Chapter 12 Project Procurement Management Answer Key (1-42)

Chapter 12: Project Procurement Management True / False 1. Suppliers are those organizations or individuals who provide procurement services.  a. True  b. False ANSWER: True RATIONALE: Feedback: Organizations or individuals who provide procurement services are referred to as suppliers. Suppliers are also known as vendors, contractors, subcontractors, or sellers. 2. While outsourcing, organizations should protect strategic information because it can become vulnerable in the hands of suppliers.  a. True  b. False ANSWER: True RATIONALE: Feedback: While outsourcing, organizations should be careful to protect strategic information that could become vulnerable in the hands of suppliers. 3. Project procurement management consists primarily of two processes: assessing procurements and controlling procurements.  a. True  b. False ANSWER: False RATIONALE: Feedback: There are four main processes in project procurement management. These consist of planning procurement management, conducting procurements, controlling procurements, and closing procurements. 4. If an organization has no need to buy any products or services from outside the organization, then it has no need to perform any of the procurement management processes.  a. True  b. False ANSWER: True RATIONALE: Feedback: Planning procurements involves identifying which project needs can best be met by using products or services outside the organization. If there is no need to buy products or services from outside the organization, then further procurement management is not needed. 5. Risk registers and stakeholder registers are outputs of the planning procurement process.  a. True  b. False ANSWER: False RATIONALE: Feedback: The risk register and the stakeholder register are inputs for the planning procurement process. Other inputs needed for planning procurements include the project management plan, requirements documentation, activity resource requirements, the project schedule, and activity cost estimates, among others. 6. A single contract can include all three categories of contracts.  a. True  b. False ANSWER: RATIONALE: True Feedback: Three broad categories of contracts are fixed price or lump sum, cost reimbursable, and time and material. A single contract can include all three of these categories if it makes sense for a particular procurement. 7. Indirect costs are those costs can be traced back to a project in a cost-effective way.  a. True  b. False ANSWER: False RATIONALE: Feedback: Indirect costs are not directly related to the products or services of the project, but they are indirectly related to performing the project. Normally, these costs cannot be traced back to the project in a cost-effective way. 8. Buyers absorb lesser risk with cost-reimbursable contracts than they do with fixed-price contracts.  a. True  b. False ANSWER: False RATIONALE: Feedback: Cost-reimbursable contracts often include fees, such as a profit percentage or incentives for meeting or exceeding selected project objectives. Buyer absorb more of the risk with costreimbursable contracts than they do with fixed-price contracts. 9. The fee in a CPFF contract constantly varies even when the scope of a contract remains the same.  a. True  b. False ANSWER: False RATIONALE: Feedback: With a cost plus fixed fee (CPFF) contract, the buyer pays the supplier for allowable performance costs plus a fixed fee payment that is usually based on a percentage of estimated costs. This fee does not vary, however, unless the scope of the contract changes. 10. In unit pricing, the total value of the contract is a function of the quantities needed to complete the work.  a. True  b. False ANSWER: True RATIONALE: Feedback: Unit pricing can be used in various types of contracts to require the buyer to pay the supplier a predetermined amount per unit of product or service. The total value of the contract is a function of the quantities needed to complete the work. 11. All contracts should include specific clauses that take into account issues unique to the project.  a. True  b. False ANSWER: True RATIONALE: Feedback: Any type of contract should include specific clauses that take into account issues unique to the project. 12. In an FPI contract, all of the risk is borne by the buyer.  a. True  b. False ANSWER: False RATIONALE: Feedback: A firm-fixed-price (FFP) contract has the least amount of risk for the buyer, followed by a fixed-price incentive fee (FPIF) contract. 13. An FP-EPA contract carries the least risk for a supplier.  a. True  b. False ANSWER: False RATIONALE: Feedback: For a seller, an FFP carries the most risk. An FP-EPA contract carries a higher degree of risk for a seller than a CPPC, CPFF, CPIF, CPAF, or an FPI. 14. Make-or-buy analysis involves comparing the internal costs of providing a product with the cost of outsourcing.  a. True  b. False ANSWER: True RATIONALE: Feedback: Make-or-buy analysis involves estimating the internal costs of providing a product or service and comparing the estimate to the cost of outsourcing. 15. A company is considering whether to purchase or lease a piece of equipment for an upcoming project. The cost to purchase is $10,000 plus $100 per day to operate or $500 per day to lease (including operating costs). If the company anticipates using the equipment for a total of 20 days, they will be indifferent as to whether or lease or purchase it.  a. True  b. False ANSWER: False RATIONALE: Feedback: If the company uses the equipment for 20 days, they would be better off with a lease at a total cost of $10,000 (20 x $500). The purchase cost of $10,000 will be increased by $2,000 of operating costs (20 x $100). 16. Contents of the procurement management plan vary with project needs.  a. True  b. False ANSWER: True RATIONALE: Feedback: The procurement management plan is a document that describes how the procurement processes will be managed. Like other project plans, contents of the procurement management plan will vary with project needs. 17. The main sections of an RFP can include the statement of work and schedule information.   ANSWER: RATIONALE: a. b. True False True Feedback: The main sections of an RFP usually include its statement of purpose, background information on the organization issuing the RFP, the basic requirements for the products and services being proposed, and the hardware and software environment. 18. A key factor in evaluating bids, particularly for projects involving information technology, is the past performance record of the bidder.  a. True  b. False ANSWER: True RATIONALE: Feedback: A key factor in evaluating bids, particularly for projects involving IT, is the past performance record of the bidder. The RFP should require bidders to list other similar projects they have worked on and provide customer references for those projects. 19. Reviewing performance records reduces the risk of selecting a supplier with a poor track record.  a. True  b. False ANSWER: True RATIONALE: Feedback: A key factor in evaluating bids, particularly for projects involving IT, is the past performance record of the bidder. Reviewing performance records and references reduces the risk of selecting a supplier with a poor track record. 20. In project procurement management, a main output of the controlling process is a source selection criteria.  a. True  b. False ANSWER: False RATIONALE: Feedback: In project procurement management, two of the main outputs of this process are a selected seller and procurement contract award. 21. The contractual relationship is a legal relationship, which means it is subject to state and federal contract laws.  a. True  b. False ANSWER: True RATIONALE: Feedback: Controlling procurements ensures that the seller’s performance meets contractual requirements. The contractual relationship is a legal relationship, which means it is subject to state and federal contract laws. 22. The closing procurements process involves updating records to reflect final results and archiving information for future use.  a. True  b. False ANSWER: True RATIONALE: Feedback: The final process in project procurement management is closing procurements. This process involves determining if all work required in each contract was completed correctly and satisfactorily. The team should also update records to reflect final results and archive information for 23. Procurement audits are often done during contract closure to identify lessons learned in the entire procurement process.  a. True  b. False ANSWER: True RATIONALE: Feedback: Procurement audits are often done during contract closure to identify lessons learned in the entire procurement process. Organizations should strive to improve all of their business processes, including procurement management. Multiple Choice 24. “A shortage of qualified personnel is one of the main reason that companies outsource. A project may require experts in a particular field for several months and planning for this procurement ensures that the needed services will be available for the project.” Which of the following benefits does this characteristic of outsourcing provide an organization?  a. Reduces focus on its core business  b. Increases control over all aspects of projects that suppliers carry out  c. Provides access to specific skills  d. Reduces dependency on suppliers ANSWER: c RATIONALE: Feedback: Organizations can gain access to specific skills and technologies by using outside resources. 25. Outsourcing suppliers can often provide economies of scale, especially for hardware and software, that may not be available to the client alone. Which of the following benefits does this offer an organization?  a. Reduction in fixed and recurrent costs b. Increased flexibility  c. Increased accountability d. Access to specific skills ANSWER: a RATIONALE: Feedback: Companies can use outsourcing to reduce labor costs on projects by avoiding the costs of hiring, firing, and reassigning people to projects or paying their salaries when they are between projects. Outsourcing suppliers often can provide economies of scale that may not be available to the client alone, especially for hardware and software. 26. “Most organizations are not in business to provide information technology services, yet many have spent valuable time and resources on information technology functions when they should have instead worked on important competencies such as marketing, customer service, and new product design. Outsourcing helps tackle this problem.” Which of the following benefits does outsourcing primarily provide in such a scenario?  a. Reduces fixed and recurrent costs  b. Protects strategic information from being accessible to external suppliers  c. Increases accountability even without a written contract  d. Helps focus on an organization’s core business ANSWER: d RATIONALE: Feedback: By outsourcing many IT functions, employees can focus on jobs that are critical to the success of the organization. 27. “Outsourcing to provide extra workers during periods of peak workloads can be much more economical than trying to fill entire projects with internal resources.” Which of the following advantages does this characteristic of outsourcing Cengage Learning Testing, Powered by Cognero Page10 provide organizations?  a. Offers control over all aspects of projects that suppliers carry out  b. Provides a company flexibility in staffing  c. Shifts accountability from external suppliers to internal staff  d. Helps avoid any form of dependency on suppliers ANSWER: b RATIONALE: Feedback: Outsourcing to provide extra staff during periods of peak workloads can be much more economical than trying to staff entire projects with internal resources. Many companies cite better flexibility in staffing as a key reason for outsourcing. 28. A drawback of outsourcing is that:  a. it does not provide access to specific skills or technologies.  b. it invariably results in an increase in both fixed and recurrent costs.  c. it can make an organization become overly dependent on particular suppliers.  d. it cannot increase accountability of suppliers through a written contract. ANSWER: c RATIONALE: Feedback: An organization can become too dependent on particular suppliers. If those suppliers went out of business or lost key personnel, it could cause great damage to a project. 29. The first step in project procurement management is:  a. closing procurement management. b. controlling procurements.  c. conducting procurements. d. planning procurement management. ANSWER: d RATIONALE: Feedback: There are four main processes in project procurement management. The process of planning procurement management involves determining what to procure and when and how to do it. This is the first step of project procurement management. 30. In project procurement management, the process of _____ involves determining what to procure, when, and how.  a. closing procurements b. controlling procurements  c. conducting procurements d. planning procurement management ANSWER: d RATIONALE: Feedback: There are four main processes in project procurement management. The process of planning procurement management involves determining what to procure and when and how to do it. 31. In project procurement management, the process of _____ involves obtaining seller responses, selecting sellers, and awarding contracts.  a. conducting procurements b. closing procurements  c. settling contracts d. planning procurement management ANSWER: a RATIONALE: Feedback: There are four main processes in project procurement management. The process of conducting procurements involves obtaining seller responses, selecting sellers, and awarding contracts. 32. Outputs of the _____ process consist of selected sellers and resource calendars.  a. closing procurements b. conducting procurements  c. planning procurement management d. controlling procurements ANSWER: RATIONALE: b Feedback: Conducting procurements involves obtaining seller responses, selecting sellers, and awarding contracts. Outputs include selected sellers, agreements, resource calendars, change requests, and updates to the project management plan and other project documents. 33. Which of the following processes of project procurement management involves managing relationships with sellers, monitoring contract performance, and making changes as needed?  a. Closing procurements b. Settling contracts  c. Deciding on the services to procure d. Controlling procurements ANSWER: d RATIONALE: Feedback: There are four main processes in project procurement management. The process of controlling procurements involves managing relationships with sellers, monitoring contract performance, and making changes as needed. 34. In project procurement management, which of the following processes involve completion and settlement of each contract, including resolution of any open items?  a. Planning procurement management b. Controlling procurements  c. Closing procurements d. Conducting procurements ANSWER: c RATIONALE: Feedback: There are four main processes in project procurement management. The process of closing procurements involves completion and settlement of each contract or agreement, including resolution of any open items. 35. The procurement statements of work are an output of the _____ process of project procurement management.  a. planning b. executing  c. monitoring and controlling d. closing ANSWER: a RATIONALE: Feedback: The procurement statements of work are an output of the planning process of project procurement management. Other outputs of the process include the procurement management plan, procurement documents and source selection criteria. 36. In project procurement management, the process of conducting procurements is part of the _____ process.  a. planning b. executing  c. monitoring and controlling d. closing ANSWER: b RATIONALE: Feedback: Conducting procurements is part of the executing process of project procurement management. It involves obtaining seller responses, selecting sellers, and awarding contracts. 37. In project procurement management, which of the following is an output of the executing process?  a. Make-or-buy decisions b. Statements of work  c. Source selection criteria d. Resource calendars ANSWER: d RATIONALE: Feedback: In project procurement management, outputs of the executing process include selected sellers, agreements, resource calendars, change requests, project management plan updates, project documents updates. 38. In project procurement management, an output of the _____ monitoring and controlling process.  a. Change requests b. Selected sellers  c. Resource calendars d. Make-or-buy decisions ANSWER: a RATIONALE: Feedback: In project procurement management, outputs of the monitoring and controlling process include work performance information, change requests, project management plan updates, project documents updates, organizational process assets updates. 39. Which of the following is true of lump-sum contracts?  a. They incur a high degree of risk for the buyer.  b. They involve a fixed total price for a well-defined product or service.  c. They consist of a fee based on the satisfaction of subjective performance criteria.  d. They are also known as cost-reimbursable contracts. ANSWER: b RATIONALE: Feedback: Fixed-price or lump-sum contracts involve a fixed total price for a well-defined product or service. The buyer incurs little risk in this situation because the price is predetermined. 40. _____ contracts involve payment to the supplier for direct and indirect actual costs and often include fees.  a. Firm-fixed-price b. Lump sum  c. Cost-reimbursable contracts d. Fixed-price incentive fee ANSWER: RATIONALE: c Feedback: Cost-reimbursable contracts involve payment to the supplier for direct and indirect actual costs. Such contracts often include fees, such as a profit percentage or incentives for meeting or exceeding selected project objectives. 41. In a(n) _____ contract, the buyer pays the supplier for allowable performance costs along with a predetermined fee and an incentive bonus.  a. FFP b. CPIF  c. CPPC d. FPIF ANSWER: b RATIONALE: Feedback: In a cost plus incentive fee (CPIF) contract, the buyer pays the supplier for allowable performance costs along with a predetermined fee and an incentive bonus. 42. With a(n) _____ contract, the buyer pays the supplier for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs.  a. CPFF b. FPIF  c. CPAF d. CPIF ANSWER: a RATIONALE: Feedback: With a cost plus fixed fee (CPFF) contract, the buyer pays the supplier for allowable performance costs plus a fixed fee payment that is usually based on a percentage of estimated costs. This fee does not vary unless the scope of the contract changes.