1
What is Project Procurement Management, and what are its six main processes?
Definition + List▾
3 + 6×2 = 15 marks
Definition: Procurement means acquiring goods and/or services from an outside source — also called purchasing or outsourcing. Project Procurement Management is therefore the process of acquiring goods and services for a project from outside the performing organization.
Six main processes:
- Planning purchases and acquisitions — determining what to procure, when, and how (uses make-or-buy analysis).
- Planning contracting — describing requirements for the desired products/services and identifying potential sellers.
- Requesting seller responses — obtaining information, quotes, bids, offers, or proposals from sellers (RFP / RFQ).
- Selecting sellers — evaluating potential sellers, negotiating, and awarding the contract (source selection).
- Administering the contract — managing the relationship with the selected seller and controlling changes.
- Closing the contract — completing and settling the contract, including resolving any open items.
Exam tip: The 2023 past paper tested this as True/False statements (e.g. "procurement management has two stages" — False, it has six). Newer syllabus material sometimes compresses this into Planning, Conducting, and Controlling Procurements — know both groupings.
2
Describe the four main types of contracts used in project procurement, and explain how buyer and seller risk changes across them.
Classify + Risk Diagram▾
4 × 5 = 20 marks
- Fixed-price (lump sum) contracts — a fixed total price for a well-defined product or service; well suited to stable requirements, e.g. IT infrastructure projects.
- Cost-reimbursable contracts — the buyer pays the seller for direct and indirect actual costs; more suitable for software development projects where scope may evolve.
- Time and material (T&M) contracts — a hybrid of fixed-price and cost-reimbursable, often used by consultants who charge a fixed hourly rate.
- Unit price contracts — the buyer pays the seller a predetermined amount per unit of service (e.g. per hour or per item).
Risk spectrum (from a firm-fixed-price contract to a fully cost-reimbursable one, buyer risk falls while seller risk rises):
CPPCCost + % of costs
CPFFCost + fixed fee
CPIFCost + incentive fee
FPIFixed price incentive
FFPFirm fixed price
◀ High buyer risk / Low seller riskLow buyer risk / High seller risk ▶
Exam tip: The 2022 past paper's contract-type matching question rewarded the full name of the contract (e.g. "Firm-Fixed-Price"), giving only half marks for abbreviations like "FFP" — always write the full name first.
3
List and explain four types of cost-reimbursable contracts used in project procurement management.
List + Explain▾
4 × 3 = 12 marks
- Cost Plus Fixed Fee (CPFF) — the buyer pays the supplier for allowable performance costs plus a fixed fee, usually based on a percentage of estimated (not actual) costs.
- Cost Plus Incentive Fee (CPIF) — the buyer pays allowable performance costs plus a predetermined fee and an incentive bonus for meeting or beating targets (e.g. schedule or cost goals).
- Cost Plus Award Fee (CPAF) — the seller is reimbursed for allowable costs plus an award fee based mainly on subjective performance criteria defined by the buyer (e.g. quality, timeliness).
- Cost Plus Percentage of Costs (CPPC) — the buyer pays the supplier for allowable performance costs plus a predetermined percentage based on total costs; riskiest for the buyer since the fee grows as costs grow.
Exam tip: The 2023 past paper directly asked for these four (worth 3 marks each). Note CPAF differs from CPIF in that its fee is subjectively evaluated rather than tied to an objective, predetermined formula — a common point of confusion.
4
A project can lease an item for 10,000 LKR/day, or purchase it for a lump sum of 250,000 LKR plus an operational cost of 5,000 LKR/day. After how many days does purchasing become more economical than leasing?
Make-or-Buy Calculation▾
08 marks
Method: Set the two options equal, letting d be the number of days the item is used.
| Step | Working |
|---|---|
| Set up the equation | 10,000d = 250,000 + 5,000d |
| Subtract 5,000d from both sides | 5,000d = 250,000 |
| Divide both sides by 5,000 | d = 50 |
Conclusion: If the item is needed for more than 50 days, purchasing (250,000 LKR + 5,000 LKR/day) becomes more economical than leasing (10,000 LKR/day).
Exam tip: This exact "lease-or-buy" style question has appeared in both the 2023 past paper (50-day answer) and the lecture slide worked example (30-day answer, different figures) — always re-derive the equation from the numbers given rather than recalling a memorized answer. Also note: if the item can later be resold, the resale value should reduce the purchase side of the equation.
5
A project has a planned budget of 1,000,000 LKR. A third-party API integration risk may cause a 2-month delay and 300,000 LKR extra cost (30% probability). Investing 50,000 LKR now in extra testing reduces this probability to 10%. Using a decision tree, calculate the EMV for both options and recommend a decision.
Decision Tree + EMV▾
25 + 5 = 30 marks
Decision tree:
Root
|--> Without Testing (cost 0)
| |--> Success (70%): Cost = 1,000,000
| |--> Failure (30%): Cost = 1,300,000
|
|--> With Testing (cost 50,000)
|--> Success (90%): Cost = 1,000,000
|--> Failure (10%): Cost = 1,300,000
EMV without testing:
= (0.70 × 1,000,000) + (0.30 × 1,300,000)
= 700,000 + 390,000 = 1,090,000 LKR
EMV with testing:
= 50,000 + (0.90 × 1,000,000) + (0.10 × 1,300,000)
= 50,000 + 900,000 + 130,000 = 1,080,000 LKR
Recommendation: Choose to invest in extra testing. Its EMV (1,080,000 LKR) is lower than the EMV without testing (1,090,000 LKR) — even though testing adds a fixed 50,000 LKR upfront cost, it cuts the failure probability from 30% to 10% and reduces the expected overall project cost by 10,000 LKR.
Exam tip: Always draw the tree before computing EMV — the 2024 past paper allocated marks specifically for the tree structure, not just the final numbers. Remember EMV = Σ(probability × outcome value), and always add any upfront cost of the branch (like the 50,000 LKR testing cost) once, outside the probability-weighted sum.