Project management

Project Management and Economics (EMG -102-3)

LecturersRuwan Ranasinghe

Buddhika Perera

Objectives of the Course>To provide students the basic

understanding of PM and its application in day today life and to enhance students’ ability to work efficiently in a given project and to deliver output on time under different environments.

Objectives of the lecture

>To understand the Structure of the course

>To understand the scope of the course

>To observe the history of PM>To discuss major concerns of PM

Project Management

PM 1.5 CreditsEcon 1.5 Credits

EvaluationCA 60% (30 PM,

30Econ)Final Paper 40%

Evaluation Cont’

CA 30 PM

Quizzes 5x2 10Written Assignment 1 10Case study & PPT 1 10

References

>Kathy Schwalbe: An Introduction to Project Management

>Nagarajan. K. :Project Management, 2nd Edition

>T. Lucey : Quantitative Techniques>Project Management Institute

–http://www.PMI.org>Gantthead - http://www.gantthead.com/

We vs. Them 1950 – 2000/08

Per Capita Income in US$

Country 1950-$

SRI LANKA 89

JAPAN 90

SINGAPORE 30

Why do we learn PM

1950 vs 2000/08Per Capita Income in US $

Country

1950-$ 2000-$

SRI LANKA 89 8401617 (07)

JAPAN 90 32,00034,100

SINGAPORE

30 28,00038,972

Growth Compared from1950 to 07/08

Country 1950 2000-$Growth Times

Sri Lanka 89

8401617 (07’) 18

Japan 90

32,00034,100 (08’)

379

Singapore 30

28,00038,972 (08’)

1299

Scope of the Course

• Introduction to Project Management• The Project Manager• Planning a Project• Building a Project• Project Appraisal Methods• Linear Programming• Network Analysis• Monitoring and Controlling a Project

What is a project?

A project is a temporary endeavor undertaken to create a unique product or service. It implies>a specific timeframe>a budget>unique specifications >working across organizational boundaries

Characteristics of OperationsOngoing – Continuous cycleRepetitive – Expected inputs and outputs

Characteristics of ProjectsTemporary – Definitive beginning and endUnique – New undertaking, unfamiliar ground

The difference between projects & Operations

Why Projects Fail

>Failure to align project with organizational objectives

>Poor scope>Unrealistic expectations>Lack of executive sponsorship>Lack of project management>Inability to move beyond individual and

personality conflicts>Politics

What is a successful project?>Customer Requirements

satisfied/exceeded>Completed within allocated time frame>Completed within allocated budget>Acceptance by the customer

Why Projects Succeed!

>Project Sponsorship at executive level>Good project charter (Scope, Objectives &

Stakeholders)

>Strong project management>The right mix of team players>Good decision making structure>Good communication>Team members are working toward

common goals

What is Project Management?>Project Management is the application of

skills, knowledge, tools and techniques to meet the needs and expectations of stakeholders for a project>The purpose of project management is

prediction and prevention, NOT recognition and reaction

>Effective Management of the Triple Constraints>Scope - Requirements (Needs Identified or Unidentified

Expectations)>Cost/Resources – People, Money, Tools>Schedule/Time

History of Project PM>Eastern – Civilizations, pyramids,

Chinese Great Wall, Taj Mahal, Stupa etc.(prehistoric & Medieval period)

>Western – Mass production of arms, Oil exploration, rail roads and machineries (18th & 19th Centaury)

>Sri Lanka – Historical evidences

>Modern PM – Manhattan Project, War

Major Concerns in Project Planning

Core Project Management Tools>Project Charter>Work Breakdown Structure (WBS)>Project Schedule>Project Budget

Project Charter

> What must be done?> What are the required resources?> What are the constraints?> What are the short and long term implications?

> Why do it?> When must it be done?> Where must it be done?> Who does what?

> Who is behind the project?> Who is funding the project?> Who is performing the work of the project?

Project Charter

> Project Goal & Objective

> Sponsor> Stakeholders> Timeline> Resources required> Deliverables

> Decision making> Assumptions> Risks> Business process

changes> Project manager> Project team> Budget> Signatures

Work Breakdown Structure

>Identify the major task categories>Identify sub-tasks, and sub-sub-tasks>Use verb-noun to imply action to

something


Canoe Trip to Boundary Waters

Arrange Travel Get Equipment Prepare BudgetPlan Meals

Schedule Flights to Mpls

Rent Van

Arrange Motel

Schedule return flights

Contact BW Outfitter Bring cooking gear

Freeze dry food

Assign Budget Person

Get deposits

Retain Receipts

Pay for supplies

Close-out trip

Plan for Emergencies

Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear

Prepare 7 breakfasts

Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s

Arrange contact at BW

Bring emerg. flares

Bring two first aid kits

Bring Cards

Bring Joke book

Bring scotch

Bring lights and waterproof

matches

Work Breakdown StructureCanoe Trip to

Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches


Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches


Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches

Project Schedule Tools> Many tools available

> Microsoft Project> Many more specialized software> www.dotproject.net> Excel

> Most important> Monitor tasks> Gantt views of project

> one page views for executives> rollout and more complex views for work teams

> Critical Paths> Inputs from multiple teams that roll up to project

manager> Dependencies> Resources assigned to tasks

http://www.dotproject.net/

Project Schedule

Critical Paths

>Milestones that impact downstream milestones and the overall timeline of project

>If you miss a Critical Path, the entire project is delayed, or

>You have to make up ground on downstream critical paths

Project Budget

>Direct Costs>Indirect Costs

Project Budget> Direct Costs

> Hardware> Software> Contractor fees

> Estimated hours> Hourly Rates

per contractor> Various

contractor rates> Training> Other

TOTALS

Indirect Costs Your people’s time

and effort Estimated time on

project Estimated cost

based on hourly rate

Other’s time and effort Opportunity cost

What projects or tasks are NOT going to get done in order to get this project done?

Year 1 Year 2 Year 3

Key areas of Project Management>Scope Management>Issue Management>Cost Management>Quality Management>Communications Management>Risk Management>Change Control Management

Scope Management

> Project Scope Management is the process to ensure that the project is inclusive of all the work required, and only the work require, for successful completion.

> Primarily it is the definition and control of what IS and IS NOT included in the project

> This component is used to communicate> How the scope was defined> How the project scope will be managed> Who will manage the scope (e.g., PM, QA)> Change Control

Issue Management

> Issues are restraints to accomplishing the deliverables of the project.

> Issues are typically identified throughout the project and logged and tracked through resolution.

> Issues not easily resolved are escalated for resolution.

> In this section of the plan the following processes are depicted:> Where issues will be maintained and tracked> The process for updating issues regularly> The escalation process> The vehicle by which team members can access

documented issues

Cost Management

>The processes required to ensure the project is completed within the approved budget and includes:>Resource Planning - The physical resources

required (people, equipment, materials) and what quantities are necessary for the project

>Full Time Employees, Professional Services, Cost, and Contingency

>Budget >Budget estimates>Baseline estimates>Project Actuals

Quality Management

>Quality Management is the processes that insure the project will meet the needs via:>Quality Planning, Quality Assurance, and

Quality Control>Clearly Defined Quality Performance Standards>How those Quality and Performance Standards are

measured and satisfied>How Testing and Quality Assurance Processes will

ensure standards are satisfied>Continuous ongoing quality control

Communications Management> The processes necessary to ensure timely and

appropriate generation, collection, dissemination, and storage of project information using:> Communications planning: Determining the needs (who

needs what information, when they need it, and how it will be delivered)

> Information Distribution: Defining who and how information will flow to the project stakeholders and the frequency

> Performance Reporting: Providing project performance updates via status reporting.

> Define the schedule for the Project Meetings (Team), Status Meetings and Issues Meetings to be implemented

Risk Management

> Risk identification and mitigation strategy> When\if new risks arise> Risk update and tracking

Change Control Management>Define how changes to the projects

scope will be executed> Formal change control is required for all of the following

1.Scope Change2.Schedule changes3.Technical Specification Changes4.Training Changes

> All changes require collaboration and buy in via the project sponsor’s signature prior to implementation of the changes

Project Management

What is PM s’ job

• PM is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.

• It is not only meeting scope, time, cost and Quality

• But also to facilitate the entire process to meet the needs and expectations of the people involved in or affected y the project activities.

Scope Management

Time Management

Cost Management

Quality Management

Project integration Management

HR MGT Communication MGT Risk MGT Procurem

ent MGT

Core Functions

Facilitating Functions

Tools & Techniqu

es

Ref; Handout No. 01

Project Stakeholders

• People who are involved in or affected by project activities.

• It includes Sponsor, team, support staff, customers, users, suppliers and opponents to the project

Project

• Project

Programme

• Programme – a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.

Project Portfolio

• Two or more project programmes which consist number of projects managed in a coordinated way to obtain benefits and control to achieve expected objectives

Sample Project Life Cycle

>Initiation Phase>Definition Phase>Planning Phase>Implementation Phase>Deployment Phase>Closing Phase

Initiation Phase

>Define the need>Return on Investment Analysis>Make or Buy Decision>Budget Development

Definition Phase

>Define Project Scope >Define functional requirements

>Requirements to be prioritized into business critical and non-business critical need

>Define technical requirements>Risk Management Planning

Planning Phase

>Resource Planning>Work Breakdown Structure>Project Schedule Development>Configuration Management Plan>Quality Assurance Plan>Production Support Plan>Service Level Agreement>System Design

Implementation Phase

>Training Plan>System Build>Quality Assurance

Deployment Phase

>User Training>Production Review>Go Live

Closing Phase

>Contractual Closeout>Post Production Transition>Lessons Learned

Application in Project Execution and Controlling>A project schedule empowers a Project

Manager to:

>Manage the time, cost, and resources of the project

>Assess the progress of the project against the baseline

>Assess and communicate the impact of issues and change management

>Forecast and what-If scenarios

>Issue Management

Managerial SkillsManagerial SkillsThere are three skill sets that managers need to perform effectively.

1. Conceptual skills: the ability to analyze and diagnose a situation and find the cause and effect.

2. Human skills: the ability to understand, alter, lead, and control people’s behavior.

3. Technical skills: the job-specific knowledge required to perform a task. Common examples include marketing, accounting, and manufacturing.

All three skills are enhanced through formal training, reading, and practice.

56Project Management - The Project Manager

Skill Type Needed by Manager LevelSkill Type Needed by Manager Level

TopManagers

MiddleManagers

LineManagers

Conceptual Human Technical

Figure 1.5

57Project Management - The Project Manager

58

The Role of the Project Manager>Job descriptions vary, but most include

responsibilities such as planning, scheduling, coordinating, and working with people to achieve project goals.

>Remember that 97 percent of successful projects were led by experienced project managers.

Project Management - The Project Manager

59

Skills of a Project Manager

> Leadership> Communication (this is one of the 5 C’s)> Stress management> Team building/development> Conflict resolution> Decision making> Technical> Planning> Administrative> Resource allocation


60

The 5 C’s – Build RelationshipsCommunication

Talking togetherCollaboration

Working together

CoordinationPlanning together

CooperationHelping each

other

Consistency

Individual predictability



> Define scope of project.> Identify stakeholders,

decision-makers, and escalation procedures.

> Develop detailed task list (work breakdown structures).

> Estimate time requirements.> Develop initial project

management flow chart.> Identify required resources

and budget.

> Evaluate project requirements.

> Identify and evaluate risks.> Prepare contingency plan.> Identify interdependencies.> Identify and track critical

milestones.> Participate in project phase

review.> Secure needed resources.> Manage the change control

process.> Report project status.

Table 1-3. Fifteen Project Management Job Functions*

62

Suggested Skills for Project Managers> Project managers need a wide variety of skills.

> They should:

> Be comfortable with change.

> Understand the organizations they work in and with.

> Lead teams to accomplish project goals.


63

Suggested Skills for Project Managers

>Project managers need both “hard” and “soft” skills.

>Hard skills include product knowledge and knowing how to use various project management tools and techniques.

>Soft skills include being able to work with various types of people.


64

Suggested Skills for Project Managers

> Communication skills: Listens, persuades.> Organizational skills: Plans, sets goals, analyzes.> Team-building skills: Shows empathy, motivates,

promotes esprit de corps.> Leadership skills: Sets examples, provides vision

(big picture), delegates, positive, energetic.> Coping skills: Flexible, creative, patient,

persistent.> Technology skills: Experience, project knowledge.


65

Media Snapshot – Good Project Management Skills from The Apprentice> Leadership and

professionalism are crucial.

> Know what your sponsor expects from the project, and learn from your mistakes.

> Trust your team and delegate decisions.

> Know the business.> Stand up for yourself.

> Be a team player.> Stay organized and don’t

be overly emotional.> Work on projects and for

people you believe in.> Think outside the box.> There is some luck

involved in project management, and you should always aim high.


66

Table 1-4. Most Significant Characteristics of Effective and Ineffective Project Managers

• Leadership by example• Visionary• Technically competent• Decisive• Good communicator• Good motivator• Stands up to upper

management when necessary

• Supports team members

• Encourages new ideas

• Sets bad example• Not self-assured• Lacks technical expertise• Poor communicator

• Poor motivator

Effective Project Managers Ineffective Project Managers


67

Importance of Leadership Skills>Effective project managers provide

leadership by example.

>A leader focuses on long-term goals and big-picture objectives while inspiring people to reach those goals.

>A manager deals with the day-to-day details of meeting specific goals.

>Project managers often take on both leader and manager roles.


PROJECT PLANING &WRITING A PROJECT

PROPOSAL

Lecturer Ruwan Ranasinghe

Project Management - Writing Project Proposal

68

Create a Project Plan

By using this Project Plan template, you can: Identify all of the phases, activities and tasks Sum up the effort needed to complete those tasks Document all of the project inter-dependencies List the planning assumptions and constraints Create a detailed project planning schedule This Project Plan Template will also help you to: Define the project scope & milestones Identify the Work Breakdown Structure Set and agree the target delivery dates Monitor and control the allocation of resource Report on the progress of the project, to the sponsor


69

Create a Resource Plan

Types of labor required for the project Roles and key responsibilities for each labor type Number of people required to fill each role Items of equipment to be used and their purposes Types and quantities of equipment needed Total amount of materials needed This Resource Plan template will also help you to: Plan the dates for using or consuming these resources Identify the amount of resource required per project activity Create a detailed resource utilization schedule


70

Create a Financial Plan

Types of labour costs to be incurred during the project Items of equipment needed to deliver the project Various materials needed by the project Unit costs for labor, equipment and materials Other costs types such as administration Amount of contingency needed

You can then use the Financial Plan template to create a budget by: Calculating the total cost involved in completing the project Identifying the total cost of each project activity Creating a schedule of expenses


71

Create a Quality Plan

Identifying the customers requirements Listing the project deliverables to be produced Setting quality criteria for these deliverables Defining quality standards for the deliverables Gaining your customers agreement with the targets set You can then use this Quality Plan to monitor and control quality by: Identifying the quality control tasks needed to control quality Creating a Quality Control Plan, by scheduling the control activities Listing the quality assurance activities required to assure quality Building a Quality Assurance Plan, by creating an activity schedule


72

Create a Risk Plan

Identify risks within your project Categorize and prioritize each risk Determine the likelihood of the risks occurring Identify the impact on the project if risk does occur You can then use this Risk Plan template to: Identify preventative actions to prevent the risk from occurring List contingent actions to reduce the impact, should the risk occur Schedule these actions within an acceptable timeframe Monitor the status of each risk throughout the project


73

Create a Acceptance Plan

Creating a full list of all project deliverables Listing the criteria for gaining customer acceptance Putting in place, acceptance standards to be met You can then use this template to create an Acceptance Plan, by: Identifying the acceptance test methods Allocating acceptance test resources Scheduling acceptance reviews with your customer Gaining your final acceptance of your deliverables


74

Create a Communications Plan

Listing your communications stakeholders Defining each stakeholders communication needs Identifying the required communications events Determining the method and frequency of each event Allocating resource to communications events Building a communication event schedule

You can then use this Communication Plan template for Monitoring the communications events completed Gaining feedback on communications events Improving communications processes


75

Create a Procurement Plan

Define your procurement requirements Identify all of the items you need to procure Create a sound financial justification for procuring them It also helps you to: List all of the tasks involved in procuring your products Schedule those tasks by allocating timeframes and resources Create a robust project procurement process for your business


76

Contract the Suppliers

>Tender Process>Statement of work>Request for information>Request for proposal>Supplier Contract>Tender Register


77

Perform a Phase Review

Project is under schedule and within budget Deliverables have been produced and approved Risks have been controlled and mitigated Issues have been resolved Project is on track

The Phase Review Form helps you to: Document the results of your Project Reviews Clearly communicate the progress of your project to your sponsor List any risks or issues which have impacted the project Show your sponsor the deliverables produced to date Seek approval to proceed to the next project phase


78

WRITING A PROJECT PROPOSAL

79Project Management - Writing Project Proposal

EXECUTIVE SUMMARY:

>Provide a brief overview and summary of the project. It should provide a credible statement that describes your organization and establish the significance of the project

Project Management - Writing Project Proposal 80

PROBLEM STATEMENT:

>State the challenges identified, the rationale/need to address these challenges and the conditions to be changed by the project


PROJECT OBJECTIVES:

>The objectives should describe the intended outcome of the project and should be SMART (Simple, Measurable, Accurate, Realistic and Time Bound)

>Indicate how the objectives will contribute to the achievement of the project, what difference the project will make and the time frame during which this will happen.


82

PROJECT IMPLEMENTATION AND MANAGEMENT PLAN:

>Describe the project activities indicating how the objectives will be accomplished, what will be done, who will do it, who are the implementers, partners and beneficiaries and when it will be done. Describe how the project will be sustainable after the funding period.


PROJECT MONITORING AND EVALUATION:

>Describe how you are going to monitor and evaluate the project so as to assess progress during implementation and improve the project efficiency as the project moves along.


84

DOCUMENTATION AND SHARING RESULTS :

>Describe how you are going to document the progress of your project during and after implementation. State how you will document and share your results and let others know of your purpose, methods and achievements.


85

PROJECT BUDGET:

>Indicate the total cost of the project and also provide a detailed budget for these costs.


ANY ADDITIONAL INFORMATION:


>Provide any additional information in support of this proposal application

PAYBACK ANALYSIS FOR

PROJECT EVALUATION

>Payback is the time it takes the cash inflows from a project to equal the cash outflows, usually expressed in years.

>Is often used as a first screening method “how long will it takes to pay it back”

>Usually, organizations have target payback years and it is based on Org. preferences.

>However a project should not be evaluated on the basis of payback alone.

>If a project get through the payback test it should be evaluated through more sophisticated project evaluation techniques.

Calculation

>Calculate payback for each project and state you decision.

Advantages of Payback MethodPayback is a popular method and the following could be made in favor.> Simple to calculate and simple to understand.> It could be used as a screening device as a first

stage eliminating obviously inappropriate projects prior to more detail evaluations.

> The fact that it tends to bias in favor of short-term projects means that it tends to minimize both financial and business risk.

> It could be used when there is a capital rationing situation to identify those projects which generate additional cash for investment quickly.

Disadvantages of payback method>It ignores the timing of cash flows after the

end of the payback period and therefore the total project return.

>It ignores the time value of money. >Payback is unable to distinguish between

projects with the same payback period>It may lead to excessive investment in

short-term projects

PAYBACK ANALYSIS FOR

PROJECT EVALUATION

>Payback is the time it takes the cash inflows from a project to equal the cash outflows, usually expressed in years.

>Is often used as a first screening method “how long will it takes to pay it back”

>Usually, organizations have target payback years and it is based on Org. preferences.

>However a project should not be evaluated on the basis of payback alone.

>If a project get through the payback test it should be evaluated through more sophisticated project evaluation techniques.

Calculation

>Calculate payback for each project and state you decision.

Advantages of Payback MethodPayback is a popular method and the following could be made in favor.> Simple to calculate and simple to understand.> It could be used as a screening device as a first

stage eliminating obviously inappropriate projects prior to more detail evaluations.

> The fact that it tends to bias in favor of short-term projects means that it tends to minimize both financial and business risk.

> It could be used when there is a capital rationing situation to identify those projects which generate additional cash for investment quickly.

Disadvantages of payback method>It ignores the timing of cash flows after the

end of the payback period and therefore the total project return.

>It ignores the time value of money. >Payback is unable to distinguish between

projects with the same payback period>It may lead to excessive investment in

short-term projects

MANAGEMENT OF

PROJECT TIME

Introduction

101

>After finalizing your project schedule, you realize the estimated completion date is two months beyond what your boss publicly promised an important customer.

>Five months into the project, you realize that you are already 03 weeks behind the drop dead date for the project.

>Four months into a project top management changes its priorities and now tells you that money is not an issue. Complete the project ASAP.

Time Is Money: Cost-Time Tradeoffs

>Reducing the time of a critical activity always incurs additional direct costs.>Cost-time solutions focus on reducing (crashing) activities

on the critical path to shorten overall duration of the project.

>Reasons for imposed project duration dates:>Customer requirements and contract commitments

>Time-to-market pressures

> Incentive contracts (bonuses for early completion)

>Unforeseen delays

>Overhead and goodwill costs

>Pressure to move resources to other projects

Explanation of Project Costs

>Project Indirect Costs>Costs that cannot be associated with any

particular work package or project activity>Supervision, administration, consultants, and interest

>Costs that vary (increase) with time>Reducing project time directly reduces indirect costs.

>Direct Costs>Normal costs that can be assigned directly to a

specific work package or project activity>Labor, materials, equipment, and subcontractors

>Crashing activities increases direct costs

Project Crashing Options

>Options when resources are not constrained

Adding Resourcese.g. adding additional staff and equipment to activitiesThe inherited limitation of adding resources is how much

speed could be gained by this option.

Doubling the size of the workforce will not necessarily reduce completion time by half.

Additional effort in coordinating and communicating is required and due to really the activity could get delayed even.

104



Outsourcing Project WorkA common method to shorten the project activity is

to subcontract the project activities.The subcontractor may have the superior

technology or expertise to accelerate the completion of the project activity.

e.g 10 workers’ manual work to demolish a building which need 05 days, could be given to a backhoe owner to finish in 02 hours.

105



Scheduling OvertimeThe easiest way to add more people to a project is

not to add more people, but to schedule overtime.e.g. if a team works 50 hours a week instead 40 it

will accomplish 25% more.

By scheduling overtime you avoid the additional costs of coordination and communication encountered when new people are added.

106

107


• Options when resources are not constrained

Establish a core project team

Dedicated project team gives speed to a project. Specially specialists in their fields would give fast and accurate solutions immediately.



Do it twice – Fast and CorrectlyIf you are in a hurry just develop and

try a quick and dirty solution and may be in the second round with the experience you can develop the option to be more accurate.

108


Options when resources are Constrained

Fast - trackingSometimes it is possible to rearrange the logic of the

project network so that critical activities are done in parallel (concurrently) rather than sequentially. This alternative is a good one if the project situation is right.

e.g. instead of waiting for the final design to be approved, manufacturing engineers could start the building of production line as soon as the key specs are approved.

109



Reducing ScopeMost common response for meeting

unattainable deadlines of projects is to reduce or scale back the scope of the project.

While scaling back the scope of the project would lead to big savings in both time and money, it may come at a cost of reducing the value of the project.

110



Compromise QualityReducing quality is always an option, but it is rarely

acceptable or used. If quality is sacrificed it may result to reduce the time on the critical path.

In practice the methods most commonly used to crash projects are;

Scheduling overtimeOutsourcingAdding resources

Each of these maintains the essence of the original plan.

111

Reducing Project Duration to Reduce Project Cost

Identifying direct costs to reduce project timeIdentifying direct costs to reduce project timeIdentifying direct costs to reduce project timeIdentifying direct costs to reduce project time

Compute total costs for specific durations and Compute total costs for specific durations and compare to benefits of reducing project time.compare to benefits of reducing project time.

Compute total costs for specific durations and Compute total costs for specific durations and compare to benefits of reducing project time.compare to benefits of reducing project time.

Search critical activities for lowest direct-cost Search critical activities for lowest direct-cost activities to shorten project duration.activities to shorten project duration.

Search critical activities for lowest direct-cost Search critical activities for lowest direct-cost activities to shorten project duration.activities to shorten project duration.

Gather information about direct and indirect Gather information about direct and indirect costs of specific project durations. costs of specific project durations.

Gather information about direct and indirect Gather information about direct and indirect costs of specific project durations. costs of specific project durations.

Project Cost - Duration Graph

FIGURE 9.1

Find total direct costs for selected project durations.

Find total indirect costs for selected project durations.

Sum direct and indirect costs for these selected project durations.

Compare additional cost alternatives for benefits.

Determining Activities to ShortenShorten the activities with the smallest increase in cost per

unit of time.….Ok, so how do we get the costs per activity?

Assumptions:

>The cost relationship is linear. You can crash less than the limit.

>Normal time assumes low-cost, efficient methods to complete activity

>Crash time represents a limit—the greatest time reduction possible under realistic conditions.

>Slope represents a constant cost per unit of time. Typically it’s the “per-day crash cost”

>Any acceleration must be bounded so that activity duration is within the normal and crash times.

Activity Graph

FIGURE 9.2

Cost—Duration Trade-off Example

FIGURE 9.3

Calculatethese

Predecessors--AAAB

C,DE,F

• First, calculate Slope (in days) and max Crash time• Next build the AoN network, with normal times (we can also do this in excel)• Lastly, crash activities that are most cost effective to reduce overall project duration until cost of crashing exceeds benefits

•Assume we want to reduce project duration and have recourses to do so

– we value each day it is shorted at $50K

Cost—Duration Trade-off Example (cont’d)

FIGURE 9.3 (cont’d)

Put duration shortened, too







Summary Costs by Duration

FIGURE 9.5

• Indirect costs must be calculated, perhaps from accounting or client services department (ex. Contracts for late/early delivery)• May not be as easy to estimate as the book claims

Project Cost—Duration Graph

FIGURE 9.6

>Consider the following project:

activity predsNormal Duration

Crashed Duration

reduction cost per day

a01 none 3 2 $4,000a02 a01 7 4 $900a03 a01 6 5 $500a04 a02,a03 5 5 xxxxa05 a04 20 12 $1,100a06 a04 11 9 $800a07 a06 7 5 $1,900a08 a04 12 10 $900a09 a05,a07,a08 6 6 xxxxa10 a07,a08 9 7 $1,200a11 a09 5 4 $2,200a12 a10,a11 14 9 $1,200

Group Exercise, Continued

>What is the normal duration? What is the fastest time in the project could be completed in (without re-sequencing, outsourcing or condensing tasks or reducing scope).

> Indirect costs are reduced by $2000 per day shortened. What is the crashing plan that reduces total direct and indirect costs? Is it the same crashing plan as above?

>How would you summarize your recommendations to get approval for the funds?

Return on Investment (ROI)

for project Appraisal

125

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number

of different investments.

To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed

as a percentage or a ratio.

127

The return on investment formula:

ROI works well in situations where both the gains and the costs of an investment are easily known and where they clearly result from the action. Other things being equal, the investment with the higher ROI is the better investment.128

129

Return on investment is a very popular metric because of its

versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are

other opportunities with a higher ROI, then the investment should not be

undertaken.

130

For example, what is the ROI for a new marketing project that is expected to cost LKR 500,000 over the next five years and

deliver an additional LKR700,000 in increased profits during the same time?

Assume the ABC company has following project options.

Using the ROI approach recommend the most suitable project for ABC.

131

132

Project Option

Cost of Investment

Expected profit

Product Development 20,000 40,000Market Development 50,000 75,000

New venture 100,000 250,000

100%

50%

150%

ROI

Advantages of Using ROI

133

Easy to understand

Easy to calculate

134

Disadvantages of Using ROI

Assumption of exact return of project

Exact time period Assumption

ROI ignores the risks in the investment.

Net Present Value (NPV)

for Project Appraisal

135

What is NPV

136

• Net present value (NPV) is defined as the total present value (PV) of a time series of cash flows. • It is a standard method for using the time value of money to appraise long-term projects. • It measures the excess or shortfall of cash flows in present value terms, once financing charges are met.

137

To calculate the present value of a single cash flow, it is divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.

This is called discounting.

PV = CF

(1+r)t

Discounting

DiscountFactor =

1

(1+r)t

Consider the task to find the present value PV of Rs100 that will be received in five years. Or equivalently, which amount of money today will grow to Rs100 in five years when subject to a constant discount rate?

Assuming a 12% per year interest rate it follows

138

PV = 100

(1+0.12)5 = 56.74

139

If... It means... Then...

NPV > 0the investment would add value to the firm

the project may be accepted

NPV < 0 the investment would subtract value from the firm

the project should be rejected

140

NPV = 0the investment would neither gain nor lose value for the firm

We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation.

141

Eg. The ABC company is evaluating two projects with an expected life of 03 years and an investment outlay of Rs. 1 million.

The estimated net cash inflows for each project as follows.

Project A (Rs) Project B (Rs)

Year 01 300,000 600,000

Year 02 1,000,000 600,000

Year 03 400,000 600,000

The opportunity cost of capital for both projects is 10%

Drawbacks of NPV for Project Evaluation

142

• The cash floe figures are estimates and may turnout to be incorrect.

• Non-financial managers may find it difficult to understand the concept.

• Determination of correct discount rate may be difficult

Homework

143

Project Year 0 Year 1 Year 2 Year 3 Year 4A -15,000 -25,000 30,000 30,000 20,000B -25,000 -15,000 30,000 29,000 30,000C -35,000 -15,000 40,000 44,000 30,000

Trent Ltd has a cost of capital of 10% and is considering which project or projects it should initiate.

The following projects are being considered.

Give you recommendations with comments.

144

Project A

Cash Flow (CF)

Discounting Factor

(DF)

Present value (DF x

CF)

Year 0 -15,000 1 -15,000

Year 1 -25,000 .909 -22,725

Year 2 30,000 .826 24,700

Year 3 30,000 .751 22,530

Year 4 20,000 .683 13,660

NPV 23,165

145

Project B

Cash Flow (CF)

Discounting Factor

(DF)

Present value (DF x

CF)

Year 0 -35,000 1 -35,000

Year 1 -15,000 .909 -13,635

Year 2 40,000 .826 33,040

Year 3 44,000 .751 33,044

Year 4 30,000 .683 20,490

NPV 37,939

146

Project C

Cash Flow (CF)

Discounting Factor

(DF)

Present value (DF x

CF)

Year 0 -25,000 1 -25,000

Year 1 -15,000 .909 -13,635

Year 2 30,000 .826 24,780

Year 3 29,000 .751 21,779

Year 4 30,000 .683 20,490

NPV 28,414

Project NPV

A 23,165

B 37,939

C 28,414147

DEVELOPING THE PROJECT NETWORK

&NETWORK COMPUTATION

PROCESSS

Merge Activity

This is an activity that has more than one activity immediately preceding it. (more than one dependency arrow flowing to it)

Burst Activity

This is activity has more than one activity immediately following it. (more than one dependency arrow flowing from it)

Path

150

A sequence of connected, dependent activities

Critical Path

The path (s) with the longest duration through the network.This is so called, if an activity on this path is delayed, the entire project is delayed by the same amount of time.It is very important to monitor this path for PM when time constrain exist.

151

Draw a AON Network for Following Information

Activity Preceding Activity

A NoneB AC AD A,B,CE DF D,E



A NoneB AC AD AE BF C,DG EH G,F


Activity Description Preceding Activity

A Applicarion approval NoneB Construction plans AC traffic study AD Service availability check AE Staff report B,CF Commission approval B,C,DG Wait for construction FH Occupency E,G



A NoneB AC AD BE BF CG D,EH FI FJ G,HK J,I



A NoneB NoneC NoneD A,BE CF D,EG EH F,GI H



A NoneB NoneC AD BE C,DF EG EH EI FJ G,HK H,I,J

AoN Legend for Network

157

ES ID EF

SL Description

LS Dur. LF

ES – Early Start ID – Activity NameEF – Early Finish SL – Slack TimeLS – Late Finish Dur. – DurationLF – Late Finish

158

ES ID EF

Description

Dur.

Draw a AON Network for given Information – Use the following formatUse forward pass method(Early Start & Early Finish)

Rules for Foreward Pass Method

>You add activity times along each path in the network (ES + Dur. = EF)

>You carry the early finish (EF) to the next activity where it becomes it early start (ES), unless

>The next succeeding activity is a merge activity. In this case you select the largest early finish number (EF) of all its immediate predecessor activities.

159

160

Activity Description Preceding Activity Time Duration

A Application approval None 5

B Construction plans A 15

C traffic study A 10

D Service availability check A 5

E Staff report B,C 15

F Commission approval B,C,D 10

G Wait for construction F 170

H Occupancy E,G 35

Draw a AoN Network for Following Information

161

ID

Description

LS Dur. LF

Draw a AON Network for given Information – Use the following format, assuming the deadline for the project given is 235 working daysUse backward pass method(Late Start & Late Finish)

Rules for Backward Pass Method

>You subtract activity times along each path starting with the project end activity. (LF - Dur. = LS)

>You carry the late start (LS) to the next preceding activity to establish its LS, unless

>The next preceding activity is a burst activity. In this case you select the smallest LS of all its immediate successor activities to establish its LF.

162

163









H Occupancy E,G 35


164


Time Duration (Days)

A Design Hull None 9

B Prepare boat shed None 3

C Design mast & mast mount A 8

D Obtain hull A 2E Design sails A 3F Obtain mast mount C 2G Obtain mast C 6H Design rigging C 1J Prepare hull B,D 4K Fit mast mount to hull F,J 1L Step mast E,H,G,K 2

M Obtain sails and rigging E,H 3N Fit sails and rigging L,M 4

Draw a AoN Network for Following Information, use forward & backward pass methods (Home work)

Project Management and Economics (EMG -102-3)

LecturersRuwan Ranasinghe

Buddhika Perera

Objectives of the Course>To provide students the basic

understanding of PM and its application in day today life and to enhance students’ ability to work efficiently in a given project and to deliver output on time under different environments.

Objectives of the lecture

>To understand the Structure of the course

>To understand the scope of the course

>To observe the history of PM>To discuss major concerns of PM

Project Management

PM 1.5 CreditsEcon 1.5 Credits

EvaluationCA 60% (30 PM,

30Econ)Final Paper 40%

Evaluation Cont’

CA 30 PM

Quizzes 5x2 10Written Assignment 1 10Case study & PPT 1 10

References

>Kathy Schwalbe: An Introduction to Project Management

>Nagarajan. K. :Project Management, 2nd Edition

>T. Lucey : Quantitative Techniques>Project Management Institute

–http://www.PMI.org>Gantthead - http://www.gantthead.com/

We vs. Them 1950 – 2000/08

Per Capita Income in US$

Country 1950-$

SRI LANKA 89

JAPAN 90

SINGAPORE 30

Why do we learn PM

1950 vs 2000/08Per Capita Income in US $

Country

1950-$ 2000-$

SRI LANKA 89 8401617 (07)

JAPAN 90 32,00034,100

SINGAPORE

30 28,00038,972

Growth Compared from1950 to 07/08

Country 1950 2000-$Growth Times

Sri Lanka 89

8401617 (07’) 18

Japan 90

32,00034,100 (08’)

379

Singapore 30

28,00038,972 (08’)

1299

Scope of the Course

• Introduction to Project Management• The Project Manager• Planning a Project• Building a Project• Project Appraisal Methods• Linear Programming• Network Analysis• Monitoring and Controlling a Project

What is a project?

A project is a temporary endeavor undertaken to create a unique product or service. It implies>a specific timeframe>a budget>unique specifications >working across organizational boundaries

Characteristics of OperationsOngoing – Continuous cycleRepetitive – Expected inputs and outputs

Characteristics of ProjectsTemporary – Definitive beginning and endUnique – New undertaking, unfamiliar ground

The difference between projects & Operations

Why Projects Fail

>Failure to align project with organizational objectives

>Poor scope>Unrealistic expectations>Lack of executive sponsorship>Lack of project management>Inability to move beyond individual and

personality conflicts>Politics

What is a successful project?>Customer Requirements

satisfied/exceeded>Completed within allocated time frame>Completed within allocated budget>Acceptance by the customer

Why Projects Succeed!

>Project Sponsorship at executive level>Good project charter (Scope, Objectives &

Stakeholders)

>Strong project management>The right mix of team players>Good decision making structure>Good communication>Team members are working toward

common goals

What is Project Management?>Project Management is the application of

skills, knowledge, tools and techniques to meet the needs and expectations of stakeholders for a project>The purpose of project management is

prediction and prevention, NOT recognition and reaction

>Effective Management of the Triple Constraints>Scope - Requirements (Needs Identified or Unidentified

Expectations)>Cost/Resources – People, Money, Tools>Schedule/Time

History of Project PM>Eastern – Civilizations, pyramids,

Chinese Great Wall, Taj Mahal, Stupa etc.(prehistoric & Medieval period)

>Western – Mass production of arms, Oil exploration, rail roads and machineries (18th & 19th Centaury)

>Sri Lanka – Historical evidences

>Modern PM – Manhattan Project, War

Major Concerns in Project Planning

Core Project Management Tools>Project Charter>Work Breakdown Structure (WBS)>Project Schedule>Project Budget

Project Charter

> What must be done?> What are the required resources?> What are the constraints?> What are the short and long term implications?

> Why do it?> When must it be done?> Where must it be done?> Who does what?

> Who is behind the project?> Who is funding the project?> Who is performing the work of the project?

Project Charter

> Project Goal & Objective

> Sponsor> Stakeholders> Timeline> Resources required> Deliverables

> Decision making> Assumptions> Risks> Business process

changes> Project manager> Project team> Budget> Signatures


>Identify the major task categories>Identify sub-tasks, and sub-sub-tasks>Use verb-noun to imply action to

something


Canoe Trip to Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches


Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches


Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches


Boundary Waters



Rent Van

Arrange Motel



Freeze dry food


Get deposits

Retain Receipts

Pay for supplies

Close-out trip


Plan Activities

Rent canoes

Rent Tents

Bring Sleeping Bags

Bring Fishing Gear


Prepare 7 lunches

Prepare 6 dinners

Obtain emerg. #’s


Bring emerg. flares


Bring Cards

Bring Joke book

Bring scotch


matches

Project Schedule Tools> Many tools available

> Microsoft Project> Many more specialized software> www.dotproject.net> Excel

> Most important> Monitor tasks> Gantt views of project

> one page views for executives> rollout and more complex views for work teams

> Critical Paths> Inputs from multiple teams that roll up to project

manager> Dependencies> Resources assigned to tasks

http://www.dotproject.net/

Project Schedule

Critical Paths

>Milestones that impact downstream milestones and the overall timeline of project

>If you miss a Critical Path, the entire project is delayed, or

>You have to make up ground on downstream critical paths

Project Budget

>Direct Costs>Indirect Costs

Project Budget> Direct Costs

> Hardware> Software> Contractor fees

> Estimated hours> Hourly Rates

per contractor> Various

contractor rates> Training> Other

TOTALS

Indirect Costs Your people’s time

and effort Estimated time on

project Estimated cost

based on hourly rate

Other’s time and effort Opportunity cost

What projects or tasks are NOT going to get done in order to get this project done?

Year 1 Year 2 Year 3

Key areas of Project Management>Scope Management>Issue Management>Cost Management>Quality Management>Communications Management>Risk Management>Change Control Management

Scope Management

> Project Scope Management is the process to ensure that the project is inclusive of all the work required, and only the work require, for successful completion.

> Primarily it is the definition and control of what IS and IS NOT included in the project

> This component is used to communicate> How the scope was defined> How the project scope will be managed> Who will manage the scope (e.g., PM, QA)> Change Control

Issue Management

> Issues are restraints to accomplishing the deliverables of the project.

> Issues are typically identified throughout the project and logged and tracked through resolution.

> Issues not easily resolved are escalated for resolution.

> In this section of the plan the following processes are depicted:> Where issues will be maintained and tracked> The process for updating issues regularly> The escalation process> The vehicle by which team members can access

documented issues

Cost Management

>The processes required to ensure the project is completed within the approved budget and includes:>Resource Planning - The physical resources

required (people, equipment, materials) and what quantities are necessary for the project

>Full Time Employees, Professional Services, Cost, and Contingency

>Budget >Budget estimates>Baseline estimates>Project Actuals

Quality Management

>Quality Management is the processes that insure the project will meet the needs via:>Quality Planning, Quality Assurance, and

Quality Control>Clearly Defined Quality Performance Standards>How those Quality and Performance Standards are

measured and satisfied>How Testing and Quality Assurance Processes will

ensure standards are satisfied>Continuous ongoing quality control

Communications Management> The processes necessary to ensure timely and

appropriate generation, collection, dissemination, and storage of project information using:> Communications planning: Determining the needs (who

needs what information, when they need it, and how it will be delivered)

> Information Distribution: Defining who and how information will flow to the project stakeholders and the frequency

> Performance Reporting: Providing project performance updates via status reporting.

> Define the schedule for the Project Meetings (Team), Status Meetings and Issues Meetings to be implemented

Risk Management

> Risk identification and mitigation strategy> When\if new risks arise> Risk update and tracking

Change Control Management>Define how changes to the projects

scope will be executed> Formal change control is required for all of the following

1.Scope Change2.Schedule changes3.Technical Specification Changes4.Training Changes

> All changes require collaboration and buy in via the project sponsor’s signature prior to implementation of the changes

Project Management

What is PM s’ job

• PM is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.

• It is not only meeting scope, time, cost and Quality

• But also to facilitate the entire process to meet the needs and expectations of the people involved in or affected y the project activities.

Scope Managem

ent

Time Managem

ent

Cost Managem

ent

Quality Managem

ent

Project integration Management

HR MGTCommunication

MGT

Risk MGT

Procurement MGT

Core Functions

Facilitating Functions

Tools & Techniqu

es

Ref; Handout No. 01

Project Stakeholders

>People who are involved in or affected by project activities.

>It includes Sponsor, team, support staff, customers, users, suppliers and opponents to the project

Project

>Project

Programme

>Programme – a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.

Project Portfolio

>Two or more project programmes which consist number of projects managed in a coordinated way to obtain benefits and control to achieve expected objectives

Sample Project Life Cycle

>Initiation Phase>Definition Phase>Planning Phase>Implementation Phase>Deployment Phase>Closing Phase

Initiation Phase

>Define the need>Return on Investment Analysis>Make or Buy Decision>Budget Development

Definition Phase

>Define Project Scope >Define functional requirements

>Requirements to be prioritized into business critical and non-business critical need

>Define technical requirements>Risk Management Planning

Planning Phase

>Resource Planning>Work Breakdown Structure>Project Schedule Development>Configuration Management Plan>Quality Assurance Plan>Production Support Plan>Service Level Agreement>System Design

Implementation Phase

>Training Plan>System Build>Quality Assurance

Deployment Phase

>User Training>Production Review>Go Live

Closing Phase

>Contractual Closeout>Post Production Transition>Lessons Learned

Application in Project Execution and Controlling>A project schedule empowers a Project

Manager to:

>Manage the time, cost, and resources of the project

>Assess the progress of the project against the baseline

>Assess and communicate the impact of issues and change management

>Forecast and what-If scenarios

>Issue Management

TIME SCHEDULING&

NETWORK COMPUTATION PROCESSS

AoN Legend for Network

221

ES ID EF

SL Description

LS Dur. LF

ES – Early Start ID – Activity NameEF – Early Finish SL – Slack TimeLS – Late Finish Dur. – DurationLF – Late Finish

222

ES ID EF

Description

Dur.

Draw a AON Network for given Information – Use the following formatUse forward pass method(Early Start & Early Finish)

Rules for Foreward Pass Method

>You add activity times along each path in the network (ES + Dur. = EF)

>You carry the early finish (EF) to the next activity where it becomes it early start (ES), unless

>The next succeeding activity is a merge activity. In this case you select the largest early finish number (EF) of all its immediate predecessor activities.

223

224









H Occupancy E,G 35


225

ID

Description

LS Dur. LF

Draw a AON Network for given Information – Use the following format, assuming the deadline for the project given is 235 working daysUse backward pass method(Late Start & Late Finish)

Rules for Backward Pass Method

>You subtract activity times along each path starting with the project end activity. (LF - Dur. = LS)

>You carry the late start (LS) to the next preceding activity to establish its LS, unless

>The next preceding activity is a burst activity. In this case you select the smallest LS of all its immediate successor activities to establish its LF.

226

227









H Occupancy E,G 35


228



A Design Hull None 9

B Prepare boat shed None 3

C Design mast & mast mount A 8

D Obtain hull A 2E Design sails A 3F Obtain mast mount C 2G Obtain mast C 6H Design rigging C 1J Prepare hull B,D 4K Fit mast mount to hull F,J 1L Step mast E,H,G,K 2

M Obtain sails and rigging E,H 3N Fit sails and rigging L,M 4

Draw a AoN Network for Following Information, use forward & backward pass methods (Home work)

Path

229

A sequence of connected, dependent activities

Critical Path

The path (s) with the longest duration through the network.This is so called, if an activity on this path is delayed, the entire project is delayed by the same amount of time.It is very important to monitor this path for PM when time constrain exist.

Slack Time

>Slack is the amount of time an activity can be delayed without delaying connected successor activities.

>Slack time is the difference between LS & EF (LS - ES = SL) or LF & EF (LF – LF)

230

Laddering>The assumption that the all immediate preceding

activities must be 100% complete is too restrictive for some situations in practice.

>This is significant when one activity overlaps with another to start for long duration.

>When an activity has long duration and delay the start of an activity immediately following it, the first activity could broken into segments and the network dawn using a laddering approach.

231

Laddering Example Laying of Pipes

232

233


A Order review None 2

B Order standard parts A 15

C Produce standard parts A 10

D Design custom parts A 13

E Software development A 18

FManufacture custom hardware C,D 15

G Assemble B,F 10

H test E,G 5


234



A External Specs None 8

B Review design features A 2

C Document new features A 3

D Write software A 60E Programme & test B 60F Edit & publish notes C 2G Review manual D 2H Alpha site E,F 20I Print manual G 10J Beta site H,I 10K Manufacture J 12L Release and ship K 3

Draw a AoN Network for Following Information, use forward & backward pass methods

235



A None 5

B A 20

C A 30

D A 5E B,C,D 80F E 15G E 30H E 25I E 20J F,G,H,I 10

Draw a AoN Network for Following Information, use forward & backward pass methods

PROJECT CRASHING AND

PROJECT COST

Re-capture of Project Costs

>Project Indirect Costs>Costs that cannot be associated with any particular

work package or project activity>Normally involves overhead costs such as supervision,

administration, consultants and interest> Indirect cost vary directly with time, any reduction in

time result reduction in indirect cost too.e.g. if the supervision and admin. Cost per day is $ 2000,

any reduction in project duration may reduce project cost by $ 2000 per day.

If indirect costs are a significant % of total project costs, reduction in total project time result real savings. (Assuming indirect resources can use elsewhere)

>Direct Costs>Normal costs that can be assigned directly to a

specific work package or project activity>Labor, materials, equipment, and subcontractors>Direct costs for an activity represents normal costs,

which typically mean low cost, efficient methods for a normal time.

>When project durations are imposed, direct costs may no longer represents low cost, efficient method.

>Cost for an imposed duration date will be higher than for a normal time involve with the activity.

>Any reduction in activity time should add to the cost of the activity.

238

Re-capture of Project Costs

Project Cost - Duration Graph

FIGURE 9.1

Steps for the Construction of the graph

Find total direct costs for selected project durations.

Find total indirect costs for selected project durations.

Sum direct and indirect costs for these selected project durations.

Compare additional cost alternatives for benefits.

Determining Activities to Shorten

The decision which activities to shorten is critical.Shorten the activities with the smallest increase in cost per

unit of time.Shortening the critical activities a must in order to shorten

the project duration

The rationale for this exercise is to identify the activities’ normal and crashed time with its normal and crashed cost.

Normal time; represent low cost realistic and efficient methods for completing the activity under normal conditions.

Crashed time; the shortest possible time an activity realistically be completed.

The direct costs involve under both conditions are called normal cost and crashed cost respectively.

These time durations and costs for individual activates to be identified consulting the personnel most familiar with activity completion.

Assumptions for use of graph

>The cost relationship is linear. You can crash less than the limit.

>Normal time assumes low-cost, efficient methods to complete activity

>Crash time represents a limit—the greatest time reduction possible under realistic conditions.

>Slope represents a constant cost per unit of time. Typically it’s the “per-day crash cost”

>Any acceleration must be bounded so that activity duration is within the normal and crash times.

241

Activity Graph

FIGURE 9.2

243

1. Normal time for activity is 10 time units and the corresponding cost is 400.

2. Crashed time for the activity is 5 time units and crashed cost is 800.

1. The slope assumes the cost of reducing the time of an activity is constant per unit of time.

Computation of Cost per time unit “Slope”

244

Cost slope = =Rise Run

Crashed cost – Normal cost Normal time – Crashed time

=CC – NC NT – CT

=800 – 400 10 – 5

4005

=

80 per unit of time

245

Activity Slope

Maximum

crash time

Direct costsNormal Crash

Time Cost Time CostA 20 1 3 50 2 70B 40 2 6 80 4 160C 30 1 10 60 9 90D 25 4 11 50 7 150E 30 2 8 100 6 160F 30 1 5 40 4 70G 0 0 6 70 6 70

Compute the following;

SlopeMaximum crash timeNormal time for the project completionTotal direct normal cost for the project completion

246



Crash A

248Circle – Next candidate for crashing







252

Duration Cost

25 400

24 350

23 300

22 250

21 200

• Indirect costs must be calculated, perhaps from accounting or client services department (eg. Contracts for late/early delivery)

• May not be as easy to estimate as the bookclaims

Behavior of Indirect Costs

Summary Costs by Duration

FIGURE 9.5

Project Cost—Duration Graph

FIGURE 9.6

PROJECT RISK MANAGEMENT

Project Management and Economics2nd year 1st Semester

UWU

ByRuwan Ranasinghe (B.Sc./PGDM)

WHAT IS Project Risk?

>Project Risk is defined as “an uncertain event or condition that, if it occurs, has a positive or negative impact on a project objective”.

> Project risk management seeks to anticipate and address uncertainties that threaten the goals and timetables of a project.


The uncertainties may include questions of material and parts quality; delays in delivery of sufficient materials to meet project needs; budgetary and personnel changes; and, incomplete knowledge or research.

While any project accepts a certain level

of risk, regular and rigorous risk analysis and risk management techniques serve to defuse problems before they arise.


>All projects carry risk, i.e. uncertainty. The most obvious examples of sources of project risk comes from:

>dependencies (internal or external)>assumptions made by project team

members (in relation to any aspect of the project).

TYPES OF PROJECT RISKS Strategic Risks: for example a competitor coming on to

the market Compliance Risks: for example the introduction of new

health and safety legislation Financial Risks: for example non-payment by a

customer or increased interest charges on a business loan

Operational Risks: for example the breakdown of key equipment

Environmental Risks: like disasters Employee Risks: supplying necessary number of

employees, safety and health issues Political and Economic: instable political status in

foreign markets you export goods to.

WHAT IS RISK MANAGEMENT? Good management practice

Process steps that enable improvement in decision making

A logical and systematic approach

Identifying opportunities

Avoiding or minimizing losses

WHAT IS RISK MANAGEMENT?

Risk Management is the name given to a logical and systematic method of identifying, analyzing, treating and monitoring the risks involved in any activity or process.

HOW RISK MANAGEMENT IS USED

The Risk Management process steps are a generic guide for any organization, regardless of the type of business, activity or function.

There are

77 steps in the RM

process

NextNextNextNext

Establish the contextEstablish the context

Identify the risksIdentify the risks

Analyze the risksAnalyze the risks

Evaluate the risksEvaluate the risks

Treat the risksTreat the risks

RM PROCESS STEPS

NextNextNextNext

‘Risk’ is dynamic and subject to constant change, so the process includes continuing:

Communication & consultationCommunication & consultation

Monitoring and reviewMonitoring and review

and

NextNextNextNext

The Risk Management process:

The strategic and organisational context in which risk management will take place.

For example, the nature of your business, the risks inherent in your business and your priorities.

Communicate & consultCommunicate & consult

Establish the contextEstablish the context

NextNextNextNext


Communicate & consultCommunicate & consultMonitor and reviewMonitor and review

Defining types of risk, for instance, ‘Strategic’ risks to the goals and objectives of the organisation.

• Identifying the stakeholders, (i.e.,who is involved or affected).

• Past events, future developments.

Identify the risksIdentify the risks

NextNextNextNext


Communicate & consultCommunicate & consultMonitor and reviewMonitor and review

Analyse the risksAnalyse the risks

How likely is the risk event to happen? (Probability and frequency?)

What would be the impact, cost or consequences of that event occurring? (Economic, political, social?)

Table 11-5. Sample Risk Register /Risk Analysis

No. Rank Risk Description Category

RootCause

Triggers PotentialResponse

s

RiskOwne

r

Probability

Impact

Severity Status

R44 1

R21 2

R7 3

268

Project severity = expectation (1-10) * impact (1-10)

When should risk analysis be formed? Is not a time activity Periodic update and reviewed

Qualitative Risk Analysis

>Assess the likelihood and impact of identified risks to determine their magnitude and priority.

>Risk quantification tools and techniques include: >Probability/impact matrixes>The Top Ten Risk Item Tracking>Expert judgment

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Probability/Impact Matrix A probability/impact matrix or chart lists

the relative probability of a risk occurring on one side of a matrix or axis on a chart and the relative impact of the risk occurring on the other.

List the risks and then label each one as high, medium, or low in terms of its probability of occurrence and its impact if it did occur.

Can also calculate risk factors: Numbers that represent the overall risk of

specific events based on their probability of occurring and the consequences to the project if they do occur.

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Sample Probability/Impact Matrix

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Risk Assessment – Probability/impact Score

Chart Showing High-, Medium-, and Low-Risk Technologies

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Top Ten Risk Item Tracking

Top Ten Risk Item Tracking is a qualitative risk analysis tool that helps to identify risks and maintain an awareness of risks throughout the life of a project.

Establish a periodic review of the top ten project risk items.

List the current ranking, previous ranking, number of times the risk appears on the list over a period of time, and a summary of progress made in resolving the risk item.

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Expert Judgment

Many organizations rely on the intuitive feelings and past experience of experts to help identify potential project risks.

Experts can categorize risks as high, medium, or low with or without more sophisticated techniques.

Can also help create and monitor a watch list, a list of risks that are low priority, but are still identified as potential risks.

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NextNextNextNext


Treat the risksTreat the risks

Develop and implement a plan with specific counter-measures to address the identified risks.

Consider:

• Priorities (Strategic and operational)

• Resources (human, financial and technical)

• Risk acceptance, (i.e., low risks)

Risk Response Planning After identifying and quantifying risks,

you must decide how to respond to them.

Five main response strategies for negative risks: Risk avoidance Risk acceptance Risk transference Risk mitigation Risk sharing

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Monitoring and Controlling the

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Project Monitoring and Control

>Monitoring – collecting, recording, and reporting information concerning project performance that project manger and others wish to know

>Controlling – uses data from monitor activity to bring actual performance to planned performance

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Project Monitoring and Control

>Why do we monitor?>What do we monitor?>When to we monitor?>How do we monitor?

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Why do we monitor?

>Simply because we know that things don’t always go according to plan (no matter how much we prepare)

>To detect and react appropriately to deviations and changes to plans

Chapter10 Project Monitoring & Control 282

What do we monitor?>Men (human

resources)>Machines>Materials>Money

>Space>Time>Tasks>Quality/Technical

Performance

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What do we monitor?

Inputs > Time> Money> Resources> Material Usage> Tasks> Quality/Technical

Performance

Outputs

Progress

Costs

Job starts

Job completion

Engineering / Design changes

Variation order (VO)

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When do we monitor?

End of the project Continuously Regularly Logically While there is still time to react As soon as possible At task completion At pre-planned decision points

(milestones)

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Where do we monitor?

>At head office?>At the site office?>On the spot?>Depends on situation and the ‘whats’

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How do we monitor

> Through meetings with clients, parties involved in project (Contractor, supplier,etc.)

> For schedule – Update CPA, PERT Charts, Update Gantt Charts

> Using Earned Value Analysis> Calculate Critical Ratios> Milestones> Reports> Tests and inspections> Delivery or staggered delivery> PMIS (Project Management Info Sys) Updating

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Meetings – Some monitoring issues

> What problems do you have and what is being done to correct them?

> What problems do you anticipate in the future?> Do you need any resources you do not yet

have?> Do you need information you do not have yet?> Do you know anything that will give you

schedule difficulties?> Any possibility your task will finish early/late?> Will your task be completed under/over/on

budget?

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Project Control

>Control – process and activities needed to correct deviations from plan

>Control the triple constraints >time (schedule)>cost (budget, expenses, etc) >performance (specifications, testing results,

etc.)

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Project Control Cycle

PLANSpecificationsProject ScheduleProject budgetResource planVendor contracts MONITOR

Record statusReport progressReport cost

COMPARE

Actual status against plan

-Schedule

-Cost

ACTION

Correct deviations from plan

RE-PLAN as necessary

Designing the Monitoring System> Identify special characteristics of

performance, cost, and time that need to be controlled>performance characteristics should be set for

each level of detail in the project

>Real-time data should be collected and compared against plans>mechanisms to collect this data must be

designed

>Avoid tendency to focus on easily collected data

DATA COLLECTION AND

REPORTING

Formats of Data

>Frequency Counts>Raw Numbers>Subjective Numeric Ratings>Indicators >Verbal Characterizations

Data Analysis

>Aggregation Techniques>Fitting Statistical Distributions>Curve Fitting>Quality Management Techniques

Number of Bugs per Unit of Test Time

Percent of Specified Performance Met During Successive Repeated Trials

Ratio of Actual Material Cost to Estimated Material Cost

Reporting>Reports

>Project Status Reports>Time/Cost Reports>Variance Reports

>Not all stakeholders need to receive same information

>Avoid periodic reports> Impact of Electronic Media>Relationship between project’s information

system and overall organization’s information system

Report Types

>Routine>Exception>Special Analysis

Meeting Guidelines

>Meetings should be help primarily for group decision making>avoid weekly progress report meetings

>Distribute written agenda in advance of meeting

Meeting Guidelines continued>Ensure everyone is properly prepared for

meeting>Chair of meeting should take minutes

>avoid attributing remarks to individuals in the minutes

>Avoid excessive formality>If meeting is held to address specific crisis,

restrict meeting to this issue alone

Virtual Reports, Meetings, and Project Management>Use of the Internet>Use of Software Programs>Virtual Project Teams

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Techniques for monitoring and control

>Earned Value Analysis>Critical Ratio

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Critical ratio

>Sometimes, especially large projects, it may be worthwhile calculating a set of critical ratios for all project activities

>The critical ratio isactual progress x budgeted cost

scheduled progress actual cost

> If ratio is 1 everything is probably on target> The further away form 1 the ratio is, the more

we may need to investigate

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Critical ratio exampleCalculate the critical ratios for the following activities and indicate which are probably on target and need to be investigated.

Activity Actual progress

Scheduled Progress

Budgeted Cost

Actual cost

Critical ratio (CR)

A 4 days 4 days 60 40 .66

B 3 days 2 days 50 50 1.5

C 2 days 3 days 30 20 1

D 1 day 1 day 20 30 .66

E 2 days 4 days 25 25 .5

MEM 612 Project Management

EARNED VALUE

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What Is It ?

Why Do I Need It ?

How Do I Do It?

Earned Value Analysis

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Enter Earned Value Analysis“Earned Value Analysis” is:• an industry standard way to:

• measure a project’s progress,• forecast its completion date and final cost,

and• provide schedule and budget variances along

the way.By integrating three measurements, it provides consistent, numerical indicators with which you can evaluate and compare projects.

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Obviously in small bites.

How am I gonna eat this elephant?

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Some Derived Metrics

>SV: Schedule Variance (BCWP-BCWS)>A comparison of amount of work performed during a given period of time to what was scheduled to be performed.

>A negative variance means the project is behind schedule

>CV: Cost Variance (BCWP-ACWP)>A comparison of the budgeted cost of work performed with actual cost.

>A negative variance means the project is over budget.

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>SPI: Schedule Performance IndexSPI=BCWP/BCWSSPI<1 means project is behind schedule

>CPI: Cost Performance Index

CPI= BCWP/ACWPCPI<1 means project is over budget

>CSI: Cost Schedule Index (CSI=CPI x SPI)The further CSI is from 1.0, the less likely project recovery becomes.

Some More Derived Metrics

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Requirements of Earned Value

>Proper WBS Design>Baseline Budget Control Accounts >Baseline Schedule>Work measurement by Control Account

>work-hours, dollars, units, etc.

>Good Project Management Practices

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Shortcomings of Earned Value

>Quantifying/measuring work progress can be difficult.

>Time required for data measurement, input, and manipulation can be considerable.

The Earned Value Chart> Variances on the earned value chart follow two

primary guidelines:> 1. A negative is means there is a deviation from plan—not

good> 2. The cost variances are calculated as the earned value

minus some other measures

> EV - Earned Value: budgeted cost of work performed> AC - actual cost of work performed> PV - Planned Value: budgeted cost of work scheduled> ST - scheduled time for work performed> AT - actual time of work performed

The Earned Value ChartEV - AC = cost variance (CV, overrun is negative)

EV - PV = schedule variance (SV, late is negative)

ST - AT = time variance (TV, delay is negative)

If the earned value chart shows a cost overrun or performance under-run, the project manager must figure out what to do to get the system back on target

Options may include borrowing resources, or holding a meeting of project team members to suggest solutions, or notifying the client that the project may be late or over budget

The Earned Value Chart

>Variances are also formulated as ratios rather than differences>Cost Performance Index (CPI) = EV/AC

>Schedule Performance Index (SPI) = EV/PV

>Time Performance Index (TPI) = ST/AT

>Use of ratios is particularly helpful when comparing the performance of several projects

Variance Analysis Questions>What is the problem causing the variance?>What is the impact on time, cost, and

performance?>What is the impact on other efforts, if any?>What corrective action is planned or under

way?>What are the expected results of the

corrective action?

Example

Planned $1500 to complete work package.Scheduled to have been finished today.Actual expenditure to date is $1350.Estimate work is 2/3 complete.What are cost and schedule variances?

Cost variance

Cost variance = EV – AC= $1500(2/3) - $1350= $1000 - $1350= -$350

Schedule variance

Schedule variance = EV – PV= $1500(2/3) - $1500= -$500

CPI (cost performance index)CPI = EV/AC

=($1500/(2/3) / $1350)= 1000/1350= 0.74

SPI (schedule performance index)SPI = EV/PV

= ($1500(2/3))/$1500= $1000/$1500= 0.67

SCOPE CREEP AND CHANGE CONTROL

Scope Creep

>Coping with changes frequently cited by PMs as the single most important problem

>Common Reasons for Change Requests>Client>Availability of new technologies and materials

Rules for Controlling Scope Creep

>Include in contract change control system

>Require all changes be introduced by a change order

>Require approval in writing by the client’s agent and senior management

>Consult with PM prior to preparation of change order

>Amend master plan to reflect changes

Evaluating and Terminating the

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EVALUATION

Background

>A project evaluation appraises the progress and performance relative to the project’s initial or revised plan.

>Also appraises project against goals and objectives set for it during selection process.

>Projects should be evaluated at a number of crucial points.

>Purpose is to improve process of carrying out project.

Evaluation Criteria

>Original criteria for selecting and funding project

>Success to date>Business/Direct Success>Future Potential>Contribution to Organization’s Goals>Contribution to Team Member Objectives

Measurement

>Measuring performance against planned budgets and schedules straightforward

>Earned value analysis more complicated

PROJECT AUDITING

The Audit Process

>Timing depends on purpose>Three Levels

>general audit>detailed audit>technical audit

Steps in Project Audit

>Familiarize audit team with requirements of project

>Audit project on-site>Write up audit report>Distribute report

Behavior Aspects>Audit team must have free access to

anyone with knowledge of the project>Project team members rarely trust auditors>Audit team must understand politics of

project team>Information must be confirmed>Project team should be made award of in-

process audit>No judgmental comments

The Audit Report

>Introduction>description of project and its goals

>Current Status>comparison of work completed and planned

>Future Project Status>conclusions regarding project progress>recommendations for changes

The Audit Report continued

>Critical Management Issues>issues senior management should monitor

>Risk Analysis and Risk Management>potential for project failure and monetary loss

>Final Comments>caveats, assumptions, limitations

The Varieties of Project Termination

>A project can be said to be terminated when work on the substance of the project has ceased or slowed to the point that further progress is no longer possible

>There are four fundamentally different ways to close out a project: extinction, addition, integration, and starvation

Termination by Extinction

> The project may end because it has been successful and achieved its goals

> The project may also be stopped because it is unsuccessful or has been superseded

> A special case of termination by extinction is “termination by murder” which can range from political assassination to accidental projecticide

Termination by Addition

> If a project is a major success, it may be terminated by institutionalizing it as a formal part of the parent organization

>Project personnel, property, and equipment are often simply transferred from the dying project to the newly born division

>The transition from project to division demands a superior level of political sensitivity for successful accomplishment

Termination by Integration

>This method of terminating projects is the most common way of dealing with successful projects, and the most complex

>The property, equipment, material, personnel, and functions of the project are distributed among the existing elements of the parent organization

Termination by Integration

>In general, the problems of integration are inversely related to the level of experience that the parent or client has had with:>the technology being integrated

>the successful integration of other projects, regardless of technology

Termination by Integration>A few of the more important aspects of the

transition from project to integrated operation that must be considered:>Personnel - where will the team go?>Manufacturing - is the training complete?>Accounting/Finance - have the project’s account been

closed and audited?>Engineering - are all drawings complete and on file?>Information Systems/Software - has the new system

been thoroughly tested?>Marketing - is the sales department aware of the

change?

Termination by Starvation

>This type of project termination is a “slow starvation by budget decrement”

>There are many reasons why senior management does not wish to terminate an unsuccessful or obsolete project:>Politically dangerous to admit that one has

championed a failure>Terminating a project that has not accomplished

its goals is an admission of failure

When to Terminate a Project

>Some questions to ask when considering termination:>Has the project been obviated by technical

advances?>Is the output of the project still cost-effective?>Is it time to integrate or add the project as a

part of regular operations?>Are there better alternative uses for the

funds, time and personnel devoted to the project?

>Has a change in the environment altered the need for the project’s output?

When to Terminate a Project>Fundamental reasons why some projects

fail to produce satisfactory answers to termination questions:>A project organization is not required>Insufficient support from senior management>Naming the wrong person as project manager>Poor planning

>These and a few other reasons, are the base cause of most project failures

>The specific causes derive from these fundamental issues

The Termination Process

>The termination process has two distinct parts

>First is the decision whether or not to terminate

>Second, if the decision is to terminate the project, the decision must be carried out

Typical Termination Activities>In general, there are seven categories of

termination tasks. Examples of activities:>1. Personnel

>Dealing with “trauma of termination”>Finding “homes” for the team>Who will “close the doors?”

>2. Operations/Logistics/Manufacturing>Rethinking systems>Provisions for training, maintenance

Termination Activities (cont’d)>3. Accounting and Finance

>Accounts closed and audited>Resources transferred

>4. Engineering>Drawings complete/on file>Change procedures clarified

Termination Activities (cont’d)>5. Information Systems

>Configuration and documentation in place>Systems integrated

>6. Marketing>Sales and promotion efforts in line

>7. Administrative>All organizations aware of change

Documents

Project management