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CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

Unit – I

Introduction - Software Project Management - An overview of Project planning - Stepwise

planning- Overview of COCOMO Model, PERT/CPM, Rayleigh Curve - Project
Organization -Risk Management - Project Finance - Procurement Management - Project
Scheduling

INTRODUCTION TO SOFTWARE PROJECT MANAGEMENT

Management:

Management is the process of designing and maintaining an environment in which

individuals, working together in groups, efficiently accomplish selected aims.

- Harold Koontz

Software Project Management

What is Software Project?
A Software Project is the complete procedure of software development from requirement
gathering to testing and maintenance, carried out according to the execution methodologies, in a
specified period of time to achieve intended software product.
Need of Software Project management:
Software is said to be an intangible product. Software development is a kind of all new
streams in world business and there’s very little experience in building software products. Most
software products are tailor made to fit client’s requirements. The most important is that the
underlying technology changes and advances so frequently and rapidly that experience of one
product may not be applied to the other one. All such business and environmental constraints
bring risk in software development hence it is essential to manage software projects efficiently.

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COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

The image above shows triple constraints for software projects. It is an essential part of software
organization to deliver quality product, keeping the cost within client’s budget constrain and
deliver the project as per scheduled. There are several factors, both internal and external, which
may impact this triple constrain triangle. Any of three factor can severely impact the other two.
Therefore, software project management is essential to incorporate user requirements along with
budget and time constraints.
Who is Software Project Manager?
A software project manager is a person who undertakes the responsibility of executing
the software project. Software project manager is thoroughly aware of all the phases of SDLC
that the software would go through. Project manager may never directly involve in producing the
end product but he controls and manages the activities involved in production.
****
OVERVIEW OF PROJECT PLANNING
Project Planning: Meaning
Planning is the most difficult process in project management. This chapter describes a
framework of basic steps in project planning. Many different techniques can be used but this
chapter tells the overview of the steps and activities in each step of project planning
Software project planning is task, which is performed before the production of software
actually starts. It is there for the software production but involves no concrete activity that has
any direction connection with software production; rather it is a set of multiple processes, which
facilitates software production.
Stepwise Project Planning
Step 0: Select project

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Step 1: Identify project scope and objectives

Step 2: Identify project infrastructure
Step 3: Analyze project characteristics
Step 4: Identify project products and activities
Step 5: Estimate effort for each activity.
Step 6: Identify activity risks.
Step 7: Allocate resources
Step 8 Review / Publicize pl\an
Step 9 &10: Execute plan / lower level of planning
Each step of project planning has different activities to perform. Following are the
description of each step with its activities.
Step 0: Select project
This is called step 0 because in a way of project planning, it is outside the main project
planning process. Feasibility study suggests us that the project is worthwhile or not.
Step 1: Identify project scope and objectives
The activities in this step ensure that all parties to the project agree on the objectivesand
are committed to the success of the project.
Step 1.1: Identify objectives and practical measures of the effectiveness in meeting those
objectives
Step 1.2: Establish project authority
Step 1.3: Stakeholders analysis – Identify all stakeholders in the project and their interest.
Step 1.4: Modify objectives in the light of stakeholder analysis.
Step 1.5: Establish method of communication
Step 2: Identify project infrastructure
Projects are rarely carried out in a vacuum. There is usually some kind of infrastructure
into which the project must fit. Where the project manager are new to the organization , they
must find out the precise nature of this infrastructure.
Step 2.1: Identify relationship between the project and strategic planning

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Step 2.2: Identify installation standards and procedures.

Step 2.3: Identify project team organization.
Step 3: Analyze project characteristics
The general purpose of this part of planning operation is to ensure that the appropriate
methods are used for the project.
Step 3.1: Distinguish the project as either objective- product driven
Step 3.2: Analyze other project characteristics (including quality –based ones)
Step 3.3: Identify high level project risks
Step 3.4: Take into account user requirement concerning implementation.
Step 3.5: Select development methodology and life cycle approach.
Step 3.6: Review overall resources estimates
Step 4: Identify project products and activities
The more detailed planning of the individual activities now takes place. The longer term
planning is broad and in outline, while the more immediate tasks are planned in some detail.
Step 4.1: Identify and describes project products (ordeliverables)
Step 4.2: Document generic product flows
Step 4.3: Record product instance
Step 4.4: produce ideal activity network
Step 4.5: Modify the ideal to take into account need for stages and checkpoints.
Step 5: Estimate effort for each activity
Step 5.1: Carry out bottom-up estimates
Step 5.2: Revise plan to create controllable activities.
Step 6: Identify activity risks
Step 6.1: Identify and quantify activity based risks
Step 6.2: Plan risk reduction and contingency measures where appropriate
Step 6.3: Adjust overall plans and estimates to take account of the risks
Step 7: Allocate resources
Step 7.1: Identify and allocate resources

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COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

Step 7.2: Revise plans and estimates to take into account resource constraints
Step 8: Review / Publicize plan
Step 8.1: Review quality aspects of the project plan.
Step 8.2: Document plans and obtain agreement.
Step 9 & 10: Execute plan / lower level of planning
Once the project is underway, plans will need to be drawn up in greater detail for each
activity as it becomes due. Detailed and lower level of planning of the later stages will need to be
delayed because more information will be available nearer the start of the stage. Project planning
is an iterative process. As the time approaches for the particular activities to be carried out they
should be re-planned in more detail.
OVERVIEW OF COCOMO MODEL
The COCOMO cost estimation model is used by thousands of software project managers, and is
based on a study of hundreds of software projects. Unlike other cost estimation models,
COCOMO is an open model, so all of the details are published, including:
The underlying cost estimation equations
 Every assumption made in the model (e.g. "the project will enjoy good management")
 Every definition (e.g. the precise definition of the Product Design phase of a project)
 The costs included in an estimate are explicitly stated (e.g. project managers are included,
secretaries aren't)
Because COCOMO is well defined, and because it doesn't rely upon proprietary estimation
algorithms, Costar offers these advantages to its users:
 COCOMO estimates are more objective and repeatable than estimates made by methods
relying on proprietary models
 COCOMO can be calibrated to reflect your software development environment, and to
produce more accurate estimates
Costar is a faithful implementation of the COCOMO model that is easy to use on small projects,
and yet powerful enough to plan and control large projects.

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Typically, you'll start with only a rough description of the software system that you'll be
developing, and you'll use Costar to give you early estimates about the proper schedule and
staffing levels. As you refine your knowledge of the problem, and as you design more of the
system, you can use Costar to produce more and more refined estimates.
Costar allows you to define a software structure to meet your needs. Your initial estimate might
be made on the basis of a system containing 3,000 lines of code. Your second estimate might be
more refined so that you now understand that your system will consist of two subsystems (and
you'll have a more accurate idea about how many lines of code will be in each of the
subsystems). Your next estimate will continue the process -- you can use Costar to define the
components of each subsystem. Costar permits you to continue this process until you arrive at
the level of detail that suits your needs.
Introduction to the COCOMO Model
The most fundamental calculation in the COCOMO model is the use of the Effort
Equation to estimate the number of Person-Months required to develop a project. Most of the
other COCOMO results, including the estimates for Requirements and Maintenance, are derived
from this quantity.
Source Lines of Code
The COCOMO calculations are based on your estimates of a project's size in Source
Lines of Code (SLOC). SLOC is defined such that:
 Only Source lines that are DELIVERED as part of the product are included -- test drivers
and other support software is excluded
 SOURCE lines are created by the project staff -- code created by applications generators
is excluded
 One SLOC is one logical line of code
 Declarations are counted as SLOC
 Comments are not counted as SLOC
The original COCOMO 81 model was defined in terms of Delivered Source Instructions, which
are very similar to SLOC. The major difference between DSI and SLOC is that a single Source
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Line of Code may be several physical lines. For example, an "if-then-else" statement would be
counted as one SLOC, but might be counted as several DSI.
The Scale Drivers
In the COCOMO II model, some of the most important factors contributing to a project's
duration and cost are the Scale Drivers. You set each Scale Driver to describe your project; these
Scale Drivers determine the exponent used in the Effort Equation.
The 5 Scale Drivers are:
 Precedentedness
 Development Flexibility
 Architecture / Risk Resolution
 Team Cohesion
 Process Maturity
Note that the Scale Drivers have replaced the Development Mode of COCOMO 81. The first
two Scale Drivers, Precedentedness and Development Flexibility actually describe much the
same influences that the original Development Mode did.
PROJECT EVALUATION AND REVIEW TECHNIQUE (PERT)
Project Evaluation and Review Techniques is commonly abbreviated to PERT. PERT is a
method of analyzing the tasks involved in completing a given project, especially the time needed
to complete each task, and to identify the minimum time needed to complete the total project. It
incorporates uncertainty by making it possible to schedule a project while not knowing precisely
the details and durations of all the activities. It is more of an event-oriented technique rather than
start- and completion-oriented, and is used more in projects where time is the major factor rather
than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and
Research and Development projects.
Program Evaluation Review Technique (PERT) offers a management tool, which relies
"on arrow and node diagrams of activities and events: arrows represent the activities or work
necessary to reach the events or nodes that indicate each completed phase of the total project."

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PERT and CPM are complementary tools, because "CPM employs one time estimate and one
cost estimate for each activity; PERT may utilize three time estimates (optimistic, expected, and
pessimistic) and no costs for each activity. Although these are distinct differences, the term PERT
is applied increasingly to all critical path scheduling."
History
PERT was developed primarily to simplify the planning and scheduling of large and
complex projects. It was developed for the U.S. Navy Special Projects Office in 1957 to support
the U.S. Navy's Polaris nuclear submarine project. It found applications all over industry. An
early example was it was used for the 1968 Winter Olympics in Grenoble which applied PERT
from 1965 until the opening of the 1968 Games. This project model was the first of its kind, a
revival for scientific management, founded by Frederick Taylor (Taylorism) and later refined by
Henry Ford (Fordism). DuPont's critical path method was invented at roughly the same time as
PERT.
Initially PERT stood for Program Evaluation Research Task, but by 1959 was already
renamed.[2] It had been made public in 1958 in two publications of the U.S. Department of the
Navy, entitled Program Evaluation Research Task, Summary Report, Phase 1. and Phase 2. In a
1959 article in The American Statistician the main Willard Fazar, Head of the Program
Evaluation Branch, Special Projects Office, U.S. Navy, gave a detailed description of the main
concepts of the PERT. He explained:
Through an electronic computer, the PERT technique processes data representing the
major, finite accomplishments (events) essential to achieve end-objectives; the inter-dependence
of those events; and estimates of time and range of time necessary to complete each activity
between two successive events. Such time expectations include estimates of "most likely time",
"optimistic time", and "pessimistic time" for each activity.
The technique is a management control tool that sizes up the outlook for meeting
objectives on time; highlights danger signals requiring management decisions; reveals and
defines both methodicalness and slack in the flow plan or the network of sequential activities that
must be performed to meet objectives; compares current expectations with scheduled completion

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dates and computes the probability for meeting scheduled dates; and simulates the effects of
options for decision — before decision.The concept of PERT was developed by an operations
research team staffed with representatives from the Operations Research Department of Booz,
Allen and Hamilton; the Evaluation Office of the Lockheed Missile Systems Division; and the
Program Evaluation Branch, Special Projects Office, of the Department of the Navy.
PERT Guide for management use, June 1963
Ten years after the introduction of PERT in 1958 the American librarian Maribeth Brennan
published a selected bibliography with about 150 publications on PERT and CPM, which had
been published between 1958 and 1968. The origin and development was summarized as
follows:
PERT originated in 1958 with the... Polaris missile design and construction scheduling. Since
that time, it has been used extensively not only by the aerospace industry but also in many
situations where management desires to achieve an objective or complete a task within a
scheduled time and cost expenditure; it came into popularity when the algorithm for calculating a
maximum value path was conceived. PERT and CPM may be calculated manually or with a
computer, but usually they require major computer support for detailed projects. A number of
colleges and universities now offer instructional courses in both.
For the subdivision of work units in PERT another tool was developed: the Work Breakdown
Structure. The Work Breakdown Structure provides "a framework for complete networking, the
Work Breakdown Structure was formally introduced as the first item of analysis in carrying out
basic PERT/COST."
Advantages
 PERT chart explicitly defines and makes visible dependencies (precedence relationships)
between the work breakdown structure (commonly WBS) elements.
 PERT facilitates identification of the critical path and makes this visible.
 PERT facilitates identification of early start, late start, and slack for each activity.
 PERT provides for potentially reduced project duration due to better understanding of
dependencies leading to improved overlapping of activities and tasks where feasible.

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 The large amount of project data can be organized and presented in diagram for use in
decision making.
 PERT can provide a probability of completing before a given time.
Disadvantages
 There can be potentially hundreds or thousands of activities and individual dependency
relationships.
 PERT is not easily scalable for smaller projects.
 The network charts tend to be large and unwieldy requiring several pages to print and
requiring specially sized paper.
 The lack of a timeframe on most PERT/CPM charts makes it harder to show status
although colours can help (e.g., specific colour for completed nodes).
CRITICAL PATH METHOD (CPM)
The critical path method (CPM) is a step-by-step project management technique for
process planning that defines critical and non-critical tasks with the goal of preventing time-
frame problems and process bottlenecks. The CPM is ideally suited to projects consisting of
numerous activities that interact in a complex manner.
History
The critical path method (CPM) is a project modeling technique developed in the late
1950s by Morgan R. Walker of DuPont and James E. Kelley Jr. of Remington Rand. Kelley and
Walker related their memories of the development of CPM in 1989. Kelley attributed the term
"critical path" to the developers of the Program Evaluation and Review Technique which was
developed at about the same time by Booz Allen Hamilton and the U.S. Navy. The precursors of
what came to be known as Critical Path were developed and put into practice by DuPont between
1940 and 1943 and contributed to the success of the Manhattan Project.
Critical Path Method (CPM)
CPM is commonly used with all forms of projects, including construction, aerospace and
defense, software development, research projects, product development, engineering, and plant
maintenance, among others. Any project with interdependent activities can apply this method of
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mathematical analysis. The first time CPM was used for major skyscraper development was in
1966 while constructing the former World Trade Center Twin Towers in NYC. Although the
original CPM program and approach is no longer used, the term is generally applied to any
approach used to analyze a project network logic diagram.
The critical path is the sequence of activities with the longest duration. A delay in any of these
activities will result in a delay for the whole project. Below are some critical path examples to
help you understand the key elements.

Using the Critical Path Method (CPM), the duration of each activity is listed above each node in
the diagram. For each path, add the duration of each node to determine it's total duration. The
critical path is the one with the longest duration.
PUTNAM, NORDEN, RAYLEIGH CURVES (OR) RAYLEIGH CURVES
Introduction
In the 1960s and 1970s, people actively sought ways to mathematically predict the time and cost
of a project as a function of the requirements and other parameters of the problem. The most
advanced fruit of these efforts was Barry Boehm's COnstructive COst Model. While the
formulae derived in those efforts are not (today) widely used, there is still value in understanding
the relationships they capture.
This paper is a brief introduction to (and commentary on) Putnam, Norden, Rayleigh (PNR)
curves and what they tell us about project staffing.
Staffing and the Rayleigh Curve

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1. It is very natural for a project manager to want to:

2. Figure out how many people will be needed to complete a project.
3. Assign them to it.
4. Divide the number of estimated staff months by the head-count to get an expected
completion time.

We can attempt to force a flat staffing profile on such a project, but it will result in considerable
waste:
 In the early stages, there will be people standing around with nothing to do, because the
requirements and architecture development process is more gated by time than by labor.
 In the mid stages, work may be delayed by not having enough people available to
perform all of the defined tasks.
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 In the late stages, over-staffing will not bring the project to completion any sooner,
because the collection of feedback and shaking out of final problems is (again) more
gated by time than available labor.
If we want to accomplish a project efficiently, we much understand the distinct phases, along
with their respective skill and activity requirements. The notion that we can prepare an estimate
in staff months and predict completion time by choosing a staffing level and dividing that into
the total project size is a canard.
Time/Effort and the PNR Curve
Lawrence Putnam (of RADC) applied Norden and Rayleigh's work to the effort to
quantitatively predict the work associated with software projects. After studying numerous
projects, he concluded that the effort required to deliver a project varied inversely as the fourth
power of the time allotted to its completion.

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The clear message here is that every project has an optimal staffing level, and (correspondingly)
an optimal time in which it will be completed. Going significantly above or below the optimal
staffing level will reduce work efficiency and there may be a point beyond which adding people
actually delays the project.
This curve breaks down into four zones:
 An impossible zone
The project cannot be accomplished in less time than this, no matter how many people
are applied to the problem. This situation is classically summarized as: "Nine women
cannot have a baby in one month".
 An "Haste makes waste" zone
Adding people does accelerate delivery, but not in proportion to the added effort. Each
additional person added to the project lowers our productivity (they have to be trained,
more time goes into communication and coordination, more misunderstandings). This is a
very inefficient way to operate.
 A linear range
This is the range of efficient staffing, and within this range it is possible to trade man-
power for time, or vice versa.
 An under-staffed/over-staffed zone
This curve does not yield completion time as a function of staffing, but merely shows the
relationship between staffing level and completion times. What we can clearly see on the
right of the curve is that productivity is dropping. Why might this be?
 If the project is critically under-staffed, productivity will suffer because there aren't
enough people to deal with the problems.
 If the project is greatly over-staffed communications overhead will reduce efficiency
and misunderstandings will create problems and result in wasted work.
PROJECT ORGANIZATION
Define Project Organization

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The Project Organization defines the human infrastructure of the project. This task is
designed to define the project organization chart, the roles, and the relationships of the project
team. The organizational structure clearly identifies roles and responsibilities of each position,
augmenting the existing role definitions where necessary to cover all of the responsibilities. The
Project Organization technique that is used in this step provides a standard set of roles and
responsibilities which can be customized for a particular project. This should cover all
personnel resources required, both full and part time.
If not selected in an earlier activity, it is now time to recruit the members of the Project
Board. Project Board members are drawn from those in management who are senior enough to
be able to commit all necessary resources to the project. Recruit project team members. It will
also be necessary to determine outsourcing requirements that will drive the project plan by
identifying types of external contractors required.
Identify clients/users/business partners (stakeholders) to be associated with the project
and determine the level of participation required and available. Identify any stakeholders who are
to be consulted and informed of any status and organizational change regarding the project.
Identify any additional technical or business specialists required to support the project. This may
include such areas as training, human resources, help desk, learning center, and quality
assurance. The roles and responsibilities of these resources should be clearly defined along with
the level of commitment over the duration of the project. For example, the whole-product
solution, including the training and the new technology, will need to live on beyond deployment.
This means that someone will need to "own" those solution components and the technology.
The person/function who is knowledgeable about the technology and responsible for its
welfare after deployment should be tasked with staying current and watching the marketplace for
significant changes in the technology area. This responsibility usually falls to a senior person
(identified earlier) and someone who has been involved in the rollout effort.
Merits and Limitations of the Project Organization
Merits:
(i) Concentrated attention on project work:

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In a project organisation, there is full and concentrated attention of the project manager on
project work; as the project manager has no work other than attending to project management.
He has full powers to co-ordinate and control project activities. In fact, during continuance of the
project, functional managers renounce their authority over their project-team personnel, in favour
of the project manager.
(ii) Advantages of team specialization:
The project team formed for purposes of undertaking project work consists of specialists drawn
from many functional areas. This phenomenon makes available to the project organisation, the
advantages of team specialisation.
(iii) Ability to cope with environmental influences:
Due to the leadership of the project manager coupled with specialised knowledge of project team
members, the project organisation is in a better position to cope with environmental challenges.
In fact, one of the reasons for creating a project structure is to successfully combat environmental
forces.
(iv) Timely completion of the project:
The project organisation ensures a timely completion of projects; without disturbing the normal
functioning of the whole organisation.
Limitations:
(i) Accentuated problems of co-ordination:
In a project organisation, there are increased problems of co-ordination; because of the diverse
viewpoints of team specialists. As a matter of fact, specialists have a tendency to over-emphasize
on their specialised viewpoints vis-a-vis the manner of project designing and implementation.
This tendency of specialists creates a serious headache for the project manager; who, all the time,
may be found busy in reconciling conflicting viewpoints of specialists getting little time for
attention towards project progress.

(ii) Unclearly defined relationship:

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Usually, in a project organisation, the relationships between the project manager and functional
specialists are not very clearly defined. This situation may lead to tension between them;
resulting in poor human relations, in the project organisation. Ultimately, the project work
efficiency may be considerably reduced.
(iii) Feeling of insecurity among personnel:
Usually, there is a feeling of uncertainty in the minds of the project team personnel as to where
they will seek shelter; after a particular project (on which they were engaged) is over. This
feeling of uncertainty about assignment creates feeling of insecurity among personnel; and then
they tend to unduly stretch the existing project work-causing delays in timely completion of the
project.
(iv) Duplication of efforts:
A project organisation suffers from the limitation of duplication of efforts, involved in the
completion of project activities. When e.g. in a project organisation more than one or two
projects is/are undertaken; it is quite likely that the same types of activities might be duplicated,
during the completion of various projects. This phenomenon ultimately tells upon the overall
organisational efficiency and profitability.
PROJECT FINANCE
What is 'Project Finance'?
Project finance is the financing of long-term infrastructure, industrial projects and public services
based upon a non-recourse or limited recourse financial structure, in which project debt and
equity used to finance the project are paid back from the cash flow generated by the project.
Project financing is a loan structure that relies primarily on the project's cash flow for repayment,
with the project's assets, rights and interests held as secondary security or collateral. Project
finance is especially attractive to the private sector because companies can fund major projects
off balance sheet.
Parties to Project Finance
There are several parties in a project financing depending on the type and the scale of a project.
The most usual parties to a project financing are;

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CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

1. Sponsor (typically also an Equity Investor)

2. Lenders (including senior lenders and/or mezzanine)
3. Off-taker(s)
4. Contractor and equipment supplier
5. Operator
6. Financial Advisors
7. Technical Advisors
8. Legal Advisors
9. Equity Investors
10. Regulatory Agencies
11. Multilateral Agencies / Export Credit Agencies
12. Insurance Providers
13. Hedge providers
Structure of Project Finance

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 KARPAGAM ACADEMY OF HIGHER EDUCATION

CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

For example, the Acme Coal Co. imports coal. Energen Inc. supplies energy to
consumers. The two companies agree to build a power plant to accomplish their respective goals.
Typically, the first step would be to sign a memorandum of understanding to set out the
intentions of the two parties. This would be followed by an agreement to form a joint venture.
Acme Coal and Energen form an SPC (Special Purpose Corporation) called Power Holdings Inc.
and divide the shares between them according to their contributions.
Acme Coal, being more established, contributes more capital and takes 70% of the
shares. Energen is a smaller company and takes the remaining 30%. The new company has no
assets. Power Holdings then signs a construction contract with Acme Construction to build a

Prepared by Mr.V.Vivek, Asst Prof, Department of Management, KAHE Page 19/22

 KARPAGAM ACADEMY OF HIGHER EDUCATION

CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

power plant. Acme Construction is an affiliate of Acme Coal and the only company with the
know-how to construct a power plant in accordance with Acme's delivery specification.
A power plant can cost hundreds of millions of dollars. To pay Acme Construction,
Power Holdings receives financing from a development bank and a commercial bank. These
banks provide a guarantee to Acme Construction's financier that the company can pay for the
completion of construction. Payment for construction is generally paid as such: 10% up front,
10% midway through construction, 10% shortly before completion, and 70% upon transfer of
title to Power Holdings, which becomes the owner of the power plant.
Acme Coal and Energen form Power Manage Inc., another SPC, to manage the facility.
The ultimate purpose of the two SPCs (Power Holding and Power Manage) is primarily to
protect Acme Coal and Energen. If a disaster happens at the plant, prospective plaintiffs cannot
sue Acme Coal or Energen and target their assets because neither company owns or operates the
plant. However project financiers may recognize this and require some sort of parent guarantee
for up to negotiated amounts of operational liabilities. A Sale and Purchase Agreement (SPA)
between Power Manage and Acme Coal supplies raw materials to the power plant. Electricity is
then delivered to Energen using a wholesale delivery contract. The net cash flow of the SPC
Power Holdings (sales proceeds less costs) will be used to repay the financiers.
PROCUREMENT MANAGEMENT
This Procurement Management process will help you to purchase goods and services
from external suppliers. It gives you a complete procurement process and procurement
procedures, which explain step-by-step, how to purchase from suppliers.

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 KARPAGAM ACADEMY OF HIGHER EDUCATION

CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

Procurement Management Process

1. Identification of need – When the company needs goods/services, the company’s needs
must be identified in order to choose which type of service or product will fit best. Then
the buyer needs to find them at the best quality for the best price while also making sure
the supplier is able to deliver.
2. Finding and qualifying the suppliers – Using the Internet or your supplier databases,
you assemble a list of all potential product and/or service providers. Sometimes it’s useful
to run RFIs or gather additional information, like years on the market and turnover rates,
to pre-qualify suppliers.
3. Requesting proposals – To make sure you buy the products or services under the best
conditions – price, quality, etc. – you request proposals. Based on the results, you know
with whom to start negotiations. The RFP results can be considered an overview of
current market capability.
4. Negotiating with suppliers – To achieve the best conditions regarding prices, terms and
delivery, you negotiate with suppliers. It’s especially essential if it’s the first time you are
working with them. This process can help you evaluate their trustworthiness as well.
5. Contracting – If both parties, the buyer and the supplier, agree on all terms (pricing,
delivery, quality, etc.) you can make it official by signing a contract.
6. Delivery – Throughout the delivery process, you need to evaluate the products and
services delivered to ensure they are what you had planned to buy, they meet your quality
standards, they arrive on schedule and you are charged the prices outlined in the contract.
7. Analyzing results – Once the project is complete, it is essential to analyze the process
and evaluate its success as well as record observations for future projects. You may need
to present the outcomes to company management or relevant stakeholders. The results
can be used the next time you need to make a similar purchase.

Prepared by Mr.V.Vivek, Asst Prof, Department of Management, KAHE Page 21/22

 KARPAGAM ACADEMY OF HIGHER EDUCATION

CLASS: II MBA COURSE NAME: SOFTWARE PROJECT MANAGEMENT

COURSE CODE: 17MBAPS401B UNIT: I (Introduction) BATCH-2017-2019

Prepared by Mr.V.Vivek, Asst Prof, Department of Management, KAHE Page 22/22