Discussion 1
Reflect on the assigned readings for the week. Identify what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.
Also, provide a graduate-level response to each of the following questions:
- Enter “outsourcing” in an Internet search engine and browse different websites. Who appears to be interested in outsourcing? What are the advantages of outsourcing? What are the disadvantages? Does outsourcing mean the same thing to different people? What are future trends in outsourcing?
Chapter Twelve
Outsourcing: Managing Interorganizational Relations
12–1
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12–2
Where We Are Now
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12–2
Project Management 6e.
Learning Objectives
Understand the advantages and disadvantages of outsourcing project work
Describe the basic elements of a Request for Proposal (RFP)
Identify best practices for outsourcing project work
Practice principled negotiation
Describe the met-expectations model of customer satisfaction and its implications for working with customers on projects
12–3
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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
12–4
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Outsourcing Project Work
Outsourcing
The process of transferring of business functions or processes (e.g., customer support, IT, accounting) to other, often foreign companies
Being applied to contracting significant chunks of project work
Being applied to the creation of new products and services
12–5
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12–5
Project Management 6e.
12–6
Reclining Chair Project
FIGURE 12.1
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12–6
Project Management 6e.
12–7
Outsourcing Project Work
Advantages
Cost reduction
Faster project completion
High level of expertise
Flexibility
Disadvantages
Coordination breakdowns
Loss of control
Conflict
Security issues
Political hot potato
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12–7
Project Management 6e.
Request for Proposal (RFP)
Be announced to external contractors/vendors with adequate experience to implement the project
Development steps:
12–8
FIGURE 12.2
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Contractor Evaluation Template
12–9
FIGURE 12.3
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12–10
Best Practices in Outsourcing Project Work
FIGURE 12.2
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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12–10
Project Management 6e.
12–11
Key Differences Between Partnering and Traditional Approaches to Managing Contracted Relationships
TABLE 12.1
Partnering Approach
Mutual trust forms the basis for strong working relationships.
Shared goals and objectives ensure common direction.
Joint project team exists with
high level of interaction.
Open communications avoid misdirection and bolster effective working relationships.
Long-term commitment provides the opportunity to attain continuous improvement.
Traditional Approach
Suspicion and distrust; each party is wary of the motives of the other.
Each party’s goals and objectives, while similar, are geared to what is best for them.
Independent project teams; teams are spatially separated with managed interactions.
Communications are structured
and guarded.
Single project contracting is normal.
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12–11
Project Management 6e.
12–12
Key Differences Between Partnering and
Traditional Approaches …(cont’d)
TABLE 12.1 (cont’d)
Partnering Approach
Objective critique is geared to candid assessment of performance.
Access to each other’s organization resources is available.
Total company involvement requires commitment from CEO to team members.
Integration of administrative systems equipment takes place.
Risk is shared jointly among the partners, encouraging innovation and continuous improvement.
Traditional Approach
Objectivity is limited due to fear of reprisal and lack of continuous improvement opportunity.
Access is limited with structured procedures and self-preservation
taking priority over total optimization.
Involvement is normally limited to project-level personnel.
Duplication and/or translation takes place with attendant costs and delays.
Risk is transferred to the other party.
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12–12
Project Management 6e.
12–13
Strategies for Communicating
with Outsourcers
STRATEGY 1: Recognize cultural differences
STRATEGY 2: Choose the right words
STRATEGY 3: Confirm your requirements
STRATEGY 4: Set deadlines
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12–13
Project Management 6e.
12–14
Project Partnering Charter
FIGURE 12.2
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12–14
Project Management 6e.
12–15
Preproject Activities—Setting the Stage
for Successful Partnering
Selecting a Partner(s)
Voluntary, experienced, willing, with committed top management
Team Building: The Project Managers
Build a collaborative relationship among the project managers
Team Building: The Stakeholders
Expand the partnership commitment to include other key managers and specialists
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12–15
Project Management 6e.
12–16
Project Implementation—Sustaining Collaborative Relationships
Establish a “we” as opposed to “us and them” attitude toward the project
Co-location: employees from different organizations work together at the same location
Establish mechanisms that will ensure the relationship withstands problems and setbacks
Problem resolution
Continuous improvement
Joint evaluation
Persistent leadership
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12–16
Project Management 6e.
12–17
Project Completion—Celebrating Success
Conduct a joint review of accomplishments
and disappointments
Hold a celebration for all project participants
Recognize special contributions
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12–17
Project Management 6e.
12–18
FIGURE 12.6
Sample Online Partnering Survey
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12–18
Project Management 6e.
12–19
Advantages of Long-term Partnerships
Reduced administrative costs
More efficient utilization of resources
Improved communication
Improved innovation
Improved performance
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12–19
Project Management 6e.
12–20
The Art of Negotiating
Project management is NOT a contest.
Everyone is on the same side—OURS.
Everyone is bound by the success of the project.
Everyone has to continue to work together.
Principled Negotiations
TABLE 12.2
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12–20
Project Management 6e.
12–21
The Art of Negotiating (cont’d)
Dealing with Unreasonable People
If pushed, don’t push back.
Ask questions instead of making statements
Use silence as a response to unreasonable demands
Ask for advice and encourage others to criticize your ideas and positions
Use Fisher and Ury’s best alternative to a negotiated agreement (BATNA) concept to work toward a win/win scenario
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12–21
Project Management 6e.
12–22
Managing Customer Relations
Customer Satisfaction
The negative effect of dissatisfied customers on a firm’s reputation is far greater than the positive effect of satisfied customers.
Every customer has a unique set of performance expectations and met-performance perceptions.
Satisfaction is a perceptual relationship:
Perceived performance
Expected performance
Project managers must be skilled at managing both customer expectations and perceptions.
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12–22
Project Management 6e.
12–23
The Met-Expectations Model
of Customer Satisfaction
FIGURE 12.7
0.90 = Perceived performance = 1.10
Dissatisfied Expected performance Very satisfied
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.
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12–23
Project Management 6e.
12–24
Managing Customer Relations (cont’d)
Managing Customer Expectations
Don’t oversell the project; better to undersell.
Develop a well-defined project scope statement
Share significant problems and risks
Keep everyone informed about the project’s progress
Involve customers early in decisions about project development changes
Handle customer relationships and problems in an expeditious, competent, and professional manner
Speak with one voice
Speak the language of the customer
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12–24
Project Management 6e.
12–25
Project Roles, Challenges, and Strategies
TABLE 12.3
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
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12–25
Project Management 6e.
12–26
Key Terms
Best alternative to a negotiated agreement (BATNA)
Co-location
Escalation
Met-expectations model
Outsourcing
Partnering charter
Principled negotiation
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12–26
Project Management 6e.
Contract Management
12–27
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12–27
Project Management 6e.
12–28
Procurement Management Process
Planning purchases and acquisitions
Planning contracting
Requesting seller responses
Selecting sellers
Administering the contract
Closing the contract
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12–28
Project Management 6e.
12–29
Contract
A formal agreement between two parties wherein the contractor obligates itself to perform a service and the client obligates itself to do something in return.
Defines the responsibilities of the parties, spells out the conditions of its operations
Defines the rights of the parties to each other
Grants remedies to a party if the other party breaches its transactional obligations
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12–29
Project Management 6e.
12–30
Types of Contracts
Fixed-Price (FP) Contract or Lump-sum Agreement
The contractor with the lowest bid agrees to perform all work specified in the contract at a fixed price
The disadvantage for owners is that it is more difficult and more costly to prepare.
The primary disadvantage for contractors is the risk of underestimating project costs.
Contract adjustments:
Redetermination provisions
Performance incentives
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12–30
Project Management 6e.
12–31
Types of Contracts (cont’d)
Cost-Plus Contracts
The contractor is reimbursed for all direct allowable costs (materials, labor, travel) plus an additional prior-negotiated fee (set as a percentage of the total costs) to cover overhead and profit.
Risk to client is in relying on the contractor’s best efforts to contain costs.
Controls on contractors:
Performance and schedule incentives
Costs-sharing clauses
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12–31
Project Management 6e.
12–32
Contract Type versus Risk
FIGURE A12.1
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12–32
Project Management 6e.
12–33
Contract Changes
Contract Change Control System
Defines the process by which a contract’s authorized scope (costs and activities) may be modified:
Paperwork
Tracking systems
Dispute resolution procedures
Approval levels necessary for authorizing changes
Best practice is the inclusion of change control system provisions in the original contract.
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12–33
Project Management 6e.