After the proposals and bids have been submitted by the vendors, the next step in the process is to select a vendor that can fulfill the needs of the project. This process is known as source selection. Several determining factors are associated with source selection, including pricing and technical aspects. The process frequently involves the use of a weighting system to determine the best vendors based on numerous criteria.
A weighting system is a multiple-step process and initially involves the identification of several attributes, such as the following:
After these attributes have been identified, a weight is assigned to each category based on the importance of that attribute.
For example, if pricing is a very important issue, you might give that aspect a weight of 5. If shipping time is not very important, you might give that aspect a weight of 1 or 2. You then multiply the weight by the rating of each category to calculate a total for that attribute. You would then prepare a matrix for all the attributes, and total each category based on the vendor's ability to fulfill that attribute's requirement (see Table 6.7 for an example).
After each of the vendors is rated, all the attribute ratings are totaled to provide a summary of the vendors. Then they are ranked to determine the best source selection. This process may be repeated several times as new variables are identified, vendors are added, or priorities change. This process allows the customer to quantify qualitative aspects of the vendors to minimize bias.
In this case, vendor #3 has the highest weight (26) based on these criteria, although vendor #2 has the lowest cost. Vendor #1 has the lowest weighting.
Inputs to Source Selection
The source-selection process has three inputs: proposals, evaluation criteria, and organizational policies. Proposals were covered in the previous section. Evaluation criteria are the attributes analyzed and rated during the source-selection process. Organizational policies can have a major impact on the source-selection process. These formal policies frequently involve constraints to which the vendors must comply in order to be part of the proposal-submission and source-selection processes.
Tools and Techniques for Source Selection
The four tools and techniques for sources selection include contract negotiation, a weighting system, a screening system, and independent estimates.
According to the PMBOK, contract negotiation involves "clarification and mutual agreement of the structure and requirements of the contract prior to the signing of the contract." In other words, everyone has to understand and agree to the contract; otherwise, the contract is not valid. As expected, many variables are involved in the negotiation process and frequently involve some negotiation by both parties before the final agreement is reached.
A screening system sets minimum standards that must be met in order for the vendor to proceed within the source-selection process. For example, the ability to accept a purchase order as a means of payment would be a constraint that is required of all vendors for submitting an initial proposal. If the vendor cannot fulfill the initial requirements, it should not continue through the process.
"Should cost" estimates is another term for independent estimates. These estimates are periodically prepared by the customer as a sanity check to the vendors' cost estimates. This allows benchmarking so that the customer can determine whether its needs are being correctly fulfilled and everyone has a full understanding of the project details. This could include every aspect of the project.
Outputs from Source Selection
The only output from the source-selection process is the actual contract, which can be subject to remedy in the courts, if necessary. Besides contract, it may also be called an agreement, subcontract, purchase order, or memorandum of understanding. If an organization has any policies concerning who can sign these contracts, this is called delegation of procurement authority.
A scope statement defines what the project is trying to accomplish. It outlines the requirements and constraints while providing milestones and objectives. The difference between a contract and a scope statement lies in the legal ramifications. A scope statement is not legally binding unless it is incorporated into a contract. Contracts are legally binding and subject to all the aspects associated with legal instruments, including penalties and liabilities.
Incentives are frequently used in contracts to keep the project to the originally agreed baseline. If a project manager is financially rewarded for maintaining the timeline or penalized for exceeding it, this gives him or her a lot of incentive to properly manage the project within the original constraints agreed upon in the contract.