Moving from Performance Measurement to Performance Management - Case Study Example

PROCUREMENT MANAGEMENT Executive Summary Large companies and organizations tend to have highly complex management structures and systems, which are deemed essential in the process of achieving their set goals and objectives. The bureaucracy and other related aspects of their management are said to be better management systems since they help to enhance accountability and general effectiveness in the entire organisation (Fairgrieve 2011, p. 87). For instance, in the human resource department, the lengthy process before hiring new employees helps these organizations and business units to get the right candidates for the jobs that they advertise. When it comes to getting goods, raw materials and other kinds of specialized services, these organizations tends to rely on the process of procurement, in order to get the best suppliers for the intended services and goods needed for the success of their business goals and objectives (Amaratunga & Baldry 2002, p. 45). The procurement process, as used in such organizations refers to the act of acquiring services, goods and different kinds of works from external sources different from the business. In the process of procurement, it is very important that those particular goods and services as well as other kinds of works be very appropriate, being procured from the best and favorable costs that are according to the needs of the business organisation with respect to their quality and quantity standards. A procurement process that is professionally done enhances success in business functions, something that later becomes a competitive strategy for the particular businesses (Sekaran 2003, p. 23). Public and corporate bodies often define procurement as the processes aimed at promoting open and fair competition for their particular businesses while minimizing exposures to instances of fraud and collisions. This paper examines the process of procurement as done by an engineering firm that was seeking the services of oil explorers in Kazakhstan. Table of Contents 1. Executive Summary …………………………………………………….. 2 2. Introduction ……………………………………………………………. 3 3. Procurement planning ………………………………………………….. 5 4. Aspect of procurement law that Viktor would have considered ………… 6 5. Project Budgeting ……………………………………………………….. 7 6. Tender Evaluation and awards ………………………………………… 8 7. Progress assessment …………………………………………………… 9 8. Conclusion ……………………………………………………………... 11 9. Recommendation ………………………………………………………. 12 10. Bibliography …………………………………………………………… 13 Introduction Kazakhstan is one of largest countries in Europe, being estimated to have a size that is almost equivalent to that of Western Europe. The country comprises of a highly varied landscape that stretches all the way from the mountainous sections found to the east, going all the way to the vast lowlands that are energy rich to the west. Additionally, it includes the largely industrialized northern lands with their cold climates that go all the way to the steppes of the semi-desert of the central belt, all the way to the very fertile grasslands found to the south. Kazakhstan is a country rich in energy and mineral deposits, with the only advantage being that it is landlocked. In this respect, the country is limited with the ability to manage an effective exportation process for its minerals, in order to enhance the growth and development of its economy. Being landlocked also means that the country has a poor communication infrastructure, something that hampers investment prospects for multinational companies that could be willing to establish their presence in the country. In the process of solving some of the challenges affecting exportation of mineral and oil products, the Kazakhstan government came up with the idea launching Kazakhstan pipeline, which was a multi-million dollar project that would link all the major oil wells especially those found between the Ayaguz area and the Caspian Sea. From this region, the oil would be effectively piped through Georgia for export via the Black Sea. However, from the Black Sea, the oil was is to move all the way by tankers via the Mediterranean, finding their way to the many global markets that seek these precious commodities. The project was to be under the management of Kazakhstan State Oil Corporation with the project’s management team being based in London in the United Kingdom. It was expected that after full development of the project, the management team had to relocate and move to the KSOC offices, which were located in the Ayaguz region, where vast majority of the exploration services are to be stationed. After completion, it was estimated that route taken by the pipeline would be approximately 2,100 kilometers in length, something that needed the services and inputs of qualified and reliable engineers to manage it to completion. The project was designed in such a way that the work in each of the stages involved was to be managed separately. In this approach, no dependencies would exist between the different stages in the plan. In all the six stages for the project, there was a very high level schedule in place, just to ensure that everything went on smoothly as planned. For expenditures, it was also expected that all would proceed smoothly according to the set plan. Procurement planning The procurement process done by Viktor in getting the best engineer for the job was very faulty and lacking a professional appeal. Anybody that has gone to school understands that even a small exercise of getting a reliable employee for a job cannot be done over the phone, more so in chat mails. Viktor, in as much as he has just completed an undergraduate degree, the way he handled the procurement process was unethical and not meeting the minimal standards of effective performance. In the first pace, Viktor had been lazy and slow in learning about the process of effective procurement, he had been given enough time to look for the best engineers to be incorporated in the successful completion of the job but he had taken it lightly, only to hurry and Google for a few ghost engineers over the internet that did not even have a profile portfolio that could be used in gauging their performance and suitability for the job. It is important to realize that the internet has become a very important tool in management and communication process’ however, using the internet for serious business management functions like procurement requires a proper evaluation of the needs and requirements from the potential candidates before engaging any that can be found in blogs and websites online. It would have been important for Viktor to list down his most important requirements before embarking on the process. This exercise would have included creating a to-do-list, which would have indicated the tasks to be done against the time frames for completing the exercise. In such a move, he would have had a enough time to identify the particular needs and requirements from the potential candidates and conducted a successful procurement process that was not limited by time. Generally, in any management functions, effective prior preparations often helps to prevent poor performance, something that Viktor seems not to have had any idea about. Aspect of procurement law that Viktor would have considered Across many businesses and organizations, the procurement process often begins with purchasing efficiencies and effectiveness in procurement functions in order to convert from being reactive and becoming more proactive in attaining the goals and objectives of the company and business organisation. The purchasing function is often regarded as being the product of two important elements; first is purchasing efficiency and the second one is purchasing effectiveness. Performance provides a basic foundation upon which an organisation uses in assessing the way it is managing its progress in meeting its predestined objectives, identifying the areas of weaknesses and strength as well as deciding on the future initiatives in the aim of creating effective and reliable performance improvements. In this perspective, it is evident that the purchasing functions is not actually an end but rather, it is a path used in the effective and efficient controlling process and monitoring of the particular purchasing function in the organisation. As far as the procurement law is concerned, it would have been imperative for Viktor to examine some of the important elements of this law in order to make some reliable decisions that would have aided in the process of getting the best engineer for the pipeline construction (Russill 2010, p. 65). Viktor ought to have examined a few important aspect of the contract law in determining the best way to manage the procurement process effectively. For instance, he would have examined what it means by the term contract, which according to contract law, it is any kind of agreement that can be fully enforced in a court of law. An agreement is often established by two parties or more who enter an agreement to perform or refrain from undertaking certain activities now or at a time to come (Bovis 2007, p. 65). In this perspective, we have two main kinds of contracts in question; we have an offeree and an offeror. It is important to realize that whether contracts can be classified as bilateral or unilateral depends on what has to be done by the offeree in accepting an offer that binds the offeror to the particular contract. Project Budgeting For an effective procurement process, it is always important that a proper budget be put in place in order to manage it thoroughly. In managing this process, Viktor, the persona that had been placed in charge did not pay much attention to creating a proper and reliable budget that would have been used for this exercise. A proper budget to be used in this procurement process was expected to have begun from the design of the procurement process itself all the way to the process of acquiring the subsea pipeline. The following table presents a sample budget that would have been used in managing the procurement process that is thought to help in the exercise. Fig 1. Proposed Budget for the procurement process. Tender Evaluation and Award After realizing that Viktor had failed the company, it was important that a new tendering process be put in place so that a new and able person to undertake the tendering process be selected. Kazakhstan, having never had an undersea pipeline, the company wanted the project undertaken by a company that had both the ability and willingness to start and finalize the project effectively. Korostelyev and the other team were deeply interested in the fifth and sixth stage of the contract because it was the most important part of the work. KSB won the tender, being a company led by the Kazakhi construction business as well as the Russian pipeline company that was thought to be very experienced. In as much as Maricon, an internal company explained that they could manage the two stages effectively, what put them out was that they did not have any track record of performance that they could show off. In a project like this, it is important to have a good and reputable track record, because it provides confidence to people awarding the tenders that the work will be done. After a thorough exercise, Korostelyev’s team decided to award the tenders to KSP pipelay to complete the project’s fifth stage. However, the company did not express an interest in doing the sixth stage and for that reason; they did not place their bid for the tender. Initially, KSOC had made clear for all the people submitting their bids that a highly standard and quality work was needed for completion of these projects. Their bidding process was done as indicated below. After a thorough process, the tender was awarded to KSB pipelay for the fifth stage and the sixth stage was awarded to Maricon, after having shown all the sufficient reasons that they could effectively manage the stage even if they did not have track record for such a satge in the past. Contract Maricon KSB Pipelay Salem Marine Subsea Projects Stage 5 $45m $38m No bid $47.5m Stage 6 $122m No bid $133m $142m Progress assessment (a) For all stages discuss the difference between the actual progress reported and planned (expected) percentage progress at the time of the KSOC progress review. (6 marks) At the time of the progress review for the KSOC progress the actual progress represents evidence of the work done on the ground. On the other hand, the planned or expected percentage progress refers to the estimated work progress on the ground. In the evaluation process (Waal 2007, p. 61), it is important to realize that the actual progress refers to the real progress happening in the course of the particular work. For this reason the person making the evaluation is not expected to focus on the expected progress because various factors may have happened that could delay or stop the project completely. The different unexpectations that happen in the course of the project need to have been allocated in preparation of the time schedule so that it is flexible for the project implementers to change accordingly depending on the emerging issues (Kumar, Ozdamar & Peng 2005, p. 155). Constant evaluations are important in project management so that any emerging issues can be sorted out effectively in the process of achieving the final goal. (b) Using the schedule, budget and progress information provided, evaluate the expenditure incurred for each stage in progress – in comparison with the original budget for each stage. (8 marks) From the progress report, it was discovered that at the mountainous stage, the actual progress done in Task A was only 24%, having consumed an estimated amount of close to $52.3m. At the grasslands, semi-desert and desert stages, the progress report was estimated at 55%, 29% and 5%, having consumed an estimated expenditure of $32.7m, $ 13.9m and $16.1 mi respectively. From the above analysis, it is evident that the different stages in the progress had been running separately. Additionally, it is important to realize that the different stages had different levels of complexity as indicated by the different expenditures that had been incurred (Butter 2007, p. 54). Generally, it is the duty of project managers to ensure that they completed the scheduled work in good time as agreed upon unless unavoidable circumstances forces the project to delay or stall for various reasons. (c) Assess the likelihood that the pipeline will be finished and operational in accord with the schedule – and assess the projected spending at the end of the project in comparison with the original budget. Explain your reasoning. (11 marks From the analysis above, it is expected that the project will be completed in record time following a successful bidding process that was done after Viktor failed to achieve the objective as directed initially. Additionally, it is expected that the project will be will be completed under the stated expenditure budget. The successful bidding process made it possible for KSOC to select the best engineers that were deemed effective and able to the task. In this process, KSOC should look forward to having the best project finished in record time to enable it manage to export its oil to overseas markets. One of the things that provide an assurance that the work will be completed in record time is the fact that the project managers have decided to make regular assessment in order to determine the progress of the project. With regular assessment and evaluation, it is possible to have an insight into the progress of the project, something that makes it easy to make amendments to what is thought not to be running effectively. Project assessment is an important aspect of any project management; KSOC should prepare to have its project done within the timelines set. Conclusion In conclusion, it is important to realize that in the process of changing and achieving competitive advantages, performance is an essential driver towards achieving quality in the services being offered by the business. The use of inappropriate means in achieving competitive advantages often becomes a barrier towards achieving the change process, leading to a deterioration of the much needed purchasing function. Organizations that do not have the right means to perform in their processes and procedures are supposed to ensure that they evaluate the internal environment in the process of creating effective and reliable approaches towards their market performance (Van 2006, p. 45). KSOC needs to ensure that it makes a constant and periodical evaluation of the stages in performance so that the best work can be achieved within the stipulated timelines Recommendations One of the best actions that KSOC should do is to ensure that they make a constant evaluation of the project in order to keep the engineers involved in the project for meeting the time schedules illustrated. Additionally, the process of making regular assessment and evaluation for the project helps to determine any drawbacks or short comings being incurred so that corrective measures can be taken in good time to ensure a smooth process. Alternatively, KSOC should always call for continuous progress reports in order to evaluate the progress of the report. In doing this, the project will have an assurance that the necessary quality standards will be observed in the development of this project to its final stage. In future, the company should ensure that such important activities like procurement are done with the best and qualified persons and not like Viktor, whose conduct and approach can easily plunge the company in unprecedented failure. Bibliography Amaratunga, D., & Baldry, D. 2002. Moving from Performance Measurement to Performance Management. Facilities, Vol 20, no. 5, 217-223 Bovis, C. 2007. EU public procurement law. Edward Elgar, Cheltenham, UK. Butter, F. 2007. Procurement. Tinbergen Institute, Amsterdam. Fairgrieve, D. 2011. Public procurement law damages as an effective remedy. Hart Publishing, Oxford. Kumar, A., Ozdamar, L., & Peng, N. C. 2005. Procurement Performance Measurement System in the Health Care Industry. International Journal of Health Care Quality Assurance, Vol 12, no. 4, 152-166 Russill, R. 2010. A short guide to procurement risk. Gower, Farnham. Sekaran, U. 2003. Research Methods for Business. John Wiley & Sons Inc, New York. Van W, A. J. 2006. Purchasing & Supply Chain Management: Analysis, Strategy, Planning and Practice (4th ed.). Thomson, Australia. Waal, A. 2007. Strategic Performance Management: A managerial and behavioral approach. Palgrave Macmillan, London. Read More