cost reduction
Faster project completion
High level of expertise
Flexibility
Disadvantages
Coordination breakdown
Loss of control
Conflict
Security issues
Political hot potato
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12.2 Request for Proposal (RFP)
Steps of Development of a Detailed RFP
Summary of needs and request for action
Statement of work (SOW) detailing the scope and major deliverables
Deliverable specifications/requirements, features, and tasks
Responsibilities—vendor and customer
Project schedule
Costs and payment schedule
Type of contract
Experience and staffing
Evaluation criteria
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Contractor Evaluation Template
| Contractor Evaluation Template | Maximum Weight | Proposal 1 | Proposal 2 | Proposal 3 | Proposal 4 |
| Contractor qualifications | Weight = 10 | ||||
| Technical skills available | Weight = 20 | ||||
| Understanding of contract and conditions | Weight = 5 | ||||
| Financial strength to implement project | Weight = 15 | ||||
| Understanding of proposal specifications | Weight = 10 | ||||
| Innovativeness and originality of proposal | Weight = 5 | ||||
| Reputation for delivering on time and budget | Weight = 15 | ||||
| Price | Weight = 20 | ||||
| Total | 100 |
FIGURE 12.3
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12.3 Best Practices in Outsourcing Project Work
Well-defined requirements and procedures
Extensive training and team-building activities
Well-established conflict management processes in place
Frequent review and status updates
Co-location when needed
Fair and incentive-laden contracts
Long-term outsourcing relationships
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Key Differences between Partnering and Traditional Approaches to Managing Contracted Relationships
| Partnering Approach | Traditional Approach |
| Mutual trust forms the basis for strong working relationships. | Suspicion and distrust; each party is wary of the motives for actions by the other. |
| Shared goals and objectives ensure common direction. | Each party’s goals and objectives, although similar, are geared to what is best for that party. |
| Joint project team exists with high level of interaction. | Independent project teams; teams are spatially separated with managed interactions. |
| Open communications avoid misdirection and bolster effective working relationships. | Communications are structured and guarded. |
| Long-term commitment provides the opportunity to attain continuous improvement. | Single project contracting is normal. |
| Objective critique is geared to candid assessment of performance. | Objectivity is limited due to fear of reprisal and lack of continuous improvement opportunity. |
| Access to each other’s organization resources is available. | Access is limited with structured procedures and self-preservation taking priority over total optimization. |
| Total company involvement requires commitment from CEO to team members. | Involvement is normally limited to project-level personnel. |
| Integration of administrative systems equipment takes place. | Duplication and/or translation takes place with attendant costs and delays. |
| Risk is shared jointly among the partners, which encourages innovation and continuous improvement. | Risk is transferred to the other party. |
TABLE 12.1
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Four Strategies for Communicating with Outsourcers
Strategy 1: Recognize culture differences
Strategy 2: Choose the right words
Strategy 3: Confirm your requirements
Strategy 4: Set deadlines
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Project Partnering Charter
FIGURE 12.5
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Sample Online Survey
FIGURE 12.6
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Advantages of a Long-Term Partnership
Reduced administrative costs
More efficient utilization of resources
Improved communication
Improved innovation
Improved performance
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12.4 The Art of Negotiating
Principled negotiation
Is an approach to negotiating championed by Fisher and Ury from the Harvard Negotiation Project.
Emphasizes developing win/win solutions while protecting yourself against those who would take advantages of your forthrightness.
Is based on four key points.
Separate the people from the problem.
Focus on interests, not positions.
Invent options for mutual gains.
When possible, use objective criteria.
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Dealing with Unreasonable People
Fisher and Ury recommend that you use jiujitsu when dealing with such a person. That is
When the other person begins to push, don’t push back.
Ask questions instead of making statements.
Invite criticism and advice instead of defending your ideas.
Use silence as a response to an unreasonable proposal.
Have a strong best alternative to a negotiated agreement (BATNA). A strong BATNA gives you the power to walk away and say, “No deal unless we work toward a win/win scenario.”
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12.5 A Note on Managing Customer Relations
Bad news travel faster and farther than good news.
Project managers need to cultivate positive working relations with clients to preserve their reputations.
Customer satisfaction is a function of the extent to which perceived performance (or outcome) exceeds expectations.
The met-expectation model of customer satisfaction highlights the point that whether a client is dissatisfied or delighted with a project is not based on hard facts and objective data but on perceptions and expectations.
Project managers must be skilled at managing customer expectations and perceptions.
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The Met-Expectations Model of Customer Satisfaction
If performance falls short of expectations (ratio < 1), the customer is dissatisfied.
If the performance matches expectations (ratio = 1), the customer is satisfied.
If the performance exceeds expectations (ratio > 1), the customer is very satisfied or even delighted.
FIGURE 12.7
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Managing Customer Expectations
Avoid the temptation to oversell the virtues of a project to win approval.
Lower customer expectations by underselling projects.
Work closely with the client organization to develop a well defined project scope statement.
Share significant risks or potential problems that might disrupt project execution.
Keep customers abreast of project progress.
Handle customer interactions, unexpected problems and setbacks with a competent and professional manner.
Speak with one voice.
Speak the language of the customer.
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Project Roles, Challenges, and Strategies
| Project Manager Roles | Challenges | Strategies |
| Entrepreneur | Navigate unfamiliar surroundings | Use persuasion to influence others |
| Politician | Understand two diverse cultures (parent and client organization) | Align with the powerful individuals |
| Friend | Determine the important relationships to build and sustain outside the team itself | Identify common interests and experiences to bridge a friendship with the client |
| Marketer | Understand the strategic objectives of the client organization | Align new ideas/proposals with the strategic objectives of the client organization |
| Coach | Motivate client team members without formal authority | Provide challenging tasks to build the skills of the team members |
TABLE 12.3
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Key Terms
Best alternative to a negotiated agreement (BATNA)
Escalation
Met expectations
Outsourcing
Partnering charter
Principled negotiation
Request for Proposal (RFP)
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Appendix 12.1
Contract Management
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Procurement Management Process
Planning purchases and acquisitions
Planning contracting
Requesting seller responses
Selecting sellers
Administering the contract
Closing the contract
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Contract
Is a formal agreement between two parties wherein one party (the contractor) obligates itself to perform a service and the other party (the client) obligates itself to do something in return, usually in the form of a payment to the contractor.
Is a codification of the private law, which governs the relationship between the parties to it.
Defines the responsibilities.
Spells out the conditions of its operations.
Defines the rights the parties have in relationship to each other.
Grants remedies to a party if the other party breaches its obligations.
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Fixed-Price Contracts
The contractor agrees to perform all work specified in the contract at a fixed price.
Fixed-price contracts are preferred by both owners and contractors when the scope of the project is well defined with predictable costs and low implementation risks.
The disadvantage of a fixed-price contract for owners is that it is more difficult and more costly to prepare.
The primary disadvantages of a fixed-price contract for contractors is that they run the risk of underestimating.
Contracts with long lead times such as construction and production projects may include escalation provisions that protect the contractor against external cost increases in materials, labor rates, or overhead expenses.
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Cost-Plus Contracts
The contractor is reimbursed for all direct allowable costs (materials, labor, travel) plus an additional fee to cover overhead and profit.
Unlike fixed-price contracts, cost-plus contracts put the burden of risk on the client. The contract does not indicate what the project is going to cost until the end of the project.
The inherent weakness of cost-plus contracts has been compensated for by a variety of incentive clauses directed at providing incentives to contractors to control costs, maintain performance, and avoid schedule overruns.
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Contract Type versus Risk
FIGURE A12.1
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Contract Change Control System
Defines the process by which the contract may be modified.
Includes
the paperwork
tracking systems
dispute resolution procedures
approval levels necessary for authorizing changes
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End of Main Content
© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Because learning changes everything.®
www.mheducation.com
Accessibility Content: Text Alternatives for Images
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Reclining Chair Project - Text Alternative
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The reclining chair project uses resources from a variety of sources:
Marketing firm
Tool and die firms
Parts suppliers
Manufacturer
Project manager
Catalog company
Inventory
Legal firm
Advertising firm
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Project Partnering Charter - Text Alternative
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Partnering Charter
Edwards AFB – F-22 Fighter Building 1870
U.S. Air Force F-22 CTF, 411 FLTS
Edwards AFB Civil Engineers
Computer Science Corporation
Lockheed Martin
Telecom Solutions
U.S. Army Corps of Engineers
Valenzuela Engineering, Inc.
VRR & Associates
We, the partners of the F-22 design and construction team, recognizing the unique nature of this project, commit to creating an environment of trust and communication to design and build a quality project which meets or exceeds the customer’s requirements. We commit to maintaining a positive and optimistic work environment in which all partners’ goals can be achieved.
Quality Project
Meet program requirements for F-22 Support Systems
Complete on schedule and within cost constraints
Incorporate lessons learned from other F-22 projects
Create an environment for a fair and reasonable profit
Create an enjoyable work environment
Safe Project
Provide a safe environment
With no lost-time accidents
Maintain positive, cooperative relationships
Clear and open communications through appropriate channels
No surprises
No hidden agendas
Minimum delays of paperwork
Resolve problems quickly at the lowest level
The Partnering concept is a team relationship that promotes the achievement of mutually beneficial goals. This Partnering Charter does not create any legally enforceable rights or duties. Any changes to the contracts must be made by the contracting officers under the terms of the written contracts.
[The charter is signed by all the members of the team]
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Sample Online Survey - Text Alternative
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Evaluation of partnering process: attitudes, teamwork, process.
(Collected separately from owner and contractor participants, compared, and aggregated.)
1. Communications between the owner/contractor personnel are
1 Difficult, guarded 2 3 4 5 Easy, open, up front
2. Top management support of partnering process is
1 Not evident or inconsistent 2 3 4 5 Obvious and consistent
3. Problems, issues, or concerns are
1 Ignored 2 3 4 5 Attacked promptly
4. Cooperation between owner and contractor personnel is
1 Cool, detached, unresponsive, removed 2 3 4 5 Genuine, unreserved, complete
5. Responses to problems, issues, or concerns frequently become
1 Personal issues 2 3 4 5 Treated as project problems
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Contract Type versus Risk - Text Alternative
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Buyer Risk is highest to lowest with the following types of contracts:
CPPC—Cost-plus percentage of cost
CPIF—Cost-plus incentive fee
FPI—Fixed-price incentive
FFP—Firm fixed-price
Seller Risk is lowest to highest with the following types of contracts:
CPPC—Cost-plus percentage of cost
CPIF—Cost-plus incentive fee
FPI—Fixed-price incentive
FFP—Firm fixed-price
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