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Project Management:
ISCD: Level A Part II
Bijoy S Guha,
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References
Project Management: Harvey Maylor(Pearson Education, 3rd Edition)
Project Management for Business &Technology: John M Nicholas (
Projects: Prasanna Chandra (Tata McGrawHill, 6th Edition)
Project Management: SMU Publication(B0915 Edition: Fall 2008)
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Project?
Routine, repetitive &
ongoing throughout;
Necessary to sustain the
business;
Incremental
improvements set.
Unique, temporary &
goal directed;
Create strategic
initiatives/Products; New paradigms are put
in place.
Organizational Work
ProjectsOperations
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Project? (contd.)
Any non-repetitive activity;
A low-volume high variety activity;
a temporary endeavour undertaken to create a unique
product or service;
Any activity with a defined start and finish;
a unique set of coordinated activities, with definite
starting and finish points undertaken to meet specificobjectives within defined schedule, cost and
performance pararmeters. (BS 6079: 2000)
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Project? (contd.)
Projects come in many shapes and sizes:
By number of tasks (complexity)
By time required to complete (duration)
By resources (thus money) needed
Combination of these factors
Other Characteristics:
Project teams are born to die!
New paradigms become the S.O.P
Contributes to organizations learning & growth
Can (re)shape the Organization
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Project? (contd.)
Projects come in many shapes and sizes:
By number of tasks (complexity)
Diversity of competencies
Efforts of many people
By time required to complete (duration)
Changing nature of requirements
Tracking
By resources (thus money) needed Financial outlay
Risk
Combination of these factors
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Project Typology
Compl
exity
Duration
Improvement Projects
Crisis
Solving
Product
Design
Orgn.
Restruct.
Mergers &
Acqzn.
R&D
New to
World
Area of the bubbles
indicate the quantity
of projects.
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Project? (contd.)
Time
Perform
ance
S/State 1
Breakth
rough
Improv
ement
Continuous
Improv
ement
S/State 2
Stabilization
Project for
Development
& Growth
Series of mini
projects
Mega
Project: Start
of Business
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Project? (contd.)
For business continuity, this activity is on-going
and is referred to as the S-Curve of a Firms
life e.g. Tatas Automotive Business
SSSEngineering. &Locomotive
Trucks &
Construction.
Equipment.
Passenger cars
TATA MOTORS
TELCO
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RESOURCES (Money)
TIME SC
OPE
Principally, Project Management, like in anyfield of management, is bound by:
And Priorities always change!
Project Management: What is it?
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Project Management: What is it? (contd)
Project managers have to balance and integrate competing
demands to implement all aspects of the project: Project Scope: specific work to be done
Project Time: Duration with milestones
Project Cost: tracking the budget
Human Resources: competent team
Procurement: adequate material & equipment
Communication: progress vis-a-vis changes
Quality: establishing and delivering acceptable
Risk: analyzing and planning adequate response
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The required knowledge areas & Processes are:
Project Management: What is it? (contd)
Communicn
Management
Scope
Management
H.R.
Management
Time
Management
Procurement
Management
Risk
Management
Quality
Management
Cost
Management
Integration
Management
PROJECT
MNANAGER
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Project management is the coordinating effortto fulfill the
goals of the project, headed by a Project Manager; who uses
knowledge, skills, tools and methodologies to:
Identify the goals, objectives, requirements and limitations of theproject - Specification
Coordinate the needs (and expectations) of the project
stakeholders viz. team, customer, society/ sponsor & supplier
Buy-in
Plan and deliver the identified objectives & goals - Execution
Close the project when completed - Closure
Capture (for dissemination) the knowledge accrued - Continuity
Project Management: What is it? (contd)
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Mindset: Timeliness: how to reduce and then deliver on time
Responsiveness: to ever changing circumstances
Information Sharing: for involvement and clarity
Flexibility: adapting to the situational need
Structured Planning: towards efficient resource use & priority
Ability to work with ill-defined organization & support structures
Coping with uncertainty: no two projects are exactly the same
Analytical yet speedy: no analysis paralysis
Good communication, team-building & networking skills
Project Manager: Characteristics
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Project Management: development
Projects start after an authoritative stakeholderdecides toimplement a project, involving: Fair amount ofCapital outlay A commitment ofHuman Resourcesfor (extended) period of time
Irreversibilityand attendant risk Andprioritization/choice from a wide to do list
Possible Projects have to be analyzed and feasibilityassessed before start.
Funds have to found for Feasible Projects, which includes aRisk Analysis
Finally Projects have to be implemented and, Closed!
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Project Management: development (contd)Phases of a Project
Design it Do it Close/Develop itDefine it
Day to day
controlHow, who
& When
What
& why
Continuous
Improvement
Time
Activity/Cum.C
ost
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Project Management: Conceptn (contd)
Phases of a Project
Time
Man-hrs
FeasibilityPreparation Implementation
Closure
Time
F
P
IC
F
P
I
C
Save
Concurrent
Model
Sequential or
stage-gate Model
X X
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Project Management: Conceptn (contd)
Project Analysis - Feasibility
IdeationInitial
Screen
Reject/
shelveNo Go
Investigate
Go Market Study
Tech/Ecol. Study
Fin./Eco Study OK?
Terminate
No
Project Funding
Plan
Yes
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An Idea is not an outcome oflogical deduction alone: There are no defined methods or theories to guide the task;
it is often an outcome of a triggering process;
They fall-out from either significant technologicalbreakthroughs; or from a rearrangement of the path to an
existing end (reengineering).
These can be stimulated by: (Periodic) Strategic Planning exercise, stimulating some
out-of-box thinking and redefined operational objectives;
Creating a quasi-crises situation: if it aint broken, break it!
Creating a culture of innovation and learning from failures;
Project Management: Conceptn (contd)
Project Analysis - Ideation
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These lead to identifying the Key Success Factors from:
Benchmarking key processes of existing top-class/world-class
industries; Examining sourcing, import/export and input/output practices;
Environmental Scanning & wandering around Suggestions/analyses of research, financial & development
agencies;
Generating a host of project ideaswhich require initial screening beforecommitting time and effort for further investigation:
Compatibility with promoter/shareholder viewpoint; Consistency with laws of the land and legislative priorities; Reasonableness of cost, risks and adequacy of markets; Checking out barriers to entry
Project Management: Conceptn (contd)
Project Analysis - Ideation
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Project Management: Conceptn (contd)
Project Analysis - Facets
Market AnalysisMarket Potential/Size
Market Share
Techn. AnalysisTechnical viability
Sensiblealternatives
Financial AnalysisRisk
Return
Economic AnalysisBenefits and costs
Knock-on impacts
Ecology AnalysisEnvironmental impact
Restoration/containment
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The starting point is the impact of the project on the top-line of the business: What is the likely aggregate demand for the product or service?
What share of market will the product/service influence?
The analysis takes place in the flow:
Situational analysis& specification of
Objectives.
Collection ofSecondary data
Conduct ofMarket survey
CharacterizationOf Market
DemandForecast
MarketingPlan
Project Management: Conceptn (contd)
Project Analysis: Market & Demand
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Analysis of technical, engineering & ecological aspects is
done continuously when a project is being evaluated &
formulated: To ensure technical feasibility especially in respect of inputs,
To arrive at the best solution balancing technology/location/scale,
The examination is based on common sense and economic logic,
technology & ecology being in the expert domain.
The broad areas which require to be examined are:
Inputs: involves ascertaining and lining-up choices; Plant/Facility: requires assessment of internal factors &
constraints;
Project Execution: detailing the project roll-out for road-blocks,
Project Management: Conceptn (contd)
Project Analysis: Technical
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Product / Service
Demand
Size
Location TechnologyProduct Cost
Investment
ProfitabilitySelling Price
Project Management: Conceptn (contd)
Project Analysis: inter-linkages
Ecology
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SalesPlan
Prodn.Cost
Deprn.
Interest
Project
Cost & Time
Prodn.Plan
W/CapPlan
InvestmPlan
W/Cap
Advance
Means of
Financing
Interest & loanrepayment
Cash flowEstimate ofOprn. Result
Taxes
Project Management: Conceptn (contd)
Project Analysis - Financial
B/Shee
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Cost of Project & Means of Finance
Cost of ProjectLand, site and building related costs;
Plant, machinery & equipment related costsHardware
Technical assistance & training fees
Start-up / pre-op. expenses Knowledge
Preliminary Capital issue expenses
Margin money (working Capital)
Initial cash losses Financing
Project Management: Conceptn (contd)
Project Analysis - Financial
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Cost ofProject & Means of Finance(contd)
Means of Finance
Deferred CreditIncentives
Other sources
Share CapitalDebenture Capital
Term Loans
High cost, control andlower fin. risk
Lower cost, higher fin. ri
Bridging loans
Least cost
Project Management: Conceptn (contd)
Project Analysis - Financial
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Project Management: Concepts (contd)
Feasibility Financial evaluation
Three Basic Questions: Can we produce the Goods and/or Services? Can we sell them?
Can we earn a satisfactory Return on Investment made in theProject? OR
Do we have a favorable Cost Benefit Ratio?
Financial appraisal gives answers to the last question,factoring: Time value of Money Pay back and Profitability Risk analysis & mitigation
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Project Management: Concepts (contd)
Time value of money
A rupee today is more valuable than the same
rupee a year hence!
Inflation reduces the purchasing power
However, money invested productively yields returns
and increases the value
People prefercurrentconsumption to future spend.
In projects, cash flows (i.e. income and
spending) are at different points of time. For a
fair analysis, they have to be brought to the
same (current) point of time
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Project Management: Conceptn (contd)
Time value of money
To normalize cash flows we need to reduce themto a common base, usually the Present Value.
Algebraically:
PV = Present Value; FV = Future value;
Ct = Cash flow at the end of the year t
r = Interest rate
g = growth rate in cash flows
n = number of periods over which cash flows
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Project Management: Conceptn (contd)
Time value of money
Formula (single sum):
FVn = PV(1+r)n
(1+r)n
is the Future value interest factor The process of investing money as well as
reinvesting the interest earned is calledCompounding.
Depositing Rs.1000 in the bank today @10% interest will in 8 years grow to:
1000(1.10)8 = 1000(2.144) = 2144
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Project Management: Conceptn (contd)
Time value of money
The Rule of 72:
Investors commonly ask when will mymoney
double?
A rule of thumb says divide 72 by the interest
rateE.g. if the interest rate is 12%, the doubling period is
72/12 = 6 years
Using the formula: 1000(1.12)6
= 1000(1.974) i.e.1000 becomes 1974 in 6 years.
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Project Management: Conceptn (contd)
Time value of money
Returns come in the future. Thus Rs.1000/-
earned 3 years from now willposses less value
today. We need to know thepresent value of
future earnings.
The process is simply the reverse/inverse of
compounding and is called Discounting.
Formula (single sum):
FVn = PV(1+r)n
thus, PV = FVn[1/(1+r)n]
The factor1/(1+r)nis called discounting factor.
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Project Management: Conceptn (contd)
Time value of money
In financial analysis, more often cash
flow streams are uneven i.e. not a single
sum; they vary year to year
The formula for Present Value foruneven (or even) cash flows is:
PVn= A
1/(1+r) + A
2/(1+r)2 + . A
n/(1+r)n
n= At/(1+r)t, where
t=1A
t= Cash flow at the end of t year, n = duration of flow
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Project Management: The process
Investment Criteria
There are many (over 30 !) criteria which
can be broadly typed into: Discounting Criteria, mainly:
Net Present Value
Benefit Cost Ratio
Internal Rate of Return
Non-discounting Criteria, mainly:Payback Period
Accounting Rate of Return
Urgency
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Project Management: The Process (contd)
Investment Criteria Non-discounting
Urgency: Simply put, projects which have higher
urgency get priority. Issue: what is the basis for urgency?
Therefore, used only in crisis situations. Pay Back: Is the length of time to recover the initial
outlay. Shorter the pay back, more attractive the
project.
Issue: does not reflect the true worth, but is a rough and ready reckoner to make quick
evaluation and benchmarking, for initial assessment
and for small-value projects.
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Payback- the simplest/basic method
comprises:
Step1: the income that will be generated withthe initial investment;
Step2: the amount of time that the revenue will
need to be generated to cancel out the
investment. E.g. If Rs. 1 cr. is generated/yr on an initial
investment of Rs. 10 cr., then the payback is 10
yrs.
Project Management: The Process (contd)
Investment Criteria Payback
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Many companies set this as a hurdle for projects, without going in for detailed
computations e.g.
Manufacturing equipment/hardware (Western): 4~5 years;
Manufacturing equipment/hardware (Japanese): ~10 years;
Computer/IT facilities: 3 years;
McDonalds franchise: 12 years.
While simple, it ignores:
The life-cycle cost (e.g. disposal or decommissioning) of an item beyond the pay-
back period a fact which could alter the viability considerably;
The time-value of money.
Project Management: The Process (contd)
Investment Criteria Payback
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Project Management: The Process (contd)
Investment Criteria Discounting
Net Present Value:
represents the sum of all
the cash flows,
discountedto the present
value. If the sum is +ve,
then the project is
yielding a surplus on
date. Thus viable/
feasible. E.g. given the cash flow
alongside and a
discounting of 10%;
Year Cash Flow
0 -1,000,000
1 & 2 200,000
3 & 4 300,000
5 350,000
Applying NPV formula:
NPV = 200000/(1.10)1
+ 200000/(1.10)2 + 300000/(1.10)3 + ..-1,000,000
= Rs.5273; i.e. a surplus
n
NPV = At/(1+r)t
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@ 12%discountin
g
Suppose you were to start a fast-food joint for 3
years; your estimates are:
Figs: Rs. lakhs Now Year 1 Year 2 Year 3
Start-up Costs 50
Running Costs 30 45 45
Revenues 40 50 60
Sale of Joint 70
NPV positive so worth pursuing
NPV = NPVyr1 + NPVyr2 + NPVyr3
= -50 + (-30 +40)/(1+0.12)1 + (-45 +50)/(1=0.12)2 + (-45 +60 +70)/(1+0.12)3
= 23.415
Project Management: The Process (contd)
Investment Criteria NPV (DCF)
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Internal Rate of Return (I.R.R): is the
discounting rate at which the net present
value of the project is 0. It indicates the
minimum returns that the project has togenerate annually for its duration. E.g.:
Yr 0 1 2 3 4
C/F -100 30 30 40 45
The rate which returns 100is :
100 = 30/(1+r) + 30/(1+r)2 + ..
i.e. ris between 15 & 16%.
Thus accept project if the rate of return is more than thediscounting rate.
Project Management: The Process (contd)
Investment Criteria Discounting
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Alternative2: plot the calculated NPV (2 to 4 iterations)
on a graph (x-axis: discount rate, y-axis: NPV) and the
determine the IRR.
E.g.:
NPV Discount Rate10
20
12.85
- 6.90
Project Management: The Process (contd)
Investment Criteria Discounting (IRR)
IRR = 15.6%
Yr 0 1 2 3 4
C/F -100 30 30 40 45
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The significance of these decision support
tools are: Payback:
The most commonly used method for
evaluating investments of a small size and
with a short time horizon.
For investments of a larger size, the average
rate of return is sometimes used as theprimary criterion, with payback as a
supplementary criterion.
Project Management: The Process (contd)
Investment Criteria Decision Support tools
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DCF:Allows for a quantitative evaluation of alternate uses of
funds vis--vis a safer option e.g. deposit in a bank; Is a measure of the opportunity cost of money;Offers a very clear-cut, standardized decision criterion,
e.g. invest if NPV > 0. IRR:
Represents the return earned on initial investment
made in a project OR the rate of return on the un-recovered investment balance in the project. It is easy to understand and is easily benchmark-able
against other financial, economic rates. (NPVs are notso readily comparable to outside world)
Project Management: The Process (contd)
Investment Criteria Decision Support tools
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Project Management: Conceptn (contd)
Investment Criteria Observations
NPV is expressed in absolute
terms and does not indicate
the scale of a Project;
NPV favors longer term
projects
The IRR rule does not
differentiate lending &
borrowing; e.g.
IRR is clearer than NPV & isless sensitive to discounting
ratio.
NPV Invest. Ratio
X +5000 50000 10%
Y +2500 10000 25%
C/Fl.
Yr 1
C/Fl.
Yr 2
IRR NPV@10%
A -4000 +6000 50% 145
B +4000 -7000 75% -236
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Project Management: The Process (contd)
Financial evaluation Discounting Criteria
Economic analysis: is the methodology to
evaluate projects from the Societal view point,
primarily Public investments.
Social cost/benefits differ from monetary measures
due to Societal considerations and market
imperfections;
UN has formulated an process to assess this under
the UNIDO Guide, in which societal and market
considerations have been integrated to assessdesirability of a Project. (Please read handout on
Bridge Project & River Valley Project as an
example for the approach)
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Project Management: The Process (contd)
Feasibility -Risk
Risk analysis is one of the most slipperyaspect of projectevaluation there is no one unique method or dimension: Technique 1 stand-alone risk of a project
Technique 2 risk of a project in the context of the firm and/or themarket.
Risk source is event specific and needs to be assessed at feasibilityfor threats to financials as well as impediments for execution(entailing unforeseen fund flow)
For management of risk, measurement is essential
Risk is two sided: Alpha Risk: accepting the wrong
Beta Risk: rejecting the right
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Project Management: The Process (contd)
Event linked risk measures (Time & Cost)
Likelihood: the expected probability of an untoward
occurrence (e.g. earthquake) In real life, this is a geophysical phenomenon and can be
linked to a region and a value assigned say 0.2
The expected impacton the project: in case of NPV calculations, the financial impact
in case of untoward occurrence in implementation, the time
& cost impact (loss and recovery)
The product likelihood x impact definesconsequence, thus the ranking of risks.
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Project Management: The Process (contd)
Risk measures of risk (Prioritization)
HighPriority
HighPriority
HighPriority
MediumPriority
MediumPriority
MediumPriority
Expected Impact on Project
LowPriority
LowPriority
LowPriority
LowMediumHigh
Me
diu
m
High
Low
Probabili t
yofOccurrenc
e
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Project Management: The Process (contd)
Risk Management
Project Risk
Management
Identification
External SourcesKey risk symptoms
Time, Cost & Quality Analysis
Assumptions
Quantification
Likelihood
Effect/ImpactHideability
Response Control
No Action; Ignore
Contingency & Reserve
Corrective Actions
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Project Management: The Process (contd)
FinancialRisk
Risk Analysis
Stand Alone Contextual
SSS Analyses
Break Even
Decision Tree
Corporate Risk
Market Risk
Easier to
measure
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Project Management: The Process (contd)
FinancialRisk
Risk Analysis
Stand Alone Contextual
SSS Analyses
Break Even
Decision Tree
Corporate Risk
Market Risk
Easier to
measure
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Project Management: The Process (contd)
Risk to financials sources
The several sources of risk with respect to projected
earnings and cash-flows are:
Project-specific risk projections may be erroneous due to
Competitive risk affected by unanticipated actions of
competition or new competition
Industry-specific risk Unforeseen technologies/ products,
regulatory changes etc.
Market risk Unexpected changes in macroeconomic factors
International risk Extraordinary developments on the
exchangerate and/or Political climate
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#1 Sensitivity:
Financial statements are worked out with each
line changed for optimistic/realistic/
pessimistic values one at a time, the other
lines being held at realistic values.
Investigating the situation whatif a change in
assumption/projection were to happen
Indicates the strength of relationship between the
outcome/result and a given parameter e.g. changein profit if material-costs go up to pessimistic
levels.
Project Management: The Process (contd)
Risk the SSS Analyses of Financials
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Project Management: The Process (contd)
Risk the SSS Analyses
12.793
/
2.05 11.497
-
6.233
x 5.264
12.9% 14.8%
12.793
-
1.103 1.219 5.854
+ +
809 925 11.690 11.573
%
P&L 6.30% 7.20% -294 5.854 5.728
12.793
Sales
Purchased
materials
Operating
Income
Financial
Income
Income
before Tax
Operating
expenses
Other Costs
Capital
Turnover
RONA
A 'Du-pont" style Report
Margin
Sales
Total Assets
Interest free
Liabilities
Net Assets
Sales
BalanceSheet
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#2 Scenario:
Project Management: The Process (contd)
Risk the SSS Analyses of Financials
Variables are interrelated, thus painting different, plausible
scenarios involving different (but consistent) sets of
variables is helpful. Usually, the factor(s) chosen represent
the largest source of uncertainty (e.g. market growth rate),around which the scenarios are built.
The Best/Worst Case Analysis: where scenarios involving
best/normal/ worst sets of variables are worked out, e.g.
BEST: high demand, high selling prices, low operating costsetc.
WORST: low demand, low selling prices, high operating
costs etc.
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#3 Simulation:
Project Management: The Process (contd)
Risk the SSS Analyses of Financials
Sensitivity analysis indicates what-if nature
correlations between dependant and various input
factors, denoting strength of relationships;
A decision maker would want more certainty i.e. the
likelihood of such occurrences. Simulation techniques help in developing probability
profiles of events by combining (randomly) values of
variables which have a bearing on chosen criteria. It is a powerful technique which permits use of great deal of
information and a highly efficient medium of communication; It does not replace judgement, contrarily it requires more
application of judgement;
A useful technique in the absence of good experience
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Project Management: The Process(contd)
Risk measures of risk (NPV)
Risk is measured from:
Probability of occurrence (Likelihood):
the variability associated with obtaining
different results (e.g. NPV)
A measure of the risk is the range i.e.
difference between the highest/lowest value i.e.
900 200 = 700
NPV Prob.
200
600
900
0.3
0.5
0.2
The weighted NPV works out
to: 3E(NPV) = pi NPVi
i=1
= 0.3x200 + 0.5x600 + 0.2x900
= 540
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Project Management: The Process (contd)
Risk measures of risk (NPV)
The higher the spread the more the variability and
risk
Standard Deviation ( ) of the NPV distribution
quantifies this:
= {0.3(200-540)2+ {0.5(600-540)2+ {0.2(900-540)2}= 250
We can now define a coefficient of variation in which
we relate the to weighted net present value: CV = /weighted value ; = 250/540 = 0.46
The higher the CV, the higher the risk ranking
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Lending institutions/financial managers wantto know how much should be sold/producedat a minimum to ensure the project does notlose money?
Viewpoint 1: Accounting i.e. a value thatensures return of principal without availing ofany opportunity (via the time-value principle).Projects breaking even this way may have ve NPV
Viewpoint 2: Financial - the focus is on valuecreation i.e. the level at which the project willyield at least 0 NPV.
Project Management: The Process (contd)
Risk the Break Even
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Interest
Factor
12%,10yrs
PbT=0.33Sls 3M
Tax = 0.33 PbTPaT = .667 PbT
Sls 9M
V.C. 6M
F.C. 1M
Depr 2M
PbT 0M
Project Management: The Process (contd)
Risk the Break Even
P & L Forecast for a new Plant
Head Yr0 Yr1-10
Investment 20,000
Sales 18,000
Var.Cost 12,000
Fixed Cost 1,000
Deprn. 2,000
Pre-tax Profit 3,000
Taxes(@ 33.3%) 1,000
P.a.T 2,000
Cflow (Oprn) 4,000
Net Cflow 20,000 4,000( Figs. Rs 000)
Accounting BEven:
Sales = (Fixed Costs + Deprn.)/
Contribution Margin ratio
= (1,000+2,000)/0.333
= Rs. 9 M
Financial BEven(12% rate):
Cash Flow = Deprn.+ P.a.T
=0.667(0.333x Sales Rs.3M)+ Rs.2M
= 0.222 x Sales
PV = 0.222 x Sales ( Discounted)= 0.222 x Sales x 5.650
i.e.20,000 = 0.222 x Sales x5.650
= Rs. 15.94 M
Contribution
margin %
Sales =
33%
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i.e. Tot. accruals/
Tot. Debt burden
In addition to Break Even, financial institutionsalso assess: Break Even Point for Capacity Evaluation (BEPCU):
Projects reach capacity outputs over time. Only on
reaching this point can stable operations start. The Fixed Cost/Contribution ratio is multiplied by
%age capacity utilization to derive BEPCU
Debt Service Coverage Ratio (DSCR):Borrowers ability to service a debt is important!
DSCR = (P.a.T + Deprn & amorzn + Interests +
Lease rentals)/{Repayment & Interest of term debt
+ Lease rentals} all values cumulatedover theperiod under consideration.
Project Management: The Process (contd)
Risk the Break Even
All ratios
are furthersubjected
to
Sensitivity
Analysis
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A tool developed and used for aiding sequential
decision making in face of risk involved at every
stage e.g. oil-field development.
Identifying the problem and alternatives; Delineating the decision tree: diagrammatic
representation of the nature of decisions situations;
Specifying the probabilities, impacts and outcomes;
Evaluating the decision alternatives.Study handout on the example of a decision tree
analysis Spectrum with their electric moped.
Project Management: The Process (contd)
Risk the Decision Tree Analysis
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Organizing for Projects
Projects are carried out by Institutions themselves
(e.g. Aircraft Coys) Or outsourced to Pure Project
Organizations (e.g. MMRDA).
Pure Project Organizations have a core, leanmanagement team and engage man-power from a
Contractor Pool allowing forflexibility in both
nature and quantum of Human Resources.
Institutions borrow personnel from internal expertgroups to form Project Teams (who in turn might
outsource specifics) to execute Projects.
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Organizing for Projects(contd)
Pure Project e.g.
Construction
C.E.O
Housing PortsRoads
PM 1
PM 2
PM 1
PM 2
PM 1
Contractor Pool
Project Team e.g. Auto-
mobile
Director
Design Markt.Manf.
Mgr 1
Mgr 2
Mgr 1
Mgr 2
Mgr 1
Mgr 2
PM
Rafting or Matrix Structure
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Planning Work in Projects
Elements
Objectives
Activities (What ?)
Schedule (When ?)
Budget ( How much ?)
Organization (Who ?)Work methods (Procedure, Standards )
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Planning Work in Projects (contd)
Project Planning & Control System
Objective
Budgets
Reports(Time, cost,Performance)
ManagementDecision making
Detailing:
(SoW, WBS)
Scheduling:
PERT, CPMetc.
Tracking:Time/Cost/Performance
Feedback
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Planning Work in Projects (contd)
Major Project Plan Documents 1. Statement of Work/Scope of Work (SoW)
A general description of the work to be performed- called deliverables
work excluded
Overall schedule of project
Construction of House
Construction, painting, internal electrical wiring, provision of electrical points,plumbing as per the design of the Architect and the work specifications
Electrical fittings and Sanitary fittings to be supplied by the owner(exemption)
Completion date- 6th June 2004
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Planning Work in Projects (contd)
2.Work Breakdown Structure (WBS) The breaking of overall project into sub elements Could be further broken down Enables preparation of individual work schedules, their inter
relation ships and precedence Enables estimation of Resource requirements Enables realistic Costing
It is the basis for costing and scheduling & is monitored in the
project control process to compute variance with actual costsand schedules.
Identifies the Functional divisions/ Managers, Contractors to be
involved for apportioning responsibilities
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Planning Work in Projects (contd)
Example of WBS - Construction of a building
1. Excavation
2. Foundation
3. Frame
4. Walls
5. Ceilings
6. Electrical wiring
7. Plumbing
8. Painting
Each of these will have a detailed Specification
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Planning Work in Projects (contd)
3. Specifications
The requirements to be met
Could be compatibility with established standards ora new specified requirement
Helps in realistic costing
Avoids ambiguity and consequent cost and time
over runs & legal issues
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Planning Work in Projects (contd)
A typical User (Customer) Contractor Exchange (in
absence of clear specifications)
Contractor: The lighting for the office is finished. As we
agreed, I wired 20 ceiling lights
Customer : But you said there would be enough lights tomake the room bright. This room seems kind of dark
Contractor : For a room this size, 15 lights are standard.
As we agreed, I put in 20 just to be sureCustomer: Yes, but you said 20 would make the room
bright and they dont. You will have to put in more lights
Planning Work in Projects (contd)
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Planning Work in Projects (contd) Constructing process maps is a method
currently favoured by Project Managers,
e.g. 4-fields mapping . It captures Projectphases, Tasks in the phases, Responsibilitymatrix for Tasks & the Standards for tasks
#3 Task flow
#1 Team Members# 4 Standards
Listed for eachtask**********
*****
#2 Phases (WBS)
With start/endCriteria. A
B
C
(ResponsibilityMatrix)
Eachphase hasmanytasks
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Planning Work in Projects (contd)
Designing & Tracking Tools
The Project Planning process stages are: Identify the constituent activities; Determine their logical sequence; Prepare estimates of time & resources;
Present the plan in a readily readable format.
The general approach to planning involves starting with arough overview and then conducting revisions of thisthrough an iterative process i.e. going through the cycle
several times to test the effect of the revisions made on theoutcomes;
The objective is to make major revisions early in theplanning cycle and then make minor refinements in the plan.
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Planning Work in Projects (contd)
Designing & Tracking Tools
The development ofdetailed time plans have varyingcomplexity, in line with the nature of the project, howeverthe significant area of commonality is: A construction of comprehensive but understandable picture
of the project activities; Communication with others.
The preference forgraphical techniques hinges on theability of people to understand what is going on i.e.visibility, illustrating inter-relations between activities
and time. The 3 most commonly used charts are: The Gantt Chart Program Evaluation & Review Technique: PERT charts Critical Path Method: CPM charts.
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Planning Work in Projects (contd)
Designing & Tracking Tools
Gantt (Bar) Charts: Simple to construct and understandSimple to construct and understand Can track progress of individual Activity easilyCan track progress of individual Activity easily Good for small projects; e.gGood for small projects; e.g Boil Water for TeaBoil Water for Tea
Activities:1. Fill kettle. 02mins.2. Put on the stove..01min
3. Light the stove. 01min.4. Wait for boiling . 05mins.5. Take off kettle . 01min.6. Put off stove . 01min.
Actualactivity
Plannedactivity
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Planning Work in Projects (contd)
Designing & Tracking Tools
Network Scheduling
Developed to address the drawbacks of Ganttchart esp. inter relationships/ inter dependenciesbetween Activities
Suited for complex projects involving manyactivities.
PERT developed for US Navy to manage complexPolaris Missile Program.
CPM developed in 1957 in an industrial setting (for Plantconstruction project for DuPont), and gives relatively
more importance to project cost.
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Planning Work in Projects (contd)
Designing & Tracking Tools
Concepts in Network DiagramsConcepts in Network DiagramsActivity-on-Arrow (AoA)Activity-on-Arrow (AoA)
Activity Symbol of Activity Time required
Fill kettle A 01 min.
Event- Beginning or End of an Activity
Beginning of fillingEnd of filling
A
01min.1 2
IMPORTANT RULE:
There can be ONLY ONE Arrow (Activity) between two events!
Pl i W k i P j ( d)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Concurrent Activities Activities that can be carried out concurrently / simultaneously
Not interdependent
1
2
3B
A A = Fill kettle
B = Light stove
C
2D
3 4
5
C Preceding Activity
D Succeeding Activity
Activity Symbol of Activity Time required
Observing for water to boil C 5 mins.
Take kettle off stove D 1 min
1
Succeeding/Preceding Activities
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
1 2
3
4
AB
C
Example of two Activities with a Common immediate Predecessor
Dummy Activity- An imaginary Activity which does not consume resources
but included in the Network diagram to maintain network logic and
understand inter dependency of Activities
2 4
A: Fill Kettle
B: Set up tea cups
C: Wait for water to boil
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Activities:
Description Predecessor
A. Fill kettle. 02mins. Start
B. Place on the stove..01min A
C. Light the stove. 01min. StartD. Observe boiling . 05mins. C
E. Take off kettle . 01min D
F. Put off stove . 01min. E
e.g. A-o-A chart for Boiling of water for tea:
A B
C
D E F
0 1
2
3 4 5 6
Note: If we were to include set up tea cups as an activity and we would do it while
waiting for water to boil; activity D would then become a dummy & activity set uptea cu s would be a real activit .
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
The Critical Path
The major use of networks is for determining: how longthe project will take & when each activity should be scheduled.
The project duration is determined by finding the longestpath through the network: A path is any route comprised of one or more arrows
(activities) connected in sequence; The longest path from the origin node to the terminal node is
called the Critical Path; This gives the expected duration of the project.
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The Critical Path: an Example
DA
St 1
B
C
2 3
E
F
En
4
A Shopping (H&W) - 1
B Prepare to cook (W) A
C Cooking (W) B 2
D Bathe & dress (W) C 1E Tidy house (H) A 1
F Bathe & dress (H) E
Project: Dinner party (H & W)
There are TWO paths: #1 St 1 -2 3 En ( i.e. A-B-C-D) &
#2 St 1 4 En (i.e. A-E-F)
Path # 1 takes: 1 + + 2 + 1 = 4 H
Path # 2 takes: 1 + 1 + = 3 H
The Project requires 4 H and path #1 determines the duration: thus Critical
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Activities not on the critical path can be delayed
without delaying the project however, by how
much?
The logic is to determine the latest allowable time that the activitycan be completed without delaying the completion of the project, i.e.
the start can be late (or early);
The time difference between early start and late start is called
slack orfloat;
The total slack time is the maximum delay that can occur for non-critical activities. Once this slack is used up, non-critical activities
become critical and any further delays will extend the project
completion.
The Critical Path
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Estimating Activity Duration( PERT)Estimating Activity Duration( PERT) The target Project completion date is dependent on the
proper estimation of duration of all Activities involved
Estimation of Activity duration is not always a straightforward process because of an element of uncertainty
PERT addresses the uncertainty in the duration by using
three time estimates
Optimistic
Most likely
Pessimistic
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Estimating Activity DurationEstimating Activity Duration contdcontd
Optimistic Time estimate a- Every thing goes accordingto plan with minimum difficulties
Pessimistic time estimate b Maximum possible time forcompletion considering all unfavourable conditions
Most likely Time estimate m - Lies between Optimisticand Pessimistic time estimates. Time required to
complete in normal conditions
Estimates are obtained from, experience, people &experts knowledgeable about the difficulties involved
Pl i W k i P j t ( td)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Expected Time (tExpected Time (tee) for completion of activity) for completion of activity
PERT assumes that a, b are equally like to occur, whereas m isfour times more likely to occur
Thus, te = (a+4m+b)/6
Variance, v = {(b-a)/6}2 is the measure of variability inthe activity completion time
Standard Deviation, = v1/2
The larger the difference between a & b, the larger thevariance and uncertainty with te; i.e the higher thelikelihood of completing earlier or later than te.
Planning Work in Projects (contd)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Probability of Project CompletionProbability of Project Completion The expected Project Completion Time is the SUMof the
Expected completion time te of ALLactivities on the CriticalPath;
The Standard Deviation, , for Project Completion Time isthe Square root of the sums of Variances of ALLactivitiesalong the Critical Path:
= ( v1 + v2 + vn)1/2
The probability of completing the project in the given
completion duration, ts,is determined by the number ofstandard deviations separating them:
z = (ts te)/ , the corresponding probability can befound from a standard z-table.
Planning Work in Projects (contd)
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Planning Work in Projects (contd)
Designing & Tracking Tools
Probability of Project Completion (example)Probability of Project Completion (example)
Avity to
(a)(a)
tp
(b)
tm
(m)
te/v
A 2 10 3 4/1.78
B 3 5 4 4/0.11
C 4 12 5 6/1.78
D 5 7 6 6/0.11
E 5 9 7 7/0.44
F 4 12 5 6/1.78
Path PathVariance
path Z (ts = 11days)
Prob. in11 days
A-D 1.78+0.11 1.37 (11-10)/1.37 0.7673
B-E 0.11+0.44 0.74 (11-11)/0.74 0.5000
C-F 1.78+1.78 1.87 (11-12)/1.87 0.2981
A
B
C
D
E
F
The probability
of finish in lessthan 11 days =
.7673 x.5 x.2981
= 0.1143 i.e.
< 12% chance
te = (a+4m+b)/6; v = {(b-a)/6}
2 path = ( v1 + v2 + vn)
1/2
z = (ts te)/ ath
(ts = 11days)
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Designing & Tracking Tools
Avity to
(a)(a)
tp
(b)
tm
(m)
te
A 2 10 3 4
B 3 5 4 4
C 4 12 5 6
D 5 7 6 6
E 5 9 7 7
F 4 12 5 6
A
B
C
D
E
F
The Critical Path
Path A-D (S-1-E): 4 + 6 = 10 days
Path B-E (S-2-E): 4 + 7 = 11 days
Path C-F (S-3-E): 5 + 7 = 12 days
i.e. the project is not expected tobe completed in less than 12 days.
The longest Path is C-F (S-3-E) and
is critical, defining the duration.
S E
1
2
3
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Designing & Tracking Tools
Developed in 1957 gives relatively more importance to
project cost, when Project activities are more accurately
forecast-able and a definite relationship between time and
cost can be established for each activity.
The CPM assumes that the estimated completion times can
be influenced by applying resources to particular key
activities that the time for any activity is variable,
depending on the amount of resources applied.
The PERT method has been criticized because it is based
on assumptions that sometimes yield uncertain results!
The Critical Path Method(CPM)
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Designing & Tracking Tools
CPM and PERT: a comparisonCPM and PERT: a comparison
Both employ Network diagrams & analysis of criticalpaths
CPM, however, use a deterministic approach in timeestimates for each Activity: only one time estimate isused. Thus, in CPM there is no statistical treatment ofuncertainty.
CPM is more Activity oriented. Hence it is possible to
measure percentage completion of an Activity CPM more suited for well defined projects, withrelatively small uncertainties like construction or in theProcess industries
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Designing & Tracking Tools
CPM and PERT: a comparisonCPM and PERT: a comparison
CPM includes a mathematical procedure for estimatingthe trade off between Project duration and Cost
PERT, puts greater emphasis on uncertainties and onEvents (Mile stones)
PERT is more suitable for R&D type of projects where
uncertainties are more and duration of an Activity cannotbe estimated accurately
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Analyzing Networks
For analyzing networks, e.g. to determine CriticalPath, Slack, Probable Completion Times, etc. weneed information on: Activity & Interrelations (preceding/succeeding)
Earliest event time & latest event time (to bedetermined)
Conventionally, these are included in the nodesas under (for a single activity):
Event Label
10
Earliest Event Time
0
Latest Event Time0
205
5
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Analyzing Networks: Constructing
An example:
A project consists of the activities, deterministic times andsequence as under:
Activity No. Duration (days) Sequence
A 5 with startB 3 after A finishes
C 4 after A finishes
D 5 after A finishes
E 6 after B finishes
F 7 after C finishesG 5 after D finishes
H 8 after F,G & H finishes
On finishing H, the project is completed.
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Analyzing Networks
10 00
20
A
5
30B
3
50
D
5
40C4
60
E
6
F7
G
5
70H8
Constructing the Network Diagram (Activity on Arrow)
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Analyzing Networks
10 00
20
30
40
50
60 70
A
5
B
3
D
5
C4
E
6
F7
G
5
H8
5
8
9
10
16
Latest !
24
Estimation of Earliest Event Times
Forward Pass
Planning Work in Projects (contd)
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Planning Work in Projects (cont d)
Analyzing Networks
10 00
20
30
40
50
60 70
A
5
B
3
D
5
C4
E
6
F7
G
5
H8
5
8
9
10
16
Latest !
24
Estimation of Latest Event Times
2416
10
9
11
5
Earliest Reverse Pass
Planning Work in Projects (contd)
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Path with no
Slack OR Float!
Planning Work in Projects (cont d)
Analyzing Networks
10 00
20
30
40
50
60 70
A
5
B
3
D
5
C4
E
6
F7
G
5
H8
5
8
9
10
16
Latest !
24
Determination of Critical Path
2416
10
9
11
5
Earliest
Planning Work in Projects (contd)
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What do we do with determination of Critical
Path?
Provides us the key to prioritization
Provides us the back bone for further analysis:Of Resource needs and costs
Impact of adjusting Project Schedules
For reporting on an agreed base
If we can establish a Time-Cost relationship.
Planning Work in Projects (cont d)
Analyzing Networks
Analyzing Networks: Time-Cost
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Analyzing Networks: Time-Cost
Relationship (CPM)
In repeat or standard projects, duration & costof activities are reasonably well established: Resource requirements per unit of work is defined Technological or other minimum time to finish a job is
known A standard or normal time and cost can be
established
The Critical Path in a network are derived usingthe standard times.
But client requirements and/or deadlinepressures may require a Project to be expedited. With additional resource inputs, time reduction is
possible
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Time-Cost Relationship: CPM (contd) Definitions:
Standard Time: the time
usually/normally required
to carry out an activity: Ts
Crash Time: the
minimum time requiredto carry out an activity.
Reduction impossible: Tc
Standard & Crash Costs:
Costs for resources
associated with theseTimes: Cs, Cc
Time
Cost
TsTc
Cc
Cs
Cost Slope:
Cost per time-unit
of activity.
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Assumptions: Time required for an activity can be
crashed (i.e. reduced) to its crash time to
reduce its duration; Additional costs are incurred, proportional to
the time reduction effected to cover the
added resource deployment;
To reduce the project duration, only
activities on the critical path need to be
crashed.
Time-Cost Relationship: CPM (contd)
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Example:Activity T
sT
cCs C
cSequence
A 5 3 30 60 Start
B 9 5 50 90 After A
C 8 7 50 100 After A
D 6 4 20 50 After BE 3 2 10 20 After C
F 4 1 50 80 After D, E
1 2
3
4
5 6A
B
C
D
E
F
4/1
3/2
6/4
8/7
9/5
5/3 13
0 5
14
20 24
0 5 2420
14
17
Project
Duration: 24W
Cost:
Rs.210m
Time-Cost Relationship: CPM (contd)
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1 2
3
4
5 6A
B
C
D
E
F
4/1
3/2
6/4
8/7
9/5
5/3 13
0 5
14
20 24
0 5 2420
14
17
If the Client wants a 1W reduction we will need to crashsome activities. Which one?
Activity Ts Tc Cs Cc
A 5 3 30 60
B 9 5 50 90
C 8 6 50 100D 6 4 20 50
E 3 2 10 20
F 4 1 50 80
Project
Duration: 24W
Cost:
Rs.210m
We want to reduce the
Project Duration. So we look
for activities on the Critical Path:
A, B, D or F?
Reduction must be at theleast cost/time unit. So we look
for activity with lowest cost slope.
B has the least slope: we
reduce B, adding Rs.10m to
Cost.
Cost Slope
15
10
5015
10
15
Project
Duration: 23W
Cost:Rs.220m
8/5 23
13
19
2319
16
Time-Cost Relationship: CPM (contd)
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1 2
3
4
5 6A
B
C
D
E
F
4/1
3/2
6/4
8/7
8/5
5/3
If the Client now wants to execute at the least possible time.What can the Project manager offer?
Activity Ts Tc Cs Cc
A 5 3 30 60
B 8 5 50 90
C 8 7 50 100D 6 4 20 50
E 3 2 10 20
F 4 1 50 80
Cost Slope
15
10
5015
10
15
We can crash B by 3 more
weeks to 5 at an additional
cost of Rs.30m. B then is at
Crash. This reduces the Project
duration to 20W.This makes the other Path i.e.
A, C, E & F Critical too! So any further reduction will
need to effect both Paths.
A-B-D-F: 23 W
A-C-E-F: 20 W
Time-Cost Relationship: CPM (contd)
0 5
13
2323
1919
13
1316
505/5
20 W,
250m
10
1620
2016
13
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1 2
3
4
5 6A
B
C
D
E
F
4/1
3/2
6/4
8/75/3
If the Client now wants to execute at the least possible time.What can the Project manager offer?
Activity Ts Tc Cs Cc
A 5 3 30 60
B 8 5 50 90
C 8 7 50 100D 6 4 20 50
E 3 2 10 20
F 4 1 50 80
Cost Slope
15
10
5015
10
15
5/520 W,
250m
We can reduce F by 3
W, costing 45 m & A by
2 W, costing 30m. A & F
are crashed. C, D & E are not yet at
crash. D can be reduced
by 2 W, costing 30m.
C & E can be crashed by
1 W each, costing 60m.
14 W,
Rs. 415m
Project
Duration: 24W
Cost:
Rs.210m
14
14
10
10
6
6
3
3
0
0
7
7
Time-Cost Relationship: CPM (contd)
3/31/1
325 m4/4
7/7 3/3
415
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To run a Project, an establishment need to be setup to coordinate the activities. Establishment is relatively independent of the Activities
e.g. Project Office, Communication, Security etc. the
extent may vary with nature of Projects. This set-up exists for the entire duration of the Project
and is minimally affected by activity variance. Thus, the cost for this is fixed/structural in nature and
has to be incurred for the duration of the project and is
directly proportional to time. Activity is inversely proportional to time.
Activity Cost and Establishment costs displaycontrary time-trends.
Time-Cost Relationship: CPM (contd)
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Time-Cost Relationship: CPM (contd)
Time
Cost
Activity
Establishment
Total
The Total Cost passes is
is U shaped i.e. passes through
a minimum point. Thus crashing a Project is also
determined by the establishmentcost to determine the Optimum
or least cost.
E.g. In our previous example if we
were asked for the Optimum Cost,
given the establishment cost is
@ Rs.15m/week. We would needto factor in this cost along with the
crashed activity costs.
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Time-Cost Relationship: CPM (contd)
Duration Activity Cost Estabish--ment Cost @
Rs.15 m /w
Total Cost
24 W Rs.210m Rs.360m Rs.570m
23 W Rs.220m Rs.345m Rs.555m
20W Rs.250m Rs.300m Rs.550m
14W Rs.415m Rs.210m Rs.625mCrashedDuration
NormalDuration
Optimum
Duration
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Project Control
The basic questions that need toanswered are: Is the project as a whole (and its parts) on/
ahead /behind Schedule? Has the cost of the Project as a whole (and
its parts) as per/ more than/ less thanbudget?
What is the trend in performance? The Standard Variance analysis
approach is inadequate!
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Project Control (contd)
E.g. (Costs in Rs. 000)
Activity A Activity B
Bud. Cost in Period 50 30
Cum. Bud. Till Date 200 75
Actual cost in Period 55 28
Cum. Actual till date 240 80
Standard Budgetory Control Variances:Variance for Period: - 5 2
Cum. Variance till Date - 40 - 5
Is work on
schedule?
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Project Control (contd)
Definitions:
Budgeted cost of work Scheduled (BCWS): represents
the total cost budgets for all work packets to be
completed and work-in-progress scheduledto be
finished on date;
Budgeted cost of work Performed (BCWP): represents
the total cost budgets for all work packets to be
completed and work-in-progress executed on date;
Actual cost of work Performed (ACWP): represents thetotal cost budgets for all work packets to be completed
and work-in-progress executed on date;
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Project Control (contd)
With these 3 parameters, a Project may be
monitored:
Cost Variance = BCWP ACWP
Cost Performance Index: BCWP/ACWP Schedule Variance = BCWP BCWS (in cost terms)
Schedule Performance Index: BCWP/BCWS
Estimated Cost Performance Index: BCTW/(ACWP +
ACC)Where, BCTW = Budgeted cost of total work & ACC = Additional
cost for completion)
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Project Control (contd)
E.g. Project Start 01/01; End 30/10 andreview 30/06 i.e. 24 w (figs. In Rs. L)
BCWS: 15
BCWP: 14
ACWP: 16BCTW: 25(40 w)
ACC: 12
Cost Variance: BCWP ACWP (14 -16) = -2
Schedule Var.: BCWP BCWS (14 15)= -1
Time Variance: Status date Date at which BCWS=BCWP
Est. Cost Index: {BCTW/(ACWP+ ACC)} {25/(16+12)} = 0.89
SpentMore
Behind
Schedule
Will spend more;
funds required
Project Control (contd)
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Project Control (cont d)
25
40Weeks
Rs. L
BCTW
Review Date
24
BCWS
BCWP
Time.Var.
ACWPCost Var.
Schedule
Var.
X ACWP
+ ACCOverspend
1615
14
P j t C t l ( td)
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Project Control (contd)What do these terms really indicate?
A project manger can charge the client at pre-agreed ratesfor work completed on date of review This is BCWP andrepresents the Earned value of the project.
The manager has paid out at actual to his supplier for thework performed This is ACWP.
If the Actual is less then Earned, then the cost is successfullymanaged!
However, if the progress is behind schedule then the clientpays only for completed task and the Projects earnings areless than budgeted. Schedule variance is this shortfall.
P j t C t l (P ti P bl )
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Project Control (Practice Problem)
You have employed a Contractor to install 10000computers @ 20 computers/day and @ Rs.200 /installation. Every 10 days, there is a review andpayment. At the end of the 30th Review, you find:
#s installed 5800Bill raised Rs.62000/-
A) Determine: Time, Cost & Schedule Variances
B) What is the earned value for the Contractor?
C) What do you report to your management about theCompletion of the project, assuming the Contractorhas put his best efforts and unforeseen situationshave arisen in work execution.
P j t C t l (P ti P bl )
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BCWS: 30x10x20 x Rs.200= Rs.1.2 M
BCWP: 5800 x Rs.200/- = Rs.1.16 M
ACWP: Rs.0.62 M
Cost Variance: Rs.1.16 Rs.0.62 = Rs. 0.54 M
Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M
Time Variance: 1 weeklate (5800 should have been installed by the 29th
review!)
Earned Value: 5800 x Rs.200 = Rs.1.16 M, (contractor has probably
under billed.)
Project will be at least 1 week late and will complete the project within
the budget, subject to bill verification.
Project Control (Practice Problem)
Project Control (Practice Problem)
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BCWS = Rs.1.2 M; BCWP = Rs.1.16 M ACWP: Rs.1.18 M Cost Variance: Rs.1.16 Rs.1.18 = - Rs. 0.02 M Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M Time Variance: 1 weeklate (5800 should have been installed by the
29th review!) Earned Value: 5800 x Rs.200 = Rs.1.16 M, contractor will be paid
this amount. The Rs.0.02 M excess has to be examined. Project will be at least 1 week late and the projectwill overshootthe
budgetif the billing is found correct. Then the installation rate worksout to (Rs.1.18M/5800) Rs. 204/- per installation
ACC: (10000-5800) x Rs.204 = Rs.0.87 M; Projected Cost: Rs.(1.18+ 0.87) = Rs.2.05M againstBCTW: Rs.
(10000 x Rs.200) = Rs.2.00 M
Project Control (Practice Problem)
If the billing is corrected to Rs.1.18 M
Project Scheduling with Resource
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j g
Constraints
In real life, there will be constraints on availability &use of resource: Not every resource required will be freely available
influencing design of project activities
Particularly true when multiple activity/ projectsrequires the same resource e.g. Specialist skills
Further, crashing will need to take this constraintinto consideration
Project Scheduling with Resource
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Project Scheduling with Resource
Constraints ctd.
Resource Loading is the amount of resource necessary forthe Project:
Changes through the duration of the execution since nature
and type of activities vary with time
Results in variable requirement/loading of a resource over
time The usual resource loading pattern is:
A slow but steady build-up
Intense peaking at a certain point in time
A gradual decline
Most Projects require few resources at early and latestages and many in the middle.
This problematic for mangers who would like to deal
with uniform pool of workers, equipment etc.
Project Scheduling with Resource
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j g
Constraints ctd.
The process of smoothening the resourcerequirements though the Project duration is
termed Resource Leveling: Aimed at sequencing the project activities to level the
requirement of the constrained resource, e.g. shiftworking on bottle-neck machine.
The results in resource requirements for the overall
project is maintained at a fairly constant level
Fair amount of leveling can done by juggling the
activities around: Taking advantage of Slack
Delaying non-critical activities.
Project Scheduling with Resource
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j g
Constraints ctd.
Consider a Maintenance Project involving overhauling amachine using a team of mechanics. The machine has
different sub-systems which can be independently
worked upon: Hydraulic, Electrical & Mechanical. The
Project details are given as under:
Activity days team strength
A) Disassembly (1-2) 2 3
B)Ohaul Hydraulic (2-3) 2 2
C)Ohaul Mechanical (2-4) 4 3
D)Ohaul Electrical (2-5) 1 1E)Assembly (4-6) 2 3
Note: No mechanic can work more than 5 days at a stretch
Project Scheduling with Resource
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j g
Constraints ctd.
A B C D E
Gang 1 1 1 1 1
Man /day
2 2 3 1 3
Durn. 2 2 4 1 21 2A
2
3
4
5
6
B
2
4C
D
1
2E
1 2 3 4 5 6 7 8
2 2 6 4 3 3 3 3
1 1 3 2 1 1 1 1
Man Reqd.
Gang Reqd.
Day
Project Scheduling with Resource
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j g
Constraints ctd.
A B C D E
Gang 1 1 1 1 1
Man /day
2 2 3 1 3
Durn. 2 2 4 1 21 2A
2
3
4
5
6
B
2
4C
D
1
2E
1 2 3 4 5 6 7 8
2 2 3 4 5 5 3 3
1 1 1 2 2 2 1 1
Man Reqd.
Gang Reqd.
Day
1 mechanic can join from day 3, 1 more
from day 4, 1 more from day 5 and 2
mechanics can leave from day 7; so no
mechanic works more than 5 days
Improvement Projects
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Improvement Projects
Many Projects which are done in companies are
aimed at improving the current status or solving
recurring problems, e.g.: In Operations: reduction of rejections
In Design: reducing documentation & testing time In Finance: reducing accounts receivable & bad debts
Though the subjects are different, most of these
require the same approach based on utilizing in-
company knowledge and experience Thus there is a standard process for these
Projects, developed from the TQM philosophy.
Improvement Projects: Information & Decision
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Improvement Projects: Information & Decision
When work is delegated or distributed two dimensions, Responsibility
and Authority are prime concerns. But there is more, especially during aset-up/change process;
People have to "do" something to make the processes happen. Thereforeit is useful to describe what should be done by whom
The RASCI model is a relatively straightforward tool that can be used for
identifying roles and responsibilities R = Responsible - owns the problem / project A = to whom "R" is Accountable - who must sign off (Approve) on work
before it is effective S = can be Supportive- can provide resources or can play a supporting
role in implementation C = to be Consulted- has information and/or capability necessary to
complete the work I = to be Informed - must be notified of results, but need not be
consulted
RASCI Chart for Road Repair
Information & Decision contd
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IRIA
I, SIRA
RAIC
IRCA
RASCI Chart for Road Repair
Resume trafficflow
Repair road &certify
Divert & usealternate route
Stop access
for period
PublicPoliceContractorMunicipality
Information & Decision contd
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Providing Information and granting Decision Rights requires to be
supported by decision-making abilities. Decision-making is a universally important competence in business.
Some decisions clearly have a greater impact on the businessthan others, but the underlying skill is the same;
The difference is in the scope and depth of the process you go
through to reach your decision In day-to-day operations, these are mostly in the domain of:
Choice making Problem-solving/Improvements
In these areas, the people need to be supported with simple tools/aids,
viz. Decision support tools for making a choice quantitatively
Problem Solving tools E.g. The 8-D methodology, Six Sigma
Decision Making: informed choice
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Decision Making: informed choice
One reason why decision-making can be so problematic is that the mostcritical decisions tend to have to be made in the least amount of time.
People feel pressured and anxious;
The time pressure means taking shortcuts,jumping to conclusions, or
relying heavily on instinct to guide your way.
The other extreme is the guy who simply can't make a decision becausehe analyses the situation to death!
Between instinct and over-analysis is a logical and practical approach to
decision-making that doesn't require endless investigation, but helps
weigh up the options and impacts is needed.
Decision-making is a skill setthat needs be learned and improved; One such approach is called the Kepner-Tregoe Matrix. It provides an
efficient, systematic framework for gathering, organizing and evaluating
decision making information.
Making an informed choice
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Kepner-Tregoedescribes the following steps to approach
decision analysis:
1. Prepare a decision statement having both an action and a
result component;
2. Establish strategic requirements (Musts), operational objectives
(Wants);
3. Generate alternatives. Check if Musts are met by eachalternative;
4. Rank objectives (Wants) and assign relative weights;
5. Assign a relative score for each alternative on an objective-by-
objective basis;
6. Calculate weighted score for each alternative and identify top
two or three;
7.Make a final, single choice between top alternatives.
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ALTERNATIVES
MUSTS
W
AN
TS
1 23
Problem Solving
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The problem with problems is not that they occurin spite of our bestefforts, stuff happens. Unforeseen circumstances will always conspire
against us to disrupt the smooth operation of our production and
operations systems and upset our plans.
The problem with problems is that we fail to prevent them from
happening again. Problems do not confine themselves to organizational niches or
structures: they encompass many parts, even the whole organization.
Solutions, therefore, more often than not require a team effort to find a
lasting cure:
Engaging different skills, knowledge & aptitude Requiring divergent resources
These reside scattered in different parts of the organization
Problem Solving: Team approach
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Ford Motorsis credited with formalizing TOPS (Team Oriented Problem Solving)
methodology:
Involvement: cross-functional and cross-hierarchical,
Knowledge & Information sharing,
Camaraderie and bonding,
Multi-dimensional, thus a holistic solution,
Using the 8D (8Disciplines) process, renamed Global 8D (G8D):
Step-by-step (P-D-S-A) approach: subsequent steps based on soundly established previous steps, few come-backs,
Problems tackled in bite-size pieces
Provisions for emergency response, escape and recurrence preventing measures
The 8-D method of problem solving is appropriate in "cause unknown"situations and
is not the right tool if concerns center solely on decision-making or problem
prevention
8 D Process
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D 0 - The Planning Stage:. 8-D is especially useful as it results innot just a problem-solving process, but also a standard and a
reporting format.
Does this problem warrant/require an 8D? If so comment why and
proceed.
Is an EmergencyResponseAction needed? D 1 - Establishing the Team: Establish a small group of people
with the process/ product knowledge, allocated time, authority and
skill in the required technical disciplines to solve the problem and
implement corrective actions.
Team to set Objectives & Goals: brings belief, commitment &
realism
8 D Process
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D 2 - Problem Definition:
Provides the starting point for solving
the problem or nonconformance issue. Need to have correct problem description (photos, verbatim
statements, eye-witness accounts) to identify causes. 5Ws + H approach in is and is not answers e.g. Who is or is not
affected by the problem
Need to use terms that are understood by all. D 3 -Developing Interim ContainmentActions:
Temporary actions to contain the problem and fix until permanentcorrection is in place - document actions in an Action Item Table.
D 4 -Identifying & Verifying Root Cause: Analyze for Root
Cause of the problem. Brainstorming, 5 Whys, Ishikawa Diagrams, DOE etc. document actions in an AIT.
Identify and verify the Escape Point
8 D Process
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D 5 - Identify Permanent Corrective Actions:
solutions that address and correct the root cause. Solutions determined to be the best of all the alternatives. Document and verify the Permanent Corrective Action (PCA) in the
AIT.
D 6 -Implementing & Validating the PCA
Implement and validate to ensure that corrective action does what itis supposed to do. Detect any undesirable side effects. Document this on the AIT. Return to root cause analysis, if necessary
D 7 - Preventing Recurrence: determine what improvements in
systems and processes would prevent problem from recurring. Ensure that corrective action remains in place and successful Address similar systems Revise related documentation (Design/Process/Q-Systems)
8 D Process
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D 8 - Congratulate Your Team: ( ensure: was this problem solvingexercise effective? Has it been verified with a follow-up? ) Use all forms of employee recognition and document as necessary. Celebratesuccessful conclusion of the problem solving effort. Formally disengage the team and return to normal duties OR
Go for the next round of problem solving for the remaining issues
PD 0,1,2
& 3
AD 7 & 8
Recommended