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Department of Business Administration.
Assignment 01
PROJECT MANGEMENT (569)
Submitted To
Most Respectable,
Prof.
Submitted By
Waseem Saeed
Roll AD-512530
Final Semester
ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD, PAKISTAN.
AUTUMN 2010
Q. 1 (a)
As a project manager in a manufacturing organization,
what will be your role in project management?
PROJECT MANAGEMENT
Project management is the discipline of planning, organizing,
securing and managing resources to bring about the successful completion
of specific engineering project goals and objectives. It is sometimes
conflated with program management, however technically that is actually a
higher level construction: a group of related and somehow interdependent
engineering projects.
PROJECT
A project is a temporary endeavor, having a defined beginning and
end (usually constrained by date, but can be by funding or deliverables),
undertaken to meet unique goals and objectives, usually to bring about
beneficial change or added value. The temporary nature of projects stands in
contrast to business as usual (or operations), which are repetitive,
permanent or semi-permanent functional work to produce products or
services. In practice, the management of these two systems is often found to
be quite different, and as such requires the development of distinct technical
skills and the adoption of separate management.
The primary challenge of project management is to achieve all of the
engineering project goals and objectives while honoring the preconceived
project constraints. Typical constraints are scope, time, and budget. The
secondary—and more ambitious—challenge is to optimize the allocation and
integration of inputs necessary to meet pre-defined objectives.
PROJECT MANAGER
A project manager is a professional in the field of project
management. Project managers can have the responsibility of the planning,
execution, and closing of any project, typically relating to construction
industry, manufacturing organization, architecture, computer networking,
telecommunications or software development. Many other fields in the
production, design and service industries also have project managers.
A project manager is the person who has the overall responsibility
for the successful initiation, planning, execution and closure of a project. This
title is used in the construction industry, architecture, information technology
and many different occupations that are based on production of a product or
service.
A project manager is the person responsible for accomplishing the
stated project objectives. Key project management responsibilities include
creating clear and attainable project objectives, building the project
requirements, and managing the triple constraint for projects, which are
cost, time, and quality (also known as scope).
A project manager is often a client representative and has to
determine and implement the exact needs of the client, based on knowledge
of the firm they are representing. The ability to adapt to the various internal
procedures of the contracting party, and to form close links with the
nominated representatives, is essential in ensuring that the key issues of
cost, time, quality and above all, client satisfaction, can be realized.
The term and title project manager has come to be used generically
to describe anyone given responsibility to complete a project. However, it is
more properly used to describe a person with full responsibility and the same
level of authority required completing a project.
If a person does not have high levels of both responsibility and
authority then they are better described as a project administrator,
coordinator, facilitator or expeditor.
The project manager must possess a combination of skills including
an ability to ask penetrating questions, detect unstated assumptions and
resolve interpersonal conflicts as well as more systematic management
skills.
A project manager is usually responsible for the success or the
failure of the project. They first need to define the project and then build its
work plan. If the scope of the project is not very clear, or the project is
executing poorly, the manager is held accountable. However, this does not
mean that the manager does all the work by himself (which is practically
impossible). There is an entire team under the project manager, which helps
to achieve all the objectives of the project. However, if something goes
wrong, the project manager is ultimately accountable.
Apart from this, depending on the size and the complexity of the
project, they may need to take on multiple roles. The project manager may
need to assist with gathering business requirements, help to design a
database management system or may prepare project documentation. They
may work full time on a large project, or may work part-time on various
projects of a smaller nature; or may alternatively handle various projects as
well as handle other responsibilities like business analysis and business
development.
At times, they may have accountability but not authority. For
example, he or she may be using certain resources but might not have direct
control over those resources. At such times, the manager might find certain
limitations over task execution, which might not take place as they might
have liked. Not having direct control over the state of finances and finance
allocation might cause ambiguity.
In order to be successful, the project manager must be given support and
authority by senior management.
Project managers use project management software, such as
Microsoft Project, to organize their tasks and workforce. These software
packages allow project managers to produce reports and charts in a few
minutes, compared to the several hours it can take if they do not use a
software package.
ROLES AND RESPONSIBILITIES OF PROJECT MANAGERS
Process Responsibilities
Once the project starts, the project manager must successfully manage and
control the work, including:
Identifying, tracking managing and resolving project issues
Proactively disseminating project information to all stakeholders
Identifying, managing and mitigating project risk
Ensuring that the solution is of acceptable quality
Proactively managing scope to ensure that only what was agreed to is
delivered, unless changes are approved through scope management
Defining and collecting metrics to give a sense for how the project is
progressing and whether the deliverables produced are acceptable
Managing the overall schedule to ensure work is assigned and
completed on time and within budget
Again, this does not mean that the project manager physically does all of
this, but they must make sure it happens. If the project has problems, or
scope creep, or faces risks, or is not setting expectations correctly, then the
project manager is the person held accountable.
To manage the project management processes, a person should be
well organized, have great follow-up skills, be process oriented, be able to
multi-task, have a logical thought process, be able to determine root causes,
have good analytical ability, be a good estimator and budget manager, and
have good self-discipline.
People Responsibilities
In addition to process skills, a project manager must have good people
management skills. This includes:
Having the discipline and general management skills to make sure that
people follow the standard processes and procedures
Establishing leadership skills to get the team to willingly follow your
direction. Leadership is about communicating a vision and getting the
team to accept it and strive to get there with you.
Setting reasonable, challenging and clear expectations for people, and
holding them accountable for meeting the expectations. This includes
providing good performance feedback to team members
Team building skills so that the people work together well, and feel
motivated to work hard for the sake of the project and their other team
members. The larger your team and the longer the project, the more
important it is to have good team-building skills.
Proactive verbal and written communicator skills, including good,
active listening skills.
Again, you are responsible for the success of the project. If the team has
poor morale and is missing deadlines, you need to try to resolve it. If team
members don't understand exactly what they need to do and when it is due,
then you are responsible.
Multiple Roles
Depending on the size and complexity of the project, the project
manager may take on other responsibilities in addition to managing the
work. For instance, the project manager may assist with gathering business
requirements. Or they may help design a database management system or
they may write some of the project documentation. Project management is a
particular role that a person fills, even if the person who is the project
manager is working in other roles as well.
For instance, a project manager might manage the project for 45% of
their time, perform business analysis for 25%, work on design for 15% and
write documentation for 15%. This does not mean that one of the
responsibilities of a project manager role is to spend 15% of their time on
design. Instead, it just means that the project is not large enough to need a
full-time project manager. The project manager spends the rest of their time
in other project roles such as Business Analyst, Designer and Technical
Writer. Depending on the size of your projects and the way your company is
organized, a project manager’ time may be allocated one of three ways.
They may have a full time role on a large project.
They may have project management responsibilities for multiple
projects, each of which is less than full time, but the combination of
which adds up to a full-time role.
They may fill multiple roles, each of which requires a certain level of
skill and responsibility. On one project, for instance, they may be both
a project manager and an analyst.
Having Project Management Accountability but not Responsibility
In some organizations, the project manager is accountable for the
success of the project, but does not have the right level of responsibility.
Managing the team in a matrix organization is an example of that. You are
asked to manage a project utilizing people that you do not have direct
management responsibility for. In other cases, you may find that your ability
to resolve issues is hampered because you are not high enough in the
organization to get an issue resolved quickly. In other instances, you may
find that your ability to be innovative and flexible is constrained by
organizational policies and inertia.
All of these cases can be cause for frustration. One way to deal with
this is to define roles and responsibilities as a part of the Project Charter.
This can help set and manage expectations. For instance, if you have no
budget or expense approval authority, then note that up front, along with a
process for expense approval. That way, if problems do arise later, everyone
knows who has the right level of authority to resolve them. For most project
managers, the frustration level is not caused so much by a lack of power as
much as it is caused by ambiguity. If the project manager does not have the
authority, it is important to know who does, and what process is needed to
gain action.
Q. 1 (b)
Discuss the phases of project life cycle.
WHAT IS A PROJECT?
A project is a unique endeavor to produce a set of deliverables within
clearly specified time, cost and quality constraints. Projects are different
from standard business operational activities as they:
Are unique in nature. They do not involve repetitive processes. Every
project undertaken is different from the last, whereas operational
activities often involve undertaking repetitive (identical) processes.
Have a defined timescale. Projects have a clearly specified start and
end date within which the deliverables must be produced to meet a
specified customer requirement.
Have an approved budget. Projects are allocated a level of financial
expenditure within which the deliverables are produced, to meet a
specified customer requirement.
Have limited resources. At the start of a project an agreed amount of
labor, equipment and materials is allocated to the project.
Involve an element of risk. Projects entail a level of uncertainty and
therefore carry business risk.
Achieve beneficial change. The purpose of a project is typically to
improve an organization through the implementation of business
change.
WHAT IS PROJECT MANAGEMENT?
Project Management is the skills, tools and management processes
required to undertake a project successfully. It incorporates:
Figure 1.1 Project management components
A set of skills. Specialist knowledge, skills and experience are
required to reduce the level of risk within a project and thereby
enhance its likelihood of success.
A suite of tools. Various types of tools are used by project managers
to improve their chances of success. Examples include document
templates, registers, planning software, modeling software, audit
checklists and review forms.
A series of processes. Various processes and techniques are
required to monitor and control time, cost, quality and scope on
projects. Examples include time management, cost management,
quality management, change management, risk management and
issue management.
THE PROJECT LIFE CYCLE
The project manager and project team have one shared goal: to carry
out the work of the project for the purpose of meeting the project’s
objectives. Every project has beginnings, a middle period during which
activities move the project toward completion, and an ending (either
successful or unsuccessful).
Tools
Processes
Skills
A standard project typically has the following four major phases (each
with its own agenda of tasks and issues): initiation, planning, execution,
and closure. Taken together, these phases represent the path a project
takes from the beginning to its end and are generally referred to as the
project life cycle (Figure 1.2).
Figure 1.2 The four phases of the project life cycle
1. PROJECT INITIATION
The first phase of a project is the initiation phase. During this phase a
business problem or opportunity is identified and a business case providing
various solution options is defined. Next, a feasibility study is conducted to
investigate whether each option addresses the business problem and a final
recommended solution is then put forward. Once the recommended solution
is approved, a project is initiated to deliver the approved solution. Terms of
reference are completed outlining the objectives, scope and structure of the
new project and a project manager is appointed. The project manager begins
recruiting a project team and establishes a project office environment.
Approval is then sought to move into the detailed planning phase.
2. PROJECT PLANNING
Once the scope of the project has been defined in the terms of
reference, the project enters the detailed planning phase. This involves
creating a:
Project plan outlining the activities, tasks, dependencies and
timeframes;
Resource plan listing the labor, equipment and materials required;
Financial plan identifying the labor, equipment and materials costs;
Quality plan providing quality targets, assurance and control
measures;
Risk plan highlighting potential risks and actions to be taken to
mitigate those risks;
Acceptance plan listing the criteria to be met to gain customer
acceptance;
Communications plan describing the information needed to inform
stakeholders;
Procurement plan identifying products to be sourced from external
suppliers.
At this point the project will have been planned in detail and is ready to be
executed.
3. PROJECT EXECUTION
This phase involves implementing the plans created during the project
planning phase.
While each plan is being executed, a series of management processes are
undertaken to monitor and control the deliverables being output by the
project. This includes identifying change, risks and issues, reviewing
deliverable quality and measuring each deliverable produced against the
acceptance criteria. Once all of the deliverables have been produced and the
customer has accepted the final solution, the project is ready for closure.
4. PROJECT CLOSURE
Project closure involves releasing the final deliverables to the
customer, handing over project documentation to the business, terminating
supplier contracts, releasing project resources and communicating the
closure of the project to all stakeholders. The last remaining step is to
undertake a post-implementation review to quantify the level of project
success and identify any lessons learnt for future projects.
Now that you have an overall appreciation of the project life cycle, I will
explain each life cycle phase in the following sections.
1. PROJECT INITIATION
Within the initiation phase, the business problem or opportunity is
identified, a solution is defined, a project is formed and a project team is
appointed to build and deliver the solution to the customer. Figure 1.3 shows
the activities undertaken during the initiation phase:
Figure 1.3 Project initiation activities
a)Develop a business case
The trigger to initiating a project is identifying a business problem or
opportunity to be addressed. A business case is created to define the
problem or opportunity in detail and identify a preferred solution for
implementation. The business case includes:
Develop
a business case
Undertake a feasibility
study
Establish the
terms of
reference
Appoint the project
team
Set up a project offic
e
Perform a phas
e revie
w
A detailed description of the problem or opportunity;
A list of the alternative solutions available;
An analysis of the business benefits, costs, risks and issues;
A description of the preferred solution;
A summarized plan for implementation.
The business case is then approved by an identified project sponsor, and the
required funding is allocated to proceed with a feasibility study.
b)Undertake a feasibility study
At any stage during or after the creation of a business case, a formal
feasibility study may be commissioned. The purpose of a feasibility study is
to assess the likelihood of each alternative solution option achieving the
benefits outlined in the business case.
The feasibility study will also investigate whether the forecast costs are
reasonable, the solution is achievable, the risks are acceptable and the
identified issues are avoidable.
c) Establish the terms of reference
After the business case and feasibility study have been approved, a
new project is formed. At this point, terms of reference are created. The
terms of reference define the vision, objectives, scope and deliverables for
the new project. They also describe the organization structure, activities,
resources and funding required to undertake the project. Any risks, issues,
planning assumptions and constraints are also identified.
d)Appoint the project team
The project team is now ready to be appointed. Although a project
manager may be appointed at any stage during the life of the project, the
manager will ideally be appointed prior to recruiting the project team. The
project manager creates a detailed job description for each role in the
project team, and recruits people into each role based on their relevant skills
and experience.
e)Set up a project office
The project office is the physical environment within which the team
is based.
Although it is usual to have one central project office, it is possible to have a
virtual project office with project team members located around the world. A
project office environment should include:
Equipment, such as office furniture, computer equipment, stationery
and materials;
Communications infrastructure, such as telephones, computer
network, e-mail,
Internet access, file storage, database storage and backup facilities;
Documentation, such as a project methodology, standards, processes,
forms and registers; tools, such as accounting, project planning and
risk modeling software.
f) Perform a phase review
At the end of the initiation phase, a phase review is performed. This is
basically a checkpoint to ensure that the project has achieved its objectives
as planned.
2. PROJECT PLANNING
By now, the project costs and benefits have been documented, the
objectives and scope have been defined, the project team has been
appointed and a formal project office environment established. It is now time
to undertake detailed planning to ensure that the activities performed during
the execution phase of the project are properly sequenced, resourced,
executed and controlled. The activities shown in Figure 1.4 are undertaken.
Figure 1.4 Project Planning Activities
a)Create a project plan
The first step in the project planning phase is to document the project
plan. A ‘work breakdown structure’ (WBS) is identified which includes a
hierarchical set of phases, activities and tasks to be undertaken to complete
the project. After the WBS has been agreed, an assessment of the level of
effort required to undertake each activity and task is made.
The activities and tasks are then sequenced, resources are allocated
and a detailed project schedule is formed. This project plan is the key tool
used by the project manager to assess the progress of the project
throughout the project life cycle.
b)Create a resource plan
Immediately after the project plan is formed, the level of resource
required undertaking each of the activities and tasks listed within the project
plan will need to be allocated.
Although generic resource may have already been allocated in the project
plan, a detailed resource plan is required to identify the:
Create a
project
plan
Create a
resource plan
Create a financial plan
Create a
quality plan
Create a risk plan
Perform
a phase
review
Contract the suppli
ers
Create a
procurement plan
Create a
communications plan
Create an
acceptance plan
Type of resource required, such as labor, equipment and materials;
Quantity of each type of resource required;
Roles, responsibilities and skill-sets of all human resource required;
Specifications of all equipment resource required;
Items and quantities of material resource required.
A schedule is assembled for each type of resource so that the project
manager can review the resource allocation at each stage in the project.
c) Create a financial plan
A financial plan is created to identify the total quantity of money
required to undertake each phase in the project (in other words, the budget).
The total cost of labor, equipment and materials is calculated and an
expense schedule is defined which enables the project manager to measure
the forecast spend versus the actual spend throughout the project. Detailed
financial planning is an extremely important activity within the project, as
the customer will expect the final solution to have been delivered within the
allocated budget.
d)Create a quality plan
Meeting the quality expectations of the customer can be a challenging
task. To ensure that the quality expectations are clearly defined and can
reasonably be achieved, a quality plan is documented. The quality plan:
Defines the term ‘quality’ for the project.
Lists clear and unambiguous quality targets for each deliverable. Each
quality target provides a set of criteria and standards to be achieved to
meet the expectations of the customer.
Provides a plan of activities to assure the customer that the quality
targets will be met (in other words, a quality assurance plan).
Identifies the techniques used to control the actual quality level of
each deliverable as it is built (in other words, a quality control plan).
Not only is it important to review the quality of the deliverables produced by
the project, it is also important to review the quality of the management
processes which produced them. A quality plan will summarize each of the
management processes undertaken during the project, including time, cost,
quality, change, risk, issue, procurement, and acceptance and
communications management.
e)Create a risk plan
The next step is to document all foreseeable project risks within a risk
plan. This plan also identifies the actions required to prevent each risk from
occurring, as well as reduce the impact of the risk should it eventuate.
Developing a clear risk plan is an important activity within the planning
phase, as it is necessary to mitigate all critical project risks prior to entering
the execution phase of the project.
f) Create an acceptance plan
To deliver the project successfully, you will need to gain full
acceptance from the customer that the deliverables produced by the project
meet or exceed requirements.
An acceptance plan is created to help achieve this, by clarifying the
completion criteria for each deliverable and providing a schedule of
acceptance reviews. These reviews provide the customer with the
opportunity to assess each deliverable and provide formal acceptance that it
meets the requirements as originally stated.
g)Create a communications plan
Prior to the execution phase, it is also necessary to identify how each
of the stakeholders will be kept informed of the progress of the project. The
communications plan identifies the types of information to be distributed to
stakeholders, the methods of distributing the information, the frequency of
distribution, and responsibilities of each person in the project team for
distributing the information.
h)Create a procurement plan
The last planning activity within the planning phase is to identify the
elements of the project to be acquired from external suppliers. The
procurement plan provides a detailed description of the products (that is,
goods and services) to be acquired from suppliers, the justification for
acquiring each product externally as opposed to from within the business,
and the schedule for product delivery. It also describes the process for the
selection of a preferred supplier (the tender process), and the ordering and
delivery of the products (the procurement process).
i) Contract the suppliers
Although external suppliers may be appointed at any stage of the
project, it is usual to appoint suppliers after the project plans have been
documented but prior to the execution phase of the project. Only at this
point will the project manager have a clear idea of the role of suppliers and
the expectations for their delivery. A formal tender process is undertaken to
identify a short-list of capable suppliers and select a preferred supplier to
initiate contractual discussions with. The tender process involves creating a
statement of work, a request for information and request for proposal
document to obtain sufficient information from each potential supplier and
select the preferred supplier. Once a preferred supplier has been chosen, a
contract is agreed between the project team and the supplier for the delivery
of the requisite products.
j) Perform a phase review
At the end of the planning phase, a phase review is performed. This is
a checkpoint to ensure that the project has achieved its objectives as
planned.
3. PROJECT EXECUTION
The execution phase is typically the longest phase of the project in
terms of duration. It is the phase within which the deliverables are physically
constructed and presented to the customer for acceptance. To ensure that
the customer’s requirements are met, the project manager monitors and
controls the activities, resources and expenditure required to build each
deliverable. A number of management processes are undertaken to ensure
that the project proceeds as planned. The activities shown in Figure 1.5 are
undertaken.
Figure 1.5 Project execution activities
a)Build the deliverables
This phase involves physically constructing each deliverable for
acceptance by the customer. The activities undertaken to construct each
deliverable will vary depending on the type of project being undertaken.
Activities may be undertaken in a ‘waterfall’ fashion, where each activity is
completed in sequence until the final deliverable is produced, or an
‘iterative’ fashion, where iterations of each deliverable are constructed until
the deliverable meets the requirements of the customer. Regardless of the
method used to construct each deliverable, careful monitoring and control
processes should be employed to ensure that the quality of the final
deliverable meets the acceptance criteria set by the customer.
b)Monitor and control
While the project teams are physically producing each deliverable, the
project manager implements a series of management processes to monitor
and control the activities being undertaken by the project team. An overview
of each management process follows.
c) Time Management
Time management is the process of recording and controlling time
spent by staff on the project. As time is a scarce resource within projects,
each team member should record time spent undertaking project activities
on a timesheet form. This will enable the project manager to control the
amount of time spent undertaking each activity within the project. A
timesheet register is also completed, providing a summary of the time spent
on the project in total so that the project plan can always be kept fully up to
date.
d)Cost management
Cost management is the process by which costs/expenses incurred on
the project are formally identified, approved and paid. Expense forms are
completed for each set of related project expenses such as labor, equipment
and materials costs. Expense forms are approved by the project manager
and recorded within an expense register for auditing purposes.
e)Quality management
Quality is defined as the extent to which the final deliverable
conforms to the customer requirements. Quality management is the process
by which quality is assured and controlled for the project, using quality
assurance and quality control techniques.
Quality reviews are undertaken frequently and the results recorded on a
quality review form.
f) Change management
Change management is the process by which changes to the project
scope, deliverables, timescales or resources are formally requested,
evaluated and approved prior to implementation. A core aspect of the
project manager’s role is to manage change within the project. This is
achieved by understanding the business and system drivers requiring the
change, identifying the costs and benefits of adopting the change, and
formulating a structured plan for implementing the change. To formally
request a change to the project, a change form is completed. The status of
all active change forms should be recorded within a change register.
g)Risk management
Risk management is the process by which risks to the project are
formally identified, quantified and managed. A project risk may be identified
at any stage of the project by completing a risk form and recording the
relevant risk details within the risk register.
h) Issue management
Issue management is the method by which issues currently affecting
the ability of the project to produce the required deliverable are formally
managed. After an issue form has been completed and the details logged in
the issue register, each issue is evaluated by the project manager and a set
of actions undertaken to resolve the issue identified.
i) Procurement management
Procurement management is the process of sourcing products from
an external supplier. Purchase orders are used to purchase products from
suppliers, and a procurement register is maintained to track each purchase
request through to its completion.
j) Acceptance management
Acceptance management is the process of gaining customer
acceptance for deliverables produced by the project. Acceptance forms are
used to enable project staff to request acceptance for a deliverable, once
complete. Each acceptance form identifies the acceptance criteria, review
methods and results of the acceptance reviews undertaken.
k) Communications management
Communications management is the process by which formal
communications messages are identified, created, reviewed and
communicated within a project. The most common method of
communicating the status of the project is via a project status report. Each
communications message released is captured in a communications register.
l) Perform a phase review
At the end of the execution phase, a phase review is performed. This
is a checkpoint to ensure that the project has achieved its objectives as
planned.
4. PROJECT CLOSURE
Following the acceptance of all project deliverables by the customer,
the project will have met its objectives and be ready for closure. Project
closure is the last phase in the project life cycle, and must be conducted
formally so that the business benefits delivered by the project are fully
realized by the customer.
Figure 1.6 Project closure activities
a)Perform project closure
Project closure, or ‘close-out’, essentially involves winding up the
project. This includes:
Determining whether all of the project completion criteria have been
met;
Identifying any outstanding project activities, risks or issues;
Handing over all project deliverables and documentation to the
customer;
Cancelling supplier contracts and releasing project resources to the
business;
Communicating the closure of the project to all stakeholders and
interested parties.
A project closure report is documented and submitted to the customer
and/or project sponsor for approval. The project manager is responsible for
undertaking each of the activities identified in the project closure report, and
the project is closed only when all the activities listed in the project closure
report have been completed.
b)Review project completion
The final activity within a project is the review of its success by an
independent party. Success is determined by how well it performed against
the defined objectives and conformed to the management processes
outlined in the planning phase. To determine how well it performed, the
following types of questions are answered:
Did it result in the benefits defined in the business case?
Did it achieve the objectives outlined in the terms of reference?
Did it operate within the scope of the terms of reference?
Did the deliverables meet the criteria defined in the quality plan?
Was it delivered within the schedule outlined in the project plan?
Was it delivered within the budget outlined in the financial plan?
To determine how well it conformed, an assessment is made of the
level of conformity to the management processes outlined in the quality
plan. These results, as well as a list of the key achievements and lessons
learnt, are documented within a post implementation review and presented
to the customer and/or project sponsor for approval.
Q. 2 (a)
In a services organization, what would be the possible
objectives and possible causes of conflict in project
management?
CONFLICT
Conflict is a clash of interests, values, actions, views or directions.
Conflict refers to the existence of that clash. Conflict is initiated the instant
clash occurs. Generally, there are diverse interests and contrary views
behind a conflict, which are revealed when people look at a problem from
their viewpoint alone. Conflict is an outcome of organizational intricacies,
interactions and disagreements. It can be settled by identifying and
neutralizing the etiological factors. Once conflict is concluded it can provoke
a positive change in the organization.
CONFLICT IN PROJECT MANAGEMENT
Conflict in project management is inevitable. The potential for conflict
in information systems development projects is usually high because it
involves individuals from different backgrounds and orientations working
together to complete a complex task. The cause of conflict in team projects
can be related to differences in values, attitudes, needs, expectations,
perceptions, resources, and personalities. Proper skills in dealing with conflict
can assist project managers and other organization members to handle and
effectively resolve conflicts which can lead to a more productive organization
as a whole.
When we recognize the potential for conflict, we implicitly
indicate that there is already a conflict of direction, even though it may not
have yet manifested itself as a clash. Confliction is the process of setting up,
promoting, encouraging or designing conflict. It is a willful process and refers
to the real effort put into generating and instituting conflict. De-confliction is
the annihilation of conflict.
WHY CONFLICTS ARISE
In most organizations, conflicts increase as employees assert their
demands for an increased share in organizational rewards, such as position,
acknowledgment, appreciation, monetary benefits and independence. Even
management faces conflicts with many forces from outside the organization,
such as government, unions and other coercive groups which may impose
restrictions on managerial activities.
Conflicts emanate from more than one source, and so their true origin may
be hard to identify. Important initiators of conflict situations include:
1. People disagree. People disagree for a number of reasons.
a)They see things differently because of differences in understanding
and viewpoint. Most of these differences are usually not important.
Personality differences or clashes in emotional needs may cause
conflicts. Conflicts arise when two groups or individuals interacting in
the same situation see the situation differently because of different
sets of settings, information pertaining to the universe, awareness,
background, disposition, reason or outlook. In a particular mood,
individuals think and perceive in a certain manner. For example, the
half-full glass of one individual can be half-empty to another. Obviously
both individuals convey the same thing, but they do so differently
owing to contrasting perceptions and dispositions.
b)People have different styles, principles, values, beliefs and slogans
which determine their choices and objectives. When choices
contradict, people want different things and that can create conflict
situations. For example, a risk-taking manager would be in conflict with
a risk-minimizing supervisor who believes in firm control and a well-
kept routine.
c) People have different ideological and philosophical outlooks, as in the
case of different political parties. Their concepts, objectives and ways
of reacting to various situations are different. This often creates
conflicts among them.
d)Conflict situations can arise because people have different status.
When people at higher levels in the organization feel indignant about
suggestions for change put forward from their subordinates or
associates, it provokes conflict. By tolerating and allowing such
suggestions, potential conflict can be prevented.
e)People have different thinking styles, which encourage them to
disagree, leading to conflict situations. Certain thinking styles may be
useful for certain purposes, but ineffectual or even perilous in other
situations
f) People are supposed to disagree under particular circumstances, such
as in sports. Here conflict is necessary, and even pleasurable.
2. People are concerned with fear, force, fairness or funds
a) Fear relates to imaginary concern about something which might
happen in the future. One may fear setbacks, disgrace, reprisal or
hindrances, which can lead to conflict situations.
b)Force is a necessary ingredient of any conflict situation. Force may be
ethical or emotional. It could be withdrawal of cooperation or approval.
These forces are instrumental in generating, strengthening and
terminating conflicts.
c) Fairness refers to an individual's sense of what is right and what is not
right, a fundamental factor learnt in early childhood. This sense of
fairness determines the moral values of an individual. People have
different moral values and accordingly appreciate a situation in
different ways, creating conflict situations.
d)Funds or costs can cause conflict, but can also force a conclusion
through acceptable to the conflicting parties. The cost of being in
conflict may be measurable (in money terms) or immeasurable, being
expressed in terms of human lives, suffering, diversion of skilled labor,
neglect or loss of morale and self esteem.
CONDITIONS CREATING CONFLICT SITUATIONS
According to Kirchhoff and Adams (1982), there are four distinct
conflict conditions, i.e., high stress environments, ambiguous roles and
responsibilities, multiple boss situations, and prevalence of advanced
technology.
Filley (1975) identified main conditions which could initiate conflict situations
in an organization. These are:
1. Ambiguous jurisdiction, which occurs when two individuals have
responsibilities which are interdependent but whose work boundaries
and role definitions are not clearly specified.
2. Goal incompatibility and conflict of interest refer to
accomplishment of different but mutually conflicting goals by two
individuals working together in an organization. Obstructions in
accomplishing goals and lack of clarity on how to do a job may initiate
conflicts. Barriers to goal accomplishment arise when goal attainment
by an individual or group is seen as preventing another party achieving
their goal.
3. Communication barriers, as difficulties in communicating can cause
misunderstanding, which can then create conflict situations.
4. Dependence on one party by another group or individual.
5. Differentiation in organization, where, within an organization, sub-
units are made responsible for different, specialized tasks. This creates
separation and introduces differentiation. Conflict situations could arise
when actions of sub-units are not properly coordinated and integrated.
6. Association of the parties and specialization. When individuals
specialized in different areas work in a group, they may disagree
amongst themselves because they have different goals, views and
methodologies owing to their various backgrounds, training and
experiences.
7. Behavior regulation. Organizations have to have firm regulations for
individual behavior to ensure protection and safety. Individuals may
perceive these regulations differently, which can cause conflict and
negatively affect output.
8. Unresolved prior conflicts which remain unsettled over time create
anxiety and stress, which can further intensify existing conflicts. A
manager's most important function is to avoid potential harmful results
of conflict by regulating and directing it into areas beneficial for the
organization.
Effects of conflicts
Conflict situations should be either resolved or used beneficially.
Conflicts can have positive or negative effects for the organization,
depending upon the environment created by the manager as she or he
manages and regulates the conflict situation. Conflict is not the same as
discomfort. The conflict isn't the problem - it is when conflict is poorly
managed that is the problem.
Positive effects of conflicts
1. Conflict can be constructive and healthy for an organization.
2. It can aid in developing individuals and improving the organization by
building on the individual assets of its members.
3. Conflict can bring about underlying issues.
4. It can force people to confront possible defects in a solution and
choose a better one.
5. The understanding of real interests, goals and needs is enhanced and
ongoing communication around those issues is induced. In addition, it
can prevent premature and inappropriate resolution of conflict.
6. Helps to raise and address problems.
7. Energizes work to be on the most appropriate issues.
8. Helps people "be real", for example, it motivates them to participate.
9. Helps people learn how to recognize and benefit from their
differences.
Some of the positive effects of conflict situations are (Filley, 1975):
Diffusion of more serious conflicts. Games can be used to moderate the
attitudes of people by providing a competitive situation which can liberate
tension in the conflicting parties, as well as having some entertainment
value. In organizations where members participate in decision making,
disputes are usually minor and not acute as the closeness of member’s
moderate’s belligerent and assertive behavior into minor disagreements,
which minimizes the likelihood of major fights.
Stimulation of a search for new facts or resolutions. When two parties
who respect each other face a conflict situation, the conflict resolution
process may help in clarifying the facts and stimulating a search for mutually
acceptable solutions.
Increase in group cohesion and performance. When two or more parties
are in conflict, the performance and cohesion of each party is likely to
improve. In a conflict situation, an opponent's position is evaluated
negatively, and group allegiance is strongly reinforced, leading to increased
group effort and cohesion.
Assessment of power or ability. In a conflict situation, the relative ability
or power of the parties involved can be identified and measured.
Negative effects or Causes of conflicts
Causes or sources of organizational conflict can be many and varied. The
most common causes are the following:
1. scarcity of resources (finance, equipment, facilities, etc)
2. different attitudes, values or perceptions
3. disagreements about needs, goals, priorities and interests
4. poor communication
5. poor or inadequate organizational structure
6. lack of teamwork
7. lack of clarity in roles and responsibilities
Destructive effects of conflicts include:
1. Impediments to smooth working,
2. Diminishing output,
3. Obstructions in the decision making process,
4. Formation of competing affiliations within the organization.
The overall result of such negative effects is to reduce employees'
commitment to organizational goals and organizational efficiency (Kirchhoff
and Adams, 1982).
Types of Managerial Actions that Cause Workplace Conflicts
1. Poor communications
a) Employees experience continuing surprises, they aren't informed of
new
decisions, programs, etc.
b) Employees don't understand reasons for decisions, they aren't
involved in
decision-making.
c) As a result, employees trust the "rumor mill" more than
management.
2. The alignment or the amount of resources is insufficient. There is:
a) Disagreement about "who does what".
b) Stress from working with inadequate resources.
3. "Personal chemistry", including conflicting values or actions among
managers and employees, for example:
a) Strong personal natures don't match.
b) We often don't like in others what we don't like in ourselves.
4. Leadership problems, including inconsistent, missing, too-strong or
uninformed leadership (at any level in the organization), evidenced by:
a) Avoiding conflict, "passing the buck" with little follow-through on
decisions.
b) Employees see the same continued issues in the workplace.
c) Supervisors don't understand the jobs of their subordinates.
Key Managerial Actions / Structures to Minimize Conflicts
1. Regularly review job descriptions. Get your employee's input to them.
Write down and date job descriptions. Ensure:
a) Job roles don't conflict.
b) No tasks "fall in a crack".
2. Intentionally build relationships with all subordinates.
a) Meet at least once a month alone with them in office.
b) Ask about accomplishments, challenges and issues.
3. Get regular, written status reports and include:
a) Accomplishments.
b) Currents issues and needs from management.
c) Plans for the upcoming period.
4. Conduct basic training about:
a) Interpersonal communications.
b) Conflict management.
c) Delegation.
5. Develop procedures for routine tasks and include the employees' input.
a) Have employees write procedures when possible and appropriate.
b) Get employees' review of the procedures.
c) Distribute the procedures.
d) Train employees about the procedures.
6. Regularly hold management meetings, for example, every month, to
communicate new initiatives and status of current programs.
7. Consider an anonymous suggestion box in which employees can
provide suggestions.
Q. 2 (b)
Critically discuss the conflict resolution modes.
CONFLICT RESOLUTION
Conflict resolution is a range of methods of eliminating sources
of conflict. The term "conflict resolution" is sometimes used interchangeably
with the term dispute resolution or alternative dispute resolution. Processes
of conflict resolution generally include negotiation, mediation, and
diplomacy. The processes of arbitration, litigation, and formal complaint
processes such as ombudsman processes, are usually described with the
term dispute resolution, although some refer to them as "conflict resolution."
Processes of mediation and arbitration are often referred to as alternative
dispute resolution.
CONFLICT RESOLUTION MODES
In Project Management: A Systems Approach to Planning, Scheduling, and
Controlling, five modes for conflict resolution is explained and the situations
when they are best utilized are identified. These modes are
1. Confronting
2. Compromising
3. Smoothing
4. Forcing
5. Avoiding
1. CONFRONTING (COLLABORATING)
Confronting is also described as problem solving, integrating,
collaborating or win-win style. It involves the conflicting parties meeting
face-to-face and collaborating to reach an agreement that satisfies the
concerns of both parties. This style involves open and direct communication
which should lead the way to solving the problem. Confronting should be
used when:
Both parties need to win.
You want to decrease cost.
You want create a common power base.
Skills are complementary.
Time is sufficient.
Trust is present.
Learning is the ultimate goal.
2. COMPROMISING
Compromising is also described as a "give and take" style. Conflicting
parties bargain to reach a mutually acceptable solution. Both parties give up
something in order to reach a decision and leave with some degree of
satisfaction. Compromising should be used when:
Both parties need to win.
You are in a deadlock.
Time is not sufficient.
You want to maintain the relationship among the involved parties.
You will get nothing if you do not compromise.
Stakes are moderate.
3. SMOOTHING (ACCOMMODATING)
Smoothing is also referred to as accommodating or obliging style. In
this approach, the areas of agreement are emphasized and the areas of
disagreement are downplayed. Conflicts are not always resolved in the
smoothing mode. A party may sacrifice its own concerns or goals in order to
satisfy the concerns or goals of the other party. Smoothing should be used
when:
Goal to be reached is overarching.
You want to create obligation for a trade-off at a later time.
Stakes are low.
Liability is limited.
Any solution is adequate.
You want to be harmonious and create good will.
You would lose anyway.
You want to gain time.
4. FORCING
Forcing is also known as competing, controlling, or dominating style.
Forcing occurs when one party goes all out to win its position while ignoring
the needs and concerns of the other party. As the intensity of a conflict
increases, the tendency for a forced conflict is more likely. These results in a
win-lose situation where one party wins at the expense of the other party.
Forcing should be used when:
A "do or die" situation is present.
Stakes are high.
Important principles are at stake.
Relationship among parties is not important.
A quick decision must be made.
5. AVOIDING
Avoiding is also described as withdrawal style. This approach is
viewed as postponing an issue for later or withdrawing from the situation
altogether. It is regarded as a temporary solution because the problem and
conflict continue to reoccur over and over again. Avoiding should be used
when:
You cannot win.
Stakes are low.
Stakes are high, but you are not prepared.
You want to gain time.
You want to maintain neutrality or reputation.
You think problem will go away.
You win by delaying.
Researchers examined the impact of the conflict resolution styles
used by individuals in shaping their work environment and affecting the level
of ongoing conflict and stress. Results of the study showed that individuals
who use a certain style to conflicts can create environments with varied
degrees of conflicts. Individuals who use more of a confronting style create
an environment with lower levels of task conflict, which reduces relationship
conflict and stress. Whereas, individuals who use more of the forcing or
avoiding styles tend to create an environment with more task conflict, which
increases relationship conflict and stress. The study suggests conflict
develops not only in environmental circumstances but in the styles used by
individuals when confronted with a conflict. The manner in which a person
responds to organizational dissension and uncertainty will influence the
responses of others and the individual's work experience.
Q. 3
Differentiate between the following:
(a) GERT and PERT
(b) PERT and CPM
In today’s highly competitive environment, management is
continually seeking new and better control techniques to cope with the
complexities, masses of data, and tight deadlines that are characteristic of
many industries.
In addition, management is seeking better methods for presenting
technical and cost data to customers.
Since World War II, scheduling techniques have taken on paramount
importance. The most common of these techniques are shown below:
1. Gantt or bar charts
2. Milestone charts
3. Line of balance
4. Networks
I. Program Evaluation and Review Technique (PERT)
II. Arrow Diagram Method (ADM) [Sometimes called the Critical Path
Method (CPM)]
III. Precedence Diagram Method (PDM)
IV. Graphical Evaluation and Review Technique (GERT)
An Introduction to CPM, PERT and GERT
How do project teams determine a project's duration? Is it an exact
science? The answer is no, it is not an exact science. It is more a process of
estimating activity durations, which can be made easier by utilizing
mathematical analysis.
Mathematical analysis is used in project schedule development to
determine early and late start dates, as well as early and late finish dates for
all project activities. The outcome indicates the time period in which the
activity should be scheduled. Note that this analysis phase does not take into
account any resource pool limitations or constraints.
The most widely known mathematical techniques used by project
management teams are the:
1. Critical Path Method (CPM)
2. Program Evaluation and Review Technique (PERT)
3. Graphical Evaluation and Review Technique (GERT)
1. Critical Path Method (CPM)
The most common mathematical technique is the Critical Path Method
(CPM). The CPM is used to predict project duration by analyzing which
sequence of activities, or path, has the least amount of scheduling flexibility.
Once you have determined the early and late start and finish dates,
you can determine float. Float is equal to the difference between the late
finish and early finish dates, or the difference between the late start and
early start dates.
The next step in the CPM is to determine the critical path (CP), which
is the longest path for the project that has little or no float. To determine the
critical path, you begin with the first activity in the network.
Look at its successors, compare the successors' float values, and select the
one with zero float. This is the second activity on the critical path.
Next, you would continue from the second activity on the critical path
and compare float for its successors, selecting the activity that has zero float
and including it in the critical path.
You continue this process to the final activity for a complete critical
path. The project can finish no sooner than the time it takes to complete the
activities on the critical path.
To calculate an activity's duration, you subtract the early start from
the early finish or the late start from the late finish. In example that follows,
the numbers indicate days.
Activity A - 1 day
Activity B - 2 days
Activity C - 3 days
Activity D - 2 days
Adding the total of the activity durations will give you the duration of
the critical path. In this example, the duration of the critical path would be 8
days.
Critical Path activities are, indeed, critical to a project's success. They need
management's careful attention. The order and duration of these activities
are important because any delays will result in the project going over the
anticipated completion date. In addition, project improvements are most
effective when made along the critical path.
Program Evaluation and Review Technique (PERT)
Have you ever performed activity duration estimates, and then
questioned your findings? There is a technique available for checking your
findings.
Program Evaluation and Review Technique (PERT) is used when there
is a high level of uncertainty about how long it will take to perform a given
task.
PERT uses network logic—the collection of activity dependencies that
make up a project network diagram—to determine duration. In PERT,
network logic is used by applying the critical path method to a weighted
average duration estimate.
Although very similar, there is one significant difference between
PERT and CPM. CPM uses the most likely estimate instead of the expected
value of the estimate that PERT uses.
PERT time estimating requires the following three estimates for each activity.
TM = most likely time
TO = optimistic time
TP = pessimistic time
To determine the expected activity time you must insert the previous
estimates into the PERT weighted average formula, which is optimistic (TO)
+ 4 x most likely (TM) + pessimistic (TP) all divided by 6.
Once you have calculated the estimated times for your project you can plot
those values on an s-curve. The s-curve allows you to easily see all three
times—optimistic, most likely, and pessimistic.
Graphical Evaluation and Review Technique (GERT)
There is one additional mathematical analysis method that is rarely
used today because it has been proven to be less accurate than PERT and
CPM. This method is the graphical evaluation and review technique (GERT).
GERT allows for probabilistic treatment of both network logic and activity
duration estimates. GERT is mainly used on project activities that are only
performed in part, as well as those activities that may be performed more
than once (loop). The above graphic illustrates a GERT diagram with a simple
loop.
For example, on a high-rise development project, the electrical
outlets for each floor may be installed as each floor is completed instead of
waiting for the completion of the entire building. Since this activity will be
performed more than once, using GERT will enable you to calculate the
entire duration of this activity.
Differences Between PERT and CPM:
Note that the principles that we have discussed so far apply not only
to PERT, but to CPM as well. The nomenclature is the same for both, and
both techniques are often referred to as arrow diagramming methods, or
activity-on-arrow networks. The differences between PERT and CPM is as
follows:
PERT uses three time estimates (optimistic, most likely, and
pessimistic). From these estimates, an expected time can be
derived. CPM uses one time estimate that represents the normal
time (that is, better estimate accuracy with CPM).
PERT is probabilistic in nature, based on a beta distribution for
each activity time and a normal distribution for expected time
duration. This allows us to calculate the "risk" in completing a
project. CPM is based on a single time estimate and is
deterministic in nature.
Both PERT and CPM permit the use of dummy activities in order
to develop the logic.
PERT is used for Research and Development projects where the
risks in calculating time durations have a high variability. CPM is
used for construction projects that are resource dependent and
based on accurate time estimates.
PERT is used on those projects, such as Research and
Development, where percent complete is almost impossible to
determine except at completed milestones. CPM is used for
those projects, such as construction, where percent complete
can be determined with reasonable accuracy and customer
billing can be accomplished based on percent complete.
Q. 4 (a)
Explain the types of estimates and discuss the estimating
pitfalls.
ESTIMATION
Estimation is the calculated approximation of a result which is
usable even if input data may be incomplete or uncertain.
WHY ESTIMATE?
Estimation is an essential part of our project methodology.
Estimation is used for a number of purposes:
To justify the project, particularly at the proposal stage, enabling
the costs to be compared with the anticipated benefits and to
enable informed comparisons to be made between different
technical or functional options.
To enforce the disciplines needed to make the project succeed.
To secure the resources required to successfully deliver the
project.
To ensure that the support impact of the project is fully
understood.
To inform and improve our software development process.
ESTIMATIONS IN PROJECT MANAGEMENT
In essence, estimates are forecasts of the future; unfortunately,
people are not very good at forecasting. While it is difficult to make
forecasts of natural phenomena such as the weather; it is even harder
to make forecasts of any processes that include people, their knowledge
and behavior. Project management is one of these
processes. Estimation is a very important step in modeling and decision
analysis. Without proper assessments of project duration, finish time,
cost, resources, success rate and other parameters, it is almost
impossible to select a proper alternative and ultimately make a good
decision.
Project managers are under a lot of pressure to produce estimates of
time and cost for systems development very early in a project, typically in
the first two weeks. However, estimating a development project from outline
requirements and not from a physical design is like a home buyer saying,
“Quote me a price for building a house, but I am not sure where I want the
house located, or about the number of rooms, or whether it should be of
brick or wood.” It is not surprising that project estimates are as bad as they
are, but that they can be made and met at all. Three approaches can be
taken to estimating:
Estimates are not blind luck. They are well-thought-out decisions
based on the best available information, some type of cost estimating
relationship, or some type of cost model. Cost estimating relationships
(CERs) are generally the output of cost models. Typical CERs might be:
Mathematical equations based on regression analysis
Cost–quantity relationships such as learning curves
Cost–cost relationships
Cost–non cost relationships based on physical characteristics, technical
parameters, or performance characteristics
TYPES OF ESTIMATES:
Note that projects can range from a feasibility study, through modification of
existing facilities, to complete design, procurement, and construction of a
large complex. Whatever the project may be, whether large or small, the
estimate and type of information desired may differ radically.
1. Order-Of-Magnitude
The first type of estimate is an order-of-magnitude analysis, which
is made without any detailed engineering data. This is an approximate
estimate made without detailed data, that is usually produced from cost
capacity curves, scale up or down factors that are appropriately escalated
and approximate cost capacity ratios. This type of estimate is used during
the formative stages of an expenditure program for initial evaluation of the
project. Other terms commonly used to identify an Order of Magnitude
estimate are preliminary, conceptual, factored, quickie and feasibility. The
order-of-magnitude analysis may have an accuracy of ±35 percent within
the scope of the project. This type of estimate may use past experience (not
necessarily similar), scale factors, parametric curves or capacity estimates
(that is, $/# of product or $/KW electricity).
2. Approximate Estimate
Next, there is the approximate estimate (or top-down estimate),
which is also made without detailed engineering data, and may be accurate
to ±15 percent. This type of estimate is prorated from previous projects that
are similar in scope and capacity, and may be titled as estimating by
analogy, parametric curves, rule of thumb, and indexed cost of similar
activities adjusted for capacity and technology. In such a case, the estimator
may say that this activity is 50 percent more difficult than a previous (i.e.,
reference) activity and requires 50 percent more time, man-hours, dollars,
materials, and so on.
3. Definitive Estimate
The definitive estimate, or grassroots buildup estimate, is prepared
from well-defined engineering data including (as a minimum) vendor quotes,
fairly complete plans, specifications, unit prices, and estimate to complete.
The definitive estimate, also referred to as detailed estimating, has an
accuracy of ±5 percent.
A definitive estimate is prepared from well defined data,
specifications, drawings, etc. This category covers all estimate ranges from a
minimum to maximum definitive type. These estimates are used for bid
proposals, bid evaluations, contract changes, extra work, legal claims, permit
and government approvals. Other terms associated with a Definitive
Estimate include check, lump sum, tender, post contract changes.
4. Learning Curves
Another method for estimating is the use of learning curves.
Learning curves are graphical representations of repetitive functions in which
continuous operations will lead to a reduction in time, resources, and money.
The theory behind learning curves is usually applied to manufacturing
operations.
ESTIMATING PITFALLS:
There are several pitfalls that can impede the pricing function.
Probably the most serious pitfall, and the one that is usually beyond the
control of the project manager, is the "buy-in" decision, which is based on
the assumption that there will be "bail-out" changes or follow-on contracts
later. These changes and/or contracts may be for spares, spare parts,
maintenance, maintenance manuals, equipment surveillance, optional
equipment, optional services, and scrap factors.
One of the most difficult tasks for many people in IT is providing
estimates for project or development work. However, it’s one of those
necessary evils that must be performed – often at different times throughout
the project. There’s estimating done up front to price the project and scope
out timeframes, there’s estimates for change orders throughout the project,
and there’s often times ballpark estimates given to customers periodically on
work they ‘may’ want performed.
It’s that ability to think somewhat abstractly on given tasks and figure
out with some degree of accuracy what the level of effort will be. Of course,
there needs to be a certain level of experience and expertise – but that
experience does not always ensure that you’ll give good estimates. Over
time, one can learn to be a good estimator, but it helps to have that gift.
With all that said, there are many things that can undermine the accuracy or
validity of your estimates. Some you have control over and many that you
can’t really control.
Other types of estimating pitfalls include:
Misinterpretation of the statement of work
Omissions or improperly defined scope
Poorly defined or overly optimistic schedule
Inaccurate work breakdown structure
Applying improper skill levels to tasks
Failure to account for risks
Failure to understand or account for cost escalation and inflation
Failure to use the correct estimating technique
Failure to use forward pricing rates for overhead, general and
administrative, and indirect costs.
Unfortunately, many of these pitfalls do not become evident until
detected by the cost control system, well into the project.
Here are nine common pitfalls that can often negatively impact project
estimates:
1. Poorly defined scope of work. This can occur when the work is not
broken down far enough or individual elements of work are
misinterpreted.
2. Omissions. Simply put, you forget something.
3. Rampant optimism. This is the rose-colored glasses syndrome, when
the all-success scenario is used as the basis for the estimate.
4. Padding. This is when the estimator (in this case almost always the
task performer) includes a factor of safety without your knowledge, a
cushion that ensures that he or she will meet or beat the estimate.
5. Failure to assess risk and uncertainty. Neglecting or ignoring risk
and uncertainty can result in estimates that are unrealistic.
6. Time pressure. If someone comes up to you and says, “Give me a
ballpark figure by the end of the day” and “Don’t worry, I won’t hold
you to it,” look out! This almost always spells trouble.
7. The task performer and the estimator are at two different skill
levels. Since people work at different levels of efficiency, sometimes
affecting time and cost for a task significantly, try to take into
consideration who’s going to do the work.
8. External pressure. Many project managers are given specific targets
of cost, schedule, quality, or performance (and often more than one!).
If you’re asked to meet unrealistic targets, you may not be able to fight
it, but you should communicate what you believe is reasonably
achievable.
9. Failure to involve task performers. It’s ironic: an estimate
developed without involving the task performer could be quite
accurate, but that person may not feel compelled to meet the
estimate, since “it’s your number, not mine,” so the estimate may
appear wrong.
Q. 4 (b)
What are the different steps of pricing out the work? Also
discuss the special problems having severe impact on
pricing effort.
PRICING OUT THE WORK:
Logical pricing techniques are available in order to obtain detailed
estimates. The following thirteen steps provide a logical sequence in order to
better control the company's limited resources. These steps may vary from
company to company.
Step 1: Provide a complete definition of the work
Step 2: Establish a logic network with checkpoints.
Step 3: Develop the work breakdown structure.
Step 4: Price out the work breakdown structure.
Step 5: Review WBS costs with each functional manager.
Step 6: Decide on the basic course of action.
Step 7: Establish reasonable costs for each WBS element.
Step 8: Review the base case costs with upper-level management.
Step 9: Negotiate with functional managers for qualified personnel.
Step 10: Develop the linear responsibility chart.
Step 11: Develop the final detailed and PERT/CPM schedules.
Step 12: Establish pricing cost summary reports.
Step 13: Document the result in a program plan.
Although the pricing of a project is an iterative process, the project
manager must still burden himself at each iteration point by developing cost
summary reports so that key project decisions can be made during the
planning.
Detailed pricing summaries are needed at least twice: in preparation
for the pricing review meeting with management and at pricing termination.
At all other times it is possible that ''simple cosmetic surgery" can be
performed on previous cost summaries, such as perturbations in escalation
factors and procurement cost of raw materials.
The list identified below shows the typical pricing reports:
A detailed cost breakdown for each Work Breakdown
Structure (WBS) element. If the work is priced out at the task
level, then there should be a cost summary sheet for each task,
as well as rollup sheets for each project and the total program.
A total program manpower curve for each department.
These manpower curves show how each department has
contracted with the project office to supply functional resources.
If the departmental manpower curves contain several "peaks and
valleys," then the project manager may have to alter some of his
schedules to obtain some degree of manpower smoothing.
Functional managers always prefer manpower-smoothed
resource allocations.
A monthly equivalent manpower cost summary. This table
normally shows the fully burdened cost for the average
departmental employee carried out over the entire period of
project performance. If project costs have to be reduced, the
project manager performs a parametric study between this table
and the manpower curve tables.
A yearly cost distribution table. This table is broken down by
WBS element and shows the yearly (or quarterly) costs that will
be required. This table, in essence, is a project cash-flow
summary per activity.
A functional cost and hour summary. This table provides top
management with an overall description of how many hours and
dollars will be spent by each major functional unit, such as a
division. Top management would use this as part of the forward
planning process to make sure that there are sufficient resources
available for all projects. This also includes indirect hours and
dollars.
Monthly labor hour and dollar expenditure forecast. This
table can be combined with the yearly cost distribution, except
that it is broken down by month, not activity or department. In
addition, this table normally includes manpower termination
liability information for premature cancellation of the project by
outside customers.
A raw material and expenditure forecast. This shows the
cash flow for raw materials based on vendor lead times, payment
schedules, commitments, and termination liability.
Total program termination liability per month. This table
shows the customer the monthly costs for the entire program.
This is the customer's cash flow, not the contractor's. The
difference is that each monthly cost contains the termination
liability for man-hours and dollars, on labor and raw materials.
This table is actually the monthly costs attributed to premature
project termination.
It is important to note that these tables are used by both project managers
and upper-level executives. The project managers utilize these tables as the
basis for project cost control. Top-level management utilizes them for
selecting, approving, and prioritizing projects.
Special Problems Having Severe Impact on Pricing Effort
It is essential to note that there are always special problems that,
although often overlooked, have a severe impact on the pricing effort. As an
example, pricing must include an understanding of cost control— specifically,
how costs are billed back to the project. There are three possible situations:
1. Work is priced out at the department average, and all work
performed is charged to the project at the department average
salary, regardless of who accomplished the work. This technique is
obviously the easiest, but encourages project managers to fight for the
highest salary resources, since only average wages are billed to the project.
2. Work is priced out at the department average, but all work
performed is billed back to the project at the actual salary of those
employees who perform the work. This method can create a severe
headache for the project manager if he tries to use only the best employees
on his project. If these employees are earning substantially more money
than the department average, then a cost overrun will occur unless the
employees can perform the work in less time. Some companies are forced to
use this method by government agencies and have estimating problems
when the project that has to be priced out is of a short duration where only
the higher-salaried employees can be used. In such a situation it is common
to ''inflate" the direct labor hours to compensate for the added costs.
3. The work is priced out at the actual salary of those employees
who will perform the work and the cost is billed back the same way.
This method is the ideal situation as long as the people can be identified
during the pricing effort.
In this regard, some companies use a combination of all three methods. In
this case, the project office is priced out using the third method (because
these people are identified early), whereas the functional employees are
priced out using the first or second method.
Q. 5 (a)
Why effective management of a program requires a well
organized cost and control system?
COST MANAGEMENT AND CONTROL IN PROJECTS
Cost Management
It is widely used in business today and is the process whereby
companies use cost accounting to report or control various costs of doing
business. Cost Management generally describes approach and activities of
managers in short range and long range planning and cost decisions that
incorporate value for customer and lower costs of product and services.
Manager make decisions on amount and kind of material used,
changes of plant processes, changes in product designs and information
from accounting system helps managers make such decisions, but
information and accounting system not “cost management” project cost
management broad focus includes continuous control of costs. Planning and
cost is usually linked with revenue and profit planning.
Cost management involves overall planning, co-ordination, and
control and reporting of all cost-related aspects from “project initiation” to
“operation and maintenance”.
Process of identifying all costs associated with investment, making
informed choices about options that will deliver best “value for money” and
managing those costs throughout life of project. Techniques (value
management) help to improve value and reduce costs.
Cost Control:
Cost control is equally important to all companies, regardless of size.
Small companies generally have tighter monetary controls, mainly because
of the risk with the failure of as little as one project, but with less
sophisticated control techniques. Large companies may have the luxury to
spread project losses over several projects, whereas the small company may
have few projects.
Cost control is not only "monitoring" of costs and recording perhaps
massive quantities of data, but also analyzing of the data in order to take
corrective action before it is too late. Cost control should be performed by all
personnel who incur costs, not merely the project office. Cost control implies
good cost management, which must include:
Cost estimating
Cost accounting
Project cash flow
Company cash flow
Direct labor costing
Overhead rate costing
Others, such as incentives, penalties, and profit-sharing
Management Cost and Control System (MCCS):
Cost control is actually a subsystem of the Management Cost and
Control System (MCCS) rather than a complete system per se. The
Management Cost and Control System (MCCS) are represented as a two
cycle process: a planning cycle and an operating cycle. The operating cycle
is what is commonly referred to as the cost control system.
Failure of a cost control system to accurately describe the true status
of a project does not necessarily imply that the cost control system is at
fault. Any cost control system is only as good as the original plan against
which performance will be measured. It is more common for the plan to be at
fault than the control system.
Almost all project planning and control systems have identifiable
design requirements.
These include:
A common framework from which to integrate time, cost, and technical
performance
Ability to track progress of significant parameters
Quick response
Capability for end-value prediction
Accurate and appropriate data for decision making by each level of
management
Full exception reporting with problem analysis capability
Immediate quantitative evaluation of alternative solutions
Management Cost and Control System (MCCS) planning activities
include:
Contract receipt (if applicable)
Work authorization for project planning
Work breakdown structure (WBS)
Subdivided work description
Schedules
Planning charts
Budgets
Management Cost and Control System (MCCS) planning charts are
worksheets used to create the budget. These charts include planned labor in
hours and material dollars. Management Cost and Control System (MCCS)
planning is accomplished in one of these ways:
One level below the lowest level of the Work Breakdown Structure
(WBS)
At the lowest management level
By cost element or cost account
A well-disciplined Management Cost and Control System (MCCS) will
produce the following results:
Policies and procedures that will minimize the ability to distort
reporting
Strong management emphasis on meeting commitments
Weekly team meetings with a formalized agenda, action items, and
minutes.
Top-management periodic review of the technical and financial status
Simplified internal audit for checking compliance with procedures
Furthermore, for Management Cost and Control System (MCCS) to be
effective, both the scheduling and budgeting systems must be disciplines
and formal in order to prevent inadvertent or arbitrary budget or schedule
changes. This does not mean that the baseline budget and schedule, once
established, is static or inflexible. Rather, it means that changes must be
controlled and result only from deliberate management actions.
Disciplined use of Management Cost and Control System (MCCS) is
designed to put pressure on the project manager to perform exceptionally
good project planning so that changes will be minimized. As an example,
government subcontractors may not:
Make retroactive changes to budgets or costs for work that has been
completed.
Re-budget work-in-progress activities
Transfer work or budget independently of each other
Currently, two new programs are being used by the government and
industry in conjunction with the Management Cost and Control System
(MCCS) as an attempt to improve effectiveness in cost control. The zero-base
budgeting program was established to provide better estimating techniques
for the verification portion of control. The design-to-cost program assists the
decision-making part of the control process by identifying a decision-making
framework from which re-planning can take place.
Understanding Control:
Effective management of a program during the operating cycle
requires that a well-organized cost and control system be designed,
developed, and implemented so that immediate feedback can be obtained,
whereby the up-to-date usage or resources can be compared to target
objectives established during the planning cycle. The requirements for an
effective control system (for both cost and schedule/performance) should
include:
Thorough planning of the work to be performed to complete the project
Good estimating of time, labor, and costs
Clear communication of the scope of required tasks
A disciplined budget and authorization of expenditures
Timely accounting of physical progress and cost expenditures
Periodic re-estimation of time and cost to complete remaining work
Frequent, periodic comparison of actual progress and expenditures to
schedules and budgets, both at the time of comparison and at project
completion
It is essential that the management must compare the time, cost, and
performance of the program to the budgeted time, cost, and performance,
not independently but in an integrated manner. Being within one's budget at
the proper time serves no useful purpose if performance is only 75 percent.
Likewise, having a production line turn out exactly 200 items, when planned,
loses its significance if a 50 percent cost overrun is incurred.
All three resource parameters (time, cost, and performance) must be
analyzed as a group, or else we might ''win the battle but lose the war." The
use of the expression "management cost and control system" is vague in
that the implication is made that only costs are controlled. This is not true—
an effective control system monitors schedule and performance as well as
costs by setting budgets, measuring expenditures against budgets and
identifying variances, assuring that the expenditures are proper, and taking
corrective action when required.
The Work Breakdown Structure (WBS) as the element that acts as the
source from which all costs and controls must emanate. The Work
Breakdown Structure (WBS) is the total project broken down into
successively lower levels until the desired control levels are established. The
Work Breakdown Structure (WBS) therefore serves as the tool from which
performance can be subdivided into objectives and sub-objectives. As work
progresses, the
WBS provides the framework on which costs, time, and
schedule/performance can be compared against the budget for each level of
the WBS.
The first purpose of control therefore becomes a verification process
accomplished by the comparison of actual performance to date with the
predetermined plans and standards set forth in the planning phase. The
comparison serves to verify that:
The objectives have been successfully translated into
performance standards.
The performance standards are, in fact, a reliable representation
of program activities and events.
Meaningful budgets have been established such that actual
versus planned comparisons can be made.
In other words, the comparison verifies that the correct standards were
selected, and that they are properly used. The second purpose of control is
that of decision making. Three useful reports are required by management in
order to make effective and timely decisions:
The project plan, schedule, and budget prepared during the
planning phase.
A detailed comparison between resources expended to data and
those predetermined. This includes an estimate of the work
remaining and the impact on activity completion.
A projection of resources to be expended through program
completion.
Afterwards, these reports are then supplied to both the managers and the
doers. Three useful results arise through the use of these three reports,
generated during a thorough decision-making stage of control:
Feedback to management, the planners, and the doers.
Identification of any major deviations from the current program
plan, schedule, or budget.
The opportunity to initiate contingency planning early enough
that cost, performance, and time requirements can undergo
corrected action without loss of resources.
Q. 5 (b)
Write short notes on the following:
I. Variances analysis
II. Essentials of Material Accounting Criterion
VARIANCE
A variance is defined as any schedule, technical performance, or cost
deviation from a specific plan. Variances are used by all levels of
management to verify the budgeting system and the scheduling system. The
budgeting and scheduling system variance must be compared together
because:
The cost variance compares deviations only from the budget and
does not provide a measure of comparison between work
scheduled and work accomplished.
The scheduling variance provides a comparison between planned
and actual performance but does not include costs.
There are two primary methods of measurement:
Measurable efforts: Discrete increments of work with a
definable schedule for accomplishment, whose completion
produces tangible results.
Level of effort: Work that does not lend itself to subdivision into
discrete scheduled increments of work, such as project support
and project control.
Variances are used on both types of measurement:
In order to calculate variances we must define the three basic
variances for budgeting and actual costs for work scheduled and performed.
Archibald defines these variables:
Budgeted cost for work scheduled (BCWS) is the budgeted
amount of cost for work scheduled to be accomplished plus the
amount or level of effort or apportioned effort scheduled to be
accomplished in a given time period.
Budget cost for work performed (BCWP) is the budgeted amount
of cost for completed work, plus budgeted for level of effort or
apportioned effort activity completed within a given time period.
This is sometimes referred to as "earned value."
Actual cost for work performed (ACWP) is the amount reported as
actually expended in completing the work accomplished within a
given time period.
Variance Analysis
Variance means difference while analysis means breakdown. In Cost
or Management Accounting, variance would relate to difference between
Standard and Actual Costs. Analysis would break this difference into various
parts like quantity, price and capacity. Any wide variation would be
thoroughly investigated and persons responsible (purchase manager, human
resource manager, factory manager or marketing manager) would be asked
to explain. If it proved avoidable or controllable, someone would be
penalized or reprimanded else measures would be taken to avoid in future as
far as possible.
In short, variance analysis helps the management in decision-making. In
addition
1. It is used in cost-control,
2. Gives early warning for corrective action
3. Useful in accountability.
Understanding variance analysis
Many businesses, especially the small, entrepreneurial kind, ignore or
forget the other half of the budgeting. Budgets are too often proposed,
discussed, accepted, and forgotten. Variance analysis looks after-the-fact at
what caused a difference between plan vs. actual. Good management looks
at what that difference means to the business. Variance analysis ranges from
simple and straightforward to sophisticated and complex. Some cost-
accounting systems separate variances into many types and categories.
Sometimes a single result can be broken down into many different variances,
both positive and negative.
The most sophisticated systems separate unit and price factors on
materials, hours worked, cost-per-hour on direct labor, and fixed and
variable overhead variances. Though difficult, this kind of analysis can be
invaluable in a complex business.
The cost and schedule performance index is most often used for trend
analysis as shown in Figure. Companies use three-month, four-month, or six-
month moving averages to predict trends. The usefulness of trend analysis is
to take corrective action to alleviate unfavorable trends by having an early
warning system. Unfortunately, effective use of trend analysis may be
restricted to long-term projects because of the time needed to correct the
situation.
Figure: The performance index
Figure shows an integrated cost/schedule system. The figure identifies
a performance slippage to date. This might not be a bad situation if the costs
are proportionately under-run. However, from the upper portion of Figure, we
find that costs are overrun (in comparison to budget costs), thus adding to
the severity of the situation.
Figure: Integrated cost/schedule system
Also shown in Figure is the management reserve. This is identified as
the difference between the contracted cost for projected performance to
date and the budgeted cost. Management reserves are the contingency
funds established by the program manager to counteract unavoidable delays
that can affect the project’s critical path. For variance analysis, goal of cost
account Manager to take action that will correct problem within original
budget or justify a new estimation.
Five Questions must be addressed during variance analysis:
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?
One of the key parameters used in variance analysis is the “earned
value” concept, which is the same as BCWP. Earned value is a forecasting
variable used to predict whether the project will finish over or under the
budget. As an example, on June 1, the budget showed that 800 hours should
have been expended for a given task. However, only 600 hours appeared on
the labor report. Therefore, the performance is (800/600) × 100, or 133
percent, and the task is under running in performance. If the actual hours
were 1,000, the performance would be 80 percent, and an overrun would be
occurring.
The difficulty in performing variance analysis is the calculation of
BCWP because one must predict the percent complete. To eliminate this
problem, many companies use standard dollar expenditures for the project,
regardless of percent complete. For example, we could say that 10 percent
of the costs are to be “booked” for each 10 percent of the time interval.
Another technique, and perhaps the most common, is the 50/50 rule:
50/50 rule
Half of the budget for each element is recorded at the time that the
work is scheduled to begin, and the other half at the time that the work is
scheduled to be completed. For a project with a large number of elements,
the amount of distortion from such a procedure is minimal. 50/50 rule
eliminate the necessity for the continuous determination of percent
complete.
Meaning of Compensation
Compensation management, also known as wage and salary
administration, remuneration management, or reward management, is
concerned with designing and implementing total compensation package.
The traditional concept of wage and salary administration emphasized on
only determination of wage and salary structures in organizational settings.
However, over the passage of time, many more forms of compensation as
discussed earlier, entered the business field which necessitated to take wage
and salary administration in comprehensive way with a suitable change in its
nomenclature.
Beach has defined wage and salary administration as follows:
"Wage and salary administration refers to the establishment and
implementation of sound policies and practices of employee compensation. It
includes such areas as job evolutional, surveys of wages and salaries,
analysis of relevant organizational problems, development and maintenance
of wage structure, establishing rules for administering wages. Wage
payments, incentives, profit sharing, wage changes and adjustments,
supplementary payments, control of compensation costs and other related
items"
Compensation committee
A committee of the board of directors responsible for reviewing and
setting the compensation of certain executive officers of the company. The
compensation committee may also be responsible for the allocation of stock
options to employees.
A committee of the board of directors responsible for reviewing and
setting the compensation of certain executive officers of the company. The
compensation committee may also be responsible for the allocation of stock
options to employees.