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Project procurement and risk management

PROJECT PROCUREMENT AND RİSK

INTRODUCTION

The management of the processes of purchasing or acquiring the services ,products or results needed from outside the project team to perform the work is defined as project procurement management or the processes to purchase/acquire products, services and results from outside the project.

The main actors are”The Buyer” and the”The Seller” and central is the contractual obligations and regulations.Central is also how the purchasing process within the project is structured, with formal approvals and routines[16].In procurement process we have to consider the Business aspect,financial aspect,routines,instructions,investment aspect,subcontracting and every step in procurement will need its own tools Risk analysis,Investment calculus,vendor evaluation,quality assurance,specification determination,contract forms.

1. SPECIFICATION OF PLACE AND SIZE OF THE PROJECT.

1.1 NEW PROJECT OF GW

For the first and second assignment, our company hasn't had any specific project. We only made the scope analysis, management plan, policy, stakeholder analysis, organizational chart within the subjects of Project Management, Quality, Human Resources, and Communication Management.(1,2)

For the third assignment, The Company GW has a current project, which is now on going. We have been ordered to make a solar thermal power plant to the area of desert of Arizona, United States. The ordered is made by the United State Government. There should be installed a solar thermal power plant to be built in 5 years. The target of this plant is to generate 275MW energy per year. The energy gained from the solar power, will be used in order to meet the electricity need of the towns that are the closest ones to the solar power. According to the assumption, if 1 average roof is capable to be built 20 solar panels on it, it is expected that this amount of solar energy will meet the electricity needs of approximately 40000 building such as home, school, businesses, and public buildings. The usage of renewable energy will definitely provide the United State Government to make a reasonable profit. Since it doesn't cause any pollution, there will be generated a new perspective for environmental aspects, and it will repay its installation cost in a short period of time.

2. MAKE A STAKEHOLDER ANALYSİS FOR YOUR PROJECT

2.1 STAKEHOLDER ANALYSIS

When we were making the scope analysis of GW, in Assignment I, we already mentioned that, stakeholders are any group, party, organization or people, that somehow plays a role within the whole project. They affect or are affected by the actions that the organization performs. Stakeholder analysis identifies the stakeholders and their interests, defines their roles and related responsibilities and specifies whether, and to what extent, their expectations are treated as requirement in the project [3,4,5].

In our particular project, the stakeholder analysis can be shown as in the following;

Stakeholder

Role

Interest Group

Expectations are treated as requirements?

Government of USA

Sponsor or owner

Politics

Yes

Company GW

Project Team Member

Technical

Yes

Governor of

Arizona, USA

Customer

Politics

Partially

Engineers, employees and/or staff

Project Team Member

Relevant department of company

Yes

Project Managers of The Green Show Project

Project Team Member

Top Management

Yes

Stakeholder

Role

Interest Group

Expectations are treated as requirements?

Green World

Owner

Head Owner

Yes

Public

Customer

Communtity Dweller

Partially

Table 1: Stakeholder Analysis

3. AN INVESTIGATION OF THE AREA OF DESERT OF ARIZONA IN MIND DUE TO RESOURCES (MAPS AND GEOGRAPHICAL INFORMATION)

As we have discussed in our scope analysis, as The Company of GW, our main objective is to set up high quality and efficient solar power plants with a reasonable cost. Since we are also aware of keeping the harmonious balance of energy, one of our aims is also to compensate the energy need by providing the environmental protection to keep the earth green. In order to have a high efficient plant with a high quality, it is quite crucial to pay attention at which the installation will be done. Because the available resources play the most important role, after setting up a plant, in terms of efficiency.

Efficiency for a plant can be found by the formula; desired output / required input. This formula can also be explained verbally; the highest efficiency we can get from a plan is 100% that is equal to 1 for this formula, which is impossible to obtain for the real life since we cannot have the ideal conditions. But in order to increase the efficiency to approach to zero, by a simple mathematics, we can say that, we need to keep the output higher as much as we can, while decreasing the input value. How we can decrease the required input value to nearly zero is by utilizing the natural resources as well as we can, which is the solar energy for our case. Therefore, it is very important to build up new plants to the regions, where there can be found high temperature and more sunny days available. Therefore, deserts take the first place in the ranking, when it needs to make a prioritizing. There is also one advantage that deserts can be used as a land for solar power systems, because there is no need any environmental impact such as lake (as it is needed for hydroelectric dams), or coal plants.

There are also many advantages to install the plants in the United States as the land;

* United States is the leader for the power research and development.

* It is one of only two countries in the world that has the largest scale of solar power.

* Since Arizona is located in the southwest of US, the feature of warm and sunny climate makes the desert of Arizona more favorable location for solar power.

* This solar power plant not only reserved by the people live around it, but also affects some other people by rebates and tax credits. As it is also explained in the website of Department of Energy of United States ; “Specific federal and state tax laws permit private companies and homeowners to credit the purchase price of their solar power systems against their annual income tax payment.”[6,7]

4. LIST OF ITEMS NEEDED

GW needs to identify the needed goods and services. This should be identified according to GW's organization chart and procurement plan. After identifying the needed goods and services, the suppliers which will successfully fulfill the contracts and supply good and services, should be found. The suppliers should be chosen according to their technical capability, experience and human resource capability. Here is a list of needed items and services for GW:

Materials

Services

§ Office Equipment

§ Rental Cars

§ Meeting Rooms

§ Restaurant/Cafeteria

§ Security Stuff

§ Computer Services

§ Cleaning Supplies

§ Tax Services

§ Insurance Services

§ Electric Services

§ Heating Services

§ Air Condition Services

§ Building Repair Services

§ Telecommunication Services

§ Transport Services

§ Treatment of Office Materials Service

§ Education Services (for personnel trainings)

§ Scientific and Technological Services (for industrial analysis, researches)

§ Food and Drink Provider Service

§ Security Service

Table 2: List of item needed

As we see in the table, most of the services and materials are the basic needs of company. These are not changeable according to the projects. According to the project, the use of these items may change. Also the needed items list has to be renewable all the time. The departments may need new items during the projects. Then these items should be added to the list. It means that this list can change in every phase of the project but as it is mentioned before, most of these items will be kept as basic needs. If new items would be identified in later phases of projects, the list can be detailed.[8,9]

5. MAKE OR BUY DECISION

The act of making choice between producing an item (in -house ) Internallay or buying it from external source (Supplier) is make-or-buy decision. Make-or-buy decisions arises usually when a company has developed a product or modified a product or having trouble with current supplier or changing demand of the product.

Make-or-buy decisions also occur at the operational level. Analysis suggest the following considerations that are in favor of making a part in-house (1)

* The considerations of cost

* To integrate the plant operations

* The Productive utalisation of excess the plant capacity

* The Need of direct control over production and/or quality

* The Better quality control system

* To protect Proprietary technology design.

* Unreliable suppliers,No competent suppliers

* Desire to maintain a stable workforce (in periods of declining sales)

* The too small Quality to interest a supplier

* lead time Controle , warehousing and transportation, costs

* Greater assurance of continious supply.

* Provision of a secondary source

* The Political, environmental or social reasons.

Some of the factors which influence may be on the firms to buy a part externally include:

* Lacklessness of expertise,Suppliers' research and specialized know-how exceeds that of the buyer

* Consideration of cost.

* Low-volume requirements.

* Facilities of limited production or insufficient capacity

* Strong desire of maintaining a multiple-source policy

* The Indirect managerial control considerations.

* Considerations of Procurement and inventory.

* Preference Brand

* Those Item which are not essential to the firm's strategy

There are two most important points to consider in a make-or-buy decision are and the availability of production capacity the cost . Obviously, the firm who buy will compare production and purchase costs.It provide the major elements included in this comparison. Elements of the “make” analysis include:

* Carrying costs.

* The direct labor costs.

* Factory overhead costs

* Purchased material costs which is delivered

* Managerial costs.

* Any other costs stemming from the quality and related problems.

* Increasing purchasing costs, Increasing capital costs.

Cost considerations for the “buy” analysis include:

* Purchasing price,and transportation costs of the items.

* İnspection and reception costs.

* The Incremental purchasing costs.

* Any of the costs which is related to quality or service.

6. RISK ANALYSİS (RA) FOR SOLAR THERMAL POWER PLANT TO THE AREA OF DESERT OF ARIZONA

6.1 SOCIAL AND ECONOMIC RISK OF SOLAR THERMAL

The Desert of Arizona solar boom will impact social and economic dimensions of the region. Nearby residents and visitors will face the burden of increased traffic, pollution, noise, and infrastructure that will diminish the aesthetic qualities of the desert. A fringe impact of solar parks is increased land prices caused by growing demand from private industry. Economically, solar thermal parks will produce manufacturing and construction jobs. These jobs could provide more revenue for the surrounding community, increased investment in the local economy, and a larger tax base.[11,12]

6.2 RISK OF SOLAR THERMAL ON VEGETATION, WILDLIFE, AND WATER

The Desert of Arizona is home diverse species and ecosystems, and large solar parks could be physical stressors on these desert systems. Considering the fragility, diversity, and complexity of the Desert of Arizona, large solar thermal parks could disrupt healthy ecosystems and augment pressures on already stressed species .Limited water supplies also complicate the benefits of solar thermal.

6.3 RISK OF SOLAR THERMAL ON DESERT SOIL ECOSYSTEMS: ASSESSMENT ENDPOINT

The Desert of Arizona has recently caught the attention of scientists because of its ancient origins and carbon sequestration capabilities. Made up of sedimentary, igneous, and metamorphic rocks. The recent scientific literature regarding carbon sequestration in deserts is both new and solar power is perceived as a ‘clean' energy source, reducing carbon production while providing much-needed energy. The production capabilities in Desert of Arizona could supply with most of its energy needs.

Therefore, the goal of this project is to determine whether the installation and operation of solar thermal plants will impact carbon sequestration capabilities of the Desert of Arizona ecosystem and ecosystem services to the extent that more carbon is released or inhibited from being stored than saved while utilizing solar technology.[13]

6.4 QUALITATIVE RISK ANALYSIS: POSSIBLE EFFECTS OF SOLAR THERMAL PLANTS ON THE DESERT OF ARIZONA

It is clear that the desert ecosystem will be disturbed and destroyed during the installation of the Concentrating Solar Power (CSP) plants in the Desert of Arizona. However, it is unclear, and therefore our primary question for this analysis, whether the sum gain of carbon saved by building and operating new solar thermal plants rather than operating fossil fuel power plants is greater than the sum loss of carbon that occurs when the desert habitat is disturbed and destroyed, thus altering the carbon sequestration abilities of the ecosystem. We approached this analysis in both a qualitative and quantitative manner. We will first describe the descriptive analysis of the risks associated with installation and operation of the CSP plants, followed by the quantitative approach of applying a cost-benefit analysis to compare net carbon gains by using CSP plants rather than an Integrated Gasification Combined Cycle (ICGG) plant, which uses “clean coal” technology.[14]

7. RA WHAT TO DO IF THE RISK OCCURS ?

7.1 CARBON LOSS DUE TO INSTALLATİON OF SOLAR THERMAL POWER PLANTS

Carbon sequestration is thought to occur on a variety of levels within desert and semi-arid ecosystems. The primary stressor in this analysis is the physical destruction of the habitat that will occur with the installation of the solar collecting facilities, roads, and transmission lines or towers. While CSP plants are large, some estimate they use less land area than hydroelectric dams or coal plants. Nonetheless, existing vegetation, including the aboveground biomass and belowground plant tissue and roots will be cleared prior to installation of CSP plants. Additionally, it is assumed that biological soil crusts will be destroyed and alkaline soils will be removed during the CSP installation process, especially if land leveling, contouring, and construction of stabilizing features for high desert winds are needed. While the soil may only be displaced and later deposited in other desert areas, we assumed the stored carbon was released into the atmosphere. This may be an overstatement of the potential effect; however, we decided to assume the scenario causing the greatest impact given the limited available information.

7.2 LOSS OF FUTURE CARBON SEQUESTRATION WITH THE OPERATION OF SOLAR THERMAL POWER PLANTS

In addition to the loss of stored carbon, the CSP facility and supporting infrastructure will likely inhibit the future sequestration of carbon across the inhabited area. Some researchers such as Schlesinger are skeptical of the high flux rates especially given the lack of information to support where the carbon is stored and whether carbon sequestration within desert biomes has increased since the Industrial Revolution. However, if these desert ecosystems do sequester large carbon pools, then large alterations of the ecosystem will likely result in the loss of future sequestration capabilities for the global carbon budget.

7.3 OTHER POTENTIAL IMPACTS AS A RESULT OF INSTALLATİON AND OPERATİON OF SOLAR THERMAL POWER PLANTS

Although the majority of this analysis has characterized solar thermal as a physical stressor, CSP plants also pose chemical risks. CSP plants may use molten salts to store the thermal energy and these oxidizing salts may pose both health and ecological risks.

Furthermore, impacts will occur on water supplies and resources, as water is piped from limited aquatic systems; Desert of Arizona, some of which may have declining populations; and nearby human communities. These impacts were not evaluated in this risk analysis but should be considered in a more comprehensive evaluation.

7.4 QUANTITATIVE RA/ COST BENEFIT ANALYSIS

The objective of this cost benefit analysis is to weigh the possible costs of building a solar thermal plant in the Desert of Arizona. The scope of this cost benefit analysis will be limited to solar thermal plants located in Desert of Arizona, and the currency used will be carbon. It is important to note that these values are estimates and the quantitative analysis is limited to carbon. In a comprehensive risk assessment, a full ecological cost benefit analysis would be conducted in order to measure the true costs of a solar thermal plant. Other parameters that would be considered include impacts on the Desert of Arizona of the region, water resources, social and economic implications and land costs.

Carbon costs of construction and operation of the solar thermal plant were calculated based on a review of the primary literature. Carbon released from disruption of Desert of Arizona soil, construction of the solar thermal plant, and disruption of carbon sequestration capabilities were considered in the evaluation. [15]

8. RISK MANAGEMENT PROCESS FLOWCHART

Evaluating Consequences of Risk

Impact Area

Low (1)

Medium (2)

High (3)

Time

Minimal or no impact

Additional resources needed-able to meet dates

Small error in milestone- unable to meet dates

Major error in key milestone or critical path impacted

Can't achieve major project milestones

Cost

Minimal or None

% 7-12 cost increase

>12% cost increase

Quality

Inconsequential quality reduction

(Quality reduction only in minor areas)

Quality reduction requires stakeholder's approval

Quality reduction is unacceptable for stakeholders

Project or product is effectively unusable

Scope/ Functionality

Inconsequential change in scope

Minor areas of change in scope

Major areas of change in scope

Scope changes are unacceptable and dangers the project or deliverable

Impact on Other Teams

None or Small

Medium

High or unacceptable

Table 3: Evaluating Consequences of risks

Risk Value = Risk Consequences x Risk Frequency

Risk Frequency

1 = Rarely/Unlikely

2 = Probable/Sometimes/Likely

3 = High Likely/Always

Risk Value

Consequences

High (3)

3

6

9

Medium(2)

2

4

6

Low (1)

1

2

3

1

2

3

Frequency

Table 4 : Risk Value Matrix

Risk Impact Assessment

High

(6-9)

§ Important impact on time, cost, scope, quality and other teams.

§ Significant action needed.

§ High priority attention needed.

Medium

(3-4)

§ Some impact

§ Special impact may be needed.

§ Additional management attention may be required.

Low

(1-2)

§ Small / None impact

§ Normal supervision required to make sure risk is low

Table 5: Risk Impact Assessment

CONCLUSİON

In this paper we define and implement the project procurement and risk management for our green show project,we specify the place and size of our project and also analysis of stackholders were made .We also investigate the area due to resources and geographical information .A list of items like systems ,services and materials etc was made and finally we also perform make or buy decisions for the items.Both types of qualatative and quantitative risk analysis was also made.We present a risk management plane in the form of flow chart with roles and resposibilities.We come to a point that project procrutment and risk management is the most important area of project management.

REFERENCES

[1] http://www.jasolar.com/

[2] http://michaelbluejay.com/sri/solar.html

[3] http://maps.google.com/

[4] http://news.mongabay.com/2006/0209-solar.html

[5] http://news.mongabay.com/2006/0113-energy.html

[6] http://news.discovery.com/tech/ten-places-harness-solar.html

[7] http://en.wikipedia.org/wiki/Solar_power_plants_in_the_Mojave_Desert

[8] http://xeno.ipaustralia.gov.au/tmgoods.htm

[9] http://www.treasury.gov.lk/FPPFM/pfd/circulars/NPACircular11.pdf

10) http://www.enotes.com/management-encyclopedia/make-buy-decision

[11] SOLAR THERMAL IN THE MOJAVE DESERT, 13 March 2009.

[12] http://en.wikipedia.org/wiki/Solar_power_plants_in_the_Mojave_Desert

[13] http://www.aps.com/

[14] http://en.wikipedia.org/wiki/Solar_Energy_Generating_Systems

[15] Financing Solar Thermal Power Plants, Rainer Kistner and Henry W. Price, April 1999.

[16] Erika Lecture notes

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