Project Management Lvl a Prt II 2009_11_edn 3

8/6/2019 Project Management Lvl a Prt II 2009_11_edn 3

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Project Management:

ISCD: Level A Part II

Bijoy S Guha,


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References

Project Management: Harvey Maylor(Pearson Education, 3rd Edition)

Project Management for Business &Technology: John M Nicholas (

Projects: Prasanna Chandra (Tata McGrawHill, 6th Edition)

Project Management: SMU Publication(B0915 Edition: Fall 2008)


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Project?

Routine, repetitive &

ongoing throughout;

Necessary to sustain the

business;

Incremental

improvements set.

Unique, temporary &

goal directed;

Create strategic

initiatives/Products; New paradigms are put

in place.

Organizational Work

ProjectsOperations


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Project? (contd.)

Any non-repetitive activity;

A low-volume high variety activity;

a temporary endeavour undertaken to create a unique

product or service;

Any activity with a defined start and finish;

a unique set of coordinated activities, with definite

starting and finish points undertaken to meet specificobjectives within defined schedule, cost and

performance pararmeters. (BS 6079: 2000)


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Project? (contd.)

Projects come in many shapes and sizes:

By number of tasks (complexity)

By time required to complete (duration)

By resources (thus money) needed

Combination of these factors

Other Characteristics:

Project teams are born to die!

New paradigms become the S.O.P

Contributes to organizations learning & growth

Can (re)shape the Organization


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Project? (contd.)

Projects come in many shapes and sizes:

By number of tasks (complexity)

Diversity of competencies

Efforts of many people

By time required to complete (duration)

Changing nature of requirements

Tracking

By resources (thus money) needed Financial outlay

Risk

Combination of these factors


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Project Typology

Compl

exity

Duration

Improvement Projects

Crisis

Solving

Product

Design

Orgn.

Restruct.

Mergers &

Acqzn.

R&D

New to

World

Area of the bubbles

indicate the quantity

of projects.


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Project? (contd.)

Time

Perform

ance

S/State 1

Breakth

rough

Improv

ement

Continuous

Improv

ement

S/State 2

Stabilization

Project for

Development

& Growth

Series of mini

projects

Mega

Project: Start

of Business


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Project? (contd.)

For business continuity, this activity is on-going

and is referred to as the S-Curve of a Firms

life e.g. Tatas Automotive Business

SSSEngineering. &Locomotive

Trucks &

Construction.

Equipment.

Passenger cars

TATA MOTORS

TELCO


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RESOURCES (Money)

TIME SC

OPE

Principally, Project Management, like in anyfield of management, is bound by:

And Priorities always change!

Project Management: What is it?


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Project Management: What is it? (contd)

Project managers have to balance and integrate competing

demands to implement all aspects of the project: Project Scope: specific work to be done

Project Time: Duration with milestones

Project Cost: tracking the budget

Human Resources: competent team

Procurement: adequate material & equipment

Communication: progress vis-a-vis changes

Quality: establishing and delivering acceptable

Risk: analyzing and planning adequate response


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The required knowledge areas & Processes are:


Communicn

Management

Scope

Management

H.R.

Management

Time

Management

Procurement

Management

Risk

Management

Quality

Management

Cost

Management

Integration

Management

PROJECT

MNANAGER


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Project management is the coordinating effortto fulfill the

goals of the project, headed by a Project Manager; who uses

knowledge, skills, tools and methodologies to:

Identify the goals, objectives, requirements and limitations of theproject - Specification

Coordinate the needs (and expectations) of the project

stakeholders viz. team, customer, society/ sponsor & supplier

Buy-in

Plan and deliver the identified objectives & goals - Execution

Close the project when completed - Closure

Capture (for dissemination) the knowledge accrued - Continuity



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Mindset: Timeliness: how to reduce and then deliver on time

Responsiveness: to ever changing circumstances

Information Sharing: for involvement and clarity

Flexibility: adapting to the situational need

Structured Planning: towards efficient resource use & priority

Ability to work with ill-defined organization & support structures

Coping with uncertainty: no two projects are exactly the same

Analytical yet speedy: no analysis paralysis

Good communication, team-building & networking skills

Project Manager: Characteristics


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Project Management: development

Projects start after an authoritative stakeholderdecides toimplement a project, involving: Fair amount ofCapital outlay A commitment ofHuman Resourcesfor (extended) period of time

Irreversibilityand attendant risk Andprioritization/choice from a wide to do list

Possible Projects have to be analyzed and feasibilityassessed before start.

Funds have to found for Feasible Projects, which includes aRisk Analysis

Finally Projects have to be implemented and, Closed!


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Project Management: development (contd)Phases of a Project

Design it Do it Close/Develop itDefine it

Day to day

controlHow, who

& When

What

& why

Continuous

Improvement

Time

Activity/Cum.C

ost


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Project Management: Conceptn (contd)

Phases of a Project

Time

Man-hrs

FeasibilityPreparation Implementation

Closure

Time

F

P

IC

F

P

I

C

Save

Concurrent

Model

Sequential or

stage-gate Model

X X


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Project Analysis - Feasibility

IdeationInitial

Screen

Reject/

shelveNo Go

Investigate

Go Market Study

Tech/Ecol. Study

Fin./Eco Study OK?

Terminate

No

Project Funding

Plan

Yes


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An Idea is not an outcome oflogical deduction alone: There are no defined methods or theories to guide the task;

it is often an outcome of a triggering process;

They fall-out from either significant technologicalbreakthroughs; or from a rearrangement of the path to an

existing end (reengineering).

These can be stimulated by: (Periodic) Strategic Planning exercise, stimulating some

out-of-box thinking and redefined operational objectives;

Creating a quasi-crises situation: if it aint broken, break it!

Creating a culture of innovation and learning from failures;


Project Analysis - Ideation


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These lead to identifying the Key Success Factors from:

Benchmarking key processes of existing top-class/world-class

industries; Examining sourcing, import/export and input/output practices;

Environmental Scanning & wandering around Suggestions/analyses of research, financial & development

agencies;

Generating a host of project ideaswhich require initial screening beforecommitting time and effort for further investigation:

Compatibility with promoter/shareholder viewpoint; Consistency with laws of the land and legislative priorities; Reasonableness of cost, risks and adequacy of markets; Checking out barriers to entry


Project Analysis - Ideation


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Project Analysis - Facets

Market AnalysisMarket Potential/Size

Market Share

Techn. AnalysisTechnical viability

Sensiblealternatives

Financial AnalysisRisk

Return

Economic AnalysisBenefits and costs

Knock-on impacts

Ecology AnalysisEnvironmental impact

Restoration/containment


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The starting point is the impact of the project on the top-line of the business: What is the likely aggregate demand for the product or service?

What share of market will the product/service influence?

The analysis takes place in the flow:

Situational analysis& specification of

Objectives.

Collection ofSecondary data

Conduct ofMarket survey

CharacterizationOf Market

DemandForecast

MarketingPlan


Project Analysis: Market & Demand


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Analysis of technical, engineering & ecological aspects is

done continuously when a project is being evaluated &

formulated: To ensure technical feasibility especially in respect of inputs,

To arrive at the best solution balancing technology/location/scale,

The examination is based on common sense and economic logic,

technology & ecology being in the expert domain.

The broad areas which require to be examined are:

Inputs: involves ascertaining and lining-up choices; Plant/Facility: requires assessment of internal factors &

constraints;

Project Execution: detailing the project roll-out for road-blocks,


Project Analysis: Technical


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Product / Service

Demand

Size

Location TechnologyProduct Cost

Investment

ProfitabilitySelling Price


Project Analysis: inter-linkages

Ecology


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SalesPlan

Prodn.Cost

Deprn.

Interest

Project

Cost & Time

Prodn.Plan

W/CapPlan

InvestmPlan

W/Cap

Advance

Means of

Financing

Interest & loanrepayment

Cash flowEstimate ofOprn. Result

Taxes


Project Analysis - Financial

B/Shee


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Cost of Project & Means of Finance

Cost of ProjectLand, site and building related costs;

Plant, machinery & equipment related costsHardware

Technical assistance & training fees

Start-up / pre-op. expenses Knowledge

Preliminary Capital issue expenses

Margin money (working Capital)

Initial cash losses Financing




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Cost ofProject & Means of Finance(contd)

Means of Finance

Deferred CreditIncentives

Other sources

Share CapitalDebenture Capital

Term Loans

High cost, control andlower fin. risk

Lower cost, higher fin. ri

Bridging loans

Least cost




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Project Management: Concepts (contd)

Feasibility Financial evaluation

Three Basic Questions: Can we produce the Goods and/or Services? Can we sell them?

Can we earn a satisfactory Return on Investment made in theProject? OR

Do we have a favorable Cost Benefit Ratio?

Financial appraisal gives answers to the last question,factoring: Time value of Money Pay back and Profitability Risk analysis & mitigation


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Project Management: Concepts (contd)

Time value of money

A rupee today is more valuable than the same

rupee a year hence!

Inflation reduces the purchasing power

However, money invested productively yields returns

and increases the value

People prefercurrentconsumption to future spend.

In projects, cash flows (i.e. income and

spending) are at different points of time. For a

fair analysis, they have to be brought to the

same (current) point of time


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Time value of money

To normalize cash flows we need to reduce themto a common base, usually the Present Value.

Algebraically:

PV = Present Value; FV = Future value;

Ct = Cash flow at the end of the year t

r = Interest rate

g = growth rate in cash flows

n = number of periods over which cash flows


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Time value of money

Formula (single sum):

FVn = PV(1+r)n

(1+r)n

is the Future value interest factor The process of investing money as well as

reinvesting the interest earned is calledCompounding.

Depositing Rs.1000 in the bank today @10% interest will in 8 years grow to:

1000(1.10)8 = 1000(2.144) = 2144


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Time value of money

The Rule of 72:

Investors commonly ask when will mymoney

double?

A rule of thumb says divide 72 by the interest

rateE.g. if the interest rate is 12%, the doubling period is

72/12 = 6 years

Using the formula: 1000(1.12)6

= 1000(1.974) i.e.1000 becomes 1974 in 6 years.


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Time value of money

Returns come in the future. Thus Rs.1000/-

earned 3 years from now willposses less value

today. We need to know thepresent value of

future earnings.

The process is simply the reverse/inverse of

compounding and is called Discounting.

Formula (single sum):

FVn = PV(1+r)n

thus, PV = FVn[1/(1+r)n]

The factor1/(1+r)nis called discounting factor.


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Time value of money

In financial analysis, more often cash

flow streams are uneven i.e. not a single

sum; they vary year to year

The formula for Present Value foruneven (or even) cash flows is:

PVn= A

1/(1+r) + A

2/(1+r)2 + . A

n/(1+r)n

n= At/(1+r)t, where

t=1A

t= Cash flow at the end of t year, n = duration of flow


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Project Management: The process

Investment Criteria

There are many (over 30 !) criteria which

can be broadly typed into: Discounting Criteria, mainly:

Net Present Value

Benefit Cost Ratio

Internal Rate of Return

Non-discounting Criteria, mainly:Payback Period

Accounting Rate of Return

Urgency


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Project Management: The Process (contd)

Investment Criteria Non-discounting

Urgency: Simply put, projects which have higher

urgency get priority. Issue: what is the basis for urgency?

Therefore, used only in crisis situations. Pay Back: Is the length of time to recover the initial

outlay. Shorter the pay back, more attractive the

project.

Issue: does not reflect the true worth, but is a rough and ready reckoner to make quick

evaluation and benchmarking, for initial assessment

and for small-value projects.


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Payback- the simplest/basic method

comprises:

Step1: the income that will be generated withthe initial investment;

Step2: the amount of time that the revenue will

need to be generated to cancel out the

investment. E.g. If Rs. 1 cr. is generated/yr on an initial

investment of Rs. 10 cr., then the payback is 10

yrs.


Investment Criteria Payback


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Many companies set this as a hurdle for projects, without going in for detailed

computations e.g.

Manufacturing equipment/hardware (Western): 4~5 years;

Manufacturing equipment/hardware (Japanese): ~10 years;

Computer/IT facilities: 3 years;

McDonalds franchise: 12 years.

While simple, it ignores:

The life-cycle cost (e.g. disposal or decommissioning) of an item beyond the pay-

back period a fact which could alter the viability considerably;

The time-value of money.


Investment Criteria Payback


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Investment Criteria Discounting

Net Present Value:

represents the sum of all

the cash flows,

discountedto the present

value. If the sum is +ve,

then the project is

yielding a surplus on

date. Thus viable/

feasible. E.g. given the cash flow

alongside and a

discounting of 10%;

Year Cash Flow

0 -1,000,000

1 & 2 200,000

3 & 4 300,000

5 350,000

Applying NPV formula:

NPV = 200000/(1.10)1

+ 200000/(1.10)2 + 300000/(1.10)3 + ..-1,000,000

= Rs.5273; i.e. a surplus

n

NPV = At/(1+r)t


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@ 12%discountin

g

Suppose you were to start a fast-food joint for 3

years; your estimates are:

Figs: Rs. lakhs Now Year 1 Year 2 Year 3

Start-up Costs 50

Running Costs 30 45 45

Revenues 40 50 60

Sale of Joint 70

NPV positive so worth pursuing

NPV = NPVyr1 + NPVyr2 + NPVyr3

= -50 + (-30 +40)/(1+0.12)1 + (-45 +50)/(1=0.12)2 + (-45 +60 +70)/(1+0.12)3

= 23.415


Investment Criteria NPV (DCF)


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Internal Rate of Return (I.R.R): is the

discounting rate at which the net present

value of the project is 0. It indicates the

minimum returns that the project has togenerate annually for its duration. E.g.:

Yr 0 1 2 3 4

C/F -100 30 30 40 45

The rate which returns 100is :

100 = 30/(1+r) + 30/(1+r)2 + ..

i.e. ris between 15 & 16%.

Thus accept project if the rate of return is more than thediscounting rate.


Investment Criteria Discounting


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Alternative2: plot the calculated NPV (2 to 4 iterations)

on a graph (x-axis: discount rate, y-axis: NPV) and the

determine the IRR.

E.g.:

NPV Discount Rate10

20

12.85

- 6.90


Investment Criteria Discounting (IRR)

IRR = 15.6%

Yr 0 1 2 3 4

C/F -100 30 30 40 45


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The significance of these decision support

tools are: Payback:

The most commonly used method for

evaluating investments of a small size and

with a short time horizon.

For investments of a larger size, the average

rate of return is sometimes used as theprimary criterion, with payback as a

supplementary criterion.


Investment Criteria Decision Support tools


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DCF:Allows for a quantitative evaluation of alternate uses of

funds vis--vis a safer option e.g. deposit in a bank; Is a measure of the opportunity cost of money;Offers a very clear-cut, standardized decision criterion,

e.g. invest if NPV > 0. IRR:

Represents the return earned on initial investment

made in a project OR the rate of return on the un-recovered investment balance in the project. It is easy to understand and is easily benchmark-able

against other financial, economic rates. (NPVs are notso readily comparable to outside world)


Investment Criteria Decision Support tools


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Investment Criteria Observations

NPV is expressed in absolute

terms and does not indicate

the scale of a Project;

NPV favors longer term

projects

The IRR rule does not

differentiate lending &

borrowing; e.g.

IRR is clearer than NPV & isless sensitive to discounting

ratio.

NPV Invest. Ratio

X +5000 50000 10%

Y +2500 10000 25%

C/Fl.

Yr 1

C/Fl.

Yr 2

IRR NPV@10%

A -4000 +6000 50% 145

B +4000 -7000 75% -236


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Financial evaluation Discounting Criteria

Economic analysis: is the methodology to

evaluate projects from the Societal view point,

primarily Public investments.

Social cost/benefits differ from monetary measures

due to Societal considerations and market

imperfections;

UN has formulated an process to assess this under

the UNIDO Guide, in which societal and market

considerations have been integrated to assessdesirability of a Project. (Please read handout on

Bridge Project & River Valley Project as an

example for the approach)


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Feasibility -Risk

Risk analysis is one of the most slipperyaspect of projectevaluation there is no one unique method or dimension: Technique 1 stand-alone risk of a project

Technique 2 risk of a project in the context of the firm and/or themarket.

Risk source is event specific and needs to be assessed at feasibilityfor threats to financials as well as impediments for execution(entailing unforeseen fund flow)

For management of risk, measurement is essential

Risk is two sided: Alpha Risk: accepting the wrong

Beta Risk: rejecting the right


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Event linked risk measures (Time & Cost)

Likelihood: the expected probability of an untoward

occurrence (e.g. earthquake) In real life, this is a geophysical phenomenon and can be

linked to a region and a value assigned say 0.2

The expected impacton the project: in case of NPV calculations, the financial impact

in case of untoward occurrence in implementation, the time

& cost impact (loss and recovery)

The product likelihood x impact definesconsequence, thus the ranking of risks.


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Risk measures of risk (Prioritization)

HighPriority

HighPriority

HighPriority

MediumPriority

MediumPriority

MediumPriority

Expected Impact on Project

LowPriority

LowPriority

LowPriority

LowMediumHigh

Me

diu

m

High

Low

Probabili t

yofOccurrenc

e


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Risk Management

Project Risk

Management

Identification

External SourcesKey risk symptoms

Time, Cost & Quality Analysis

Assumptions

Quantification

Likelihood

Effect/ImpactHideability

Response Control

No Action; Ignore

Contingency & Reserve

Corrective Actions


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FinancialRisk

Risk Analysis

Stand Alone Contextual

SSS Analyses

Break Even

Decision Tree

Corporate Risk

Market Risk

Easier to

measure


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FinancialRisk

Risk Analysis

Stand Alone Contextual

SSS Analyses

Break Even

Decision Tree

Corporate Risk

Market Risk

Easier to

measure


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Risk to financials sources

The several sources of risk with respect to projected

earnings and cash-flows are:

Project-specific risk projections may be erroneous due to

Competitive risk affected by unanticipated actions of

competition or new competition

Industry-specific risk Unforeseen technologies/ products,

regulatory changes etc.

Market risk Unexpected changes in macroeconomic factors

International risk Extraordinary developments on the

exchangerate and/or Political climate


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#1 Sensitivity:

Financial statements are worked out with each

line changed for optimistic/realistic/

pessimistic values one at a time, the other

lines being held at realistic values.

Investigating the situation whatif a change in

assumption/projection were to happen

Indicates the strength of relationship between the

outcome/result and a given parameter e.g. changein profit if material-costs go up to pessimistic

levels.


Risk the SSS Analyses of Financials


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Risk the SSS Analyses

12.793

/

2.05 11.497

-

6.233

x 5.264

12.9% 14.8%

12.793

-

1.103 1.219 5.854

+ +

809 925 11.690 11.573

%

P&L 6.30% 7.20% -294 5.854 5.728

12.793

Sales

Purchased

materials

Operating

Income

Financial

Income

Income

before Tax

Operating

expenses

Other Costs

Capital

Turnover

RONA

A 'Du-pont" style Report

Margin

Sales

Total Assets

Interest free

Liabilities

Net Assets

Sales

BalanceSheet


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#2 Scenario:



Variables are interrelated, thus painting different, plausible

scenarios involving different (but consistent) sets of

variables is helpful. Usually, the factor(s) chosen represent

the largest source of uncertainty (e.g. market growth rate),around which the scenarios are built.

The Best/Worst Case Analysis: where scenarios involving

best/normal/ worst sets of variables are worked out, e.g.

BEST: high demand, high selling prices, low operating costsetc.

WORST: low demand, low selling prices, high operating

costs etc.


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#3 Simulation:



Sensitivity analysis indicates what-if nature

correlations between dependant and various input

factors, denoting strength of relationships;

A decision maker would want more certainty i.e. the

likelihood of such occurrences. Simulation techniques help in developing probability

profiles of events by combining (randomly) values of

variables which have a bearing on chosen criteria. It is a powerful technique which permits use of great deal of

information and a highly efficient medium of communication; It does not replace judgement, contrarily it requires more

application of judgement;

A useful technique in the absence of good experience


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Project Management: The Process(contd)

Risk measures of risk (NPV)

Risk is measured from:

Probability of occurrence (Likelihood):

the variability associated with obtaining

different results (e.g. NPV)

A measure of the risk is the range i.e.

difference between the highest/lowest value i.e.

900 200 = 700

NPV Prob.

200

600

900

0.3

0.5

0.2

The weighted NPV works out

to: 3E(NPV) = pi NPVi

i=1

= 0.3x200 + 0.5x600 + 0.2x900

= 540


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Risk measures of risk (NPV)

The higher the spread the more the variability and

risk

Standard Deviation ( ) of the NPV distribution

quantifies this:

= {0.3(200-540)2+ {0.5(600-540)2+ {0.2(900-540)2}= 250

We can now define a coefficient of variation in which

we relate the to weighted net present value: CV = /weighted value ; = 250/540 = 0.46

The higher the CV, the higher the risk ranking


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Lending institutions/financial managers wantto know how much should be sold/producedat a minimum to ensure the project does notlose money?

Viewpoint 1: Accounting i.e. a value thatensures return of principal without availing ofany opportunity (via the time-value principle).Projects breaking even this way may have ve NPV

Viewpoint 2: Financial - the focus is on valuecreation i.e. the level at which the project willyield at least 0 NPV.


Risk the Break Even


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Interest

Factor

12%,10yrs

PbT=0.33Sls 3M

Tax = 0.33 PbTPaT = .667 PbT

Sls 9M

V.C. 6M

F.C. 1M

Depr 2M

PbT 0M


Risk the Break Even

P & L Forecast for a new Plant

Head Yr0 Yr1-10

Investment 20,000

Sales 18,000

Var.Cost 12,000

Fixed Cost 1,000

Deprn. 2,000

Pre-tax Profit 3,000

Taxes(@ 33.3%) 1,000

P.a.T 2,000

Cflow (Oprn) 4,000

Net Cflow 20,000 4,000( Figs. Rs 000)

Accounting BEven:

Sales = (Fixed Costs + Deprn.)/

Contribution Margin ratio

= (1,000+2,000)/0.333

= Rs. 9 M

Financial BEven(12% rate):

Cash Flow = Deprn.+ P.a.T

=0.667(0.333x Sales Rs.3M)+ Rs.2M

= 0.222 x Sales

PV = 0.222 x Sales ( Discounted)= 0.222 x Sales x 5.650

i.e.20,000 = 0.222 x Sales x5.650

= Rs. 15.94 M

Contribution

margin %

Sales =

33%


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i.e. Tot. accruals/

Tot. Debt burden

In addition to Break Even, financial institutionsalso assess: Break Even Point for Capacity Evaluation (BEPCU):

Projects reach capacity outputs over time. Only on

reaching this point can stable operations start. The Fixed Cost/Contribution ratio is multiplied by

%age capacity utilization to derive BEPCU

Debt Service Coverage Ratio (DSCR):Borrowers ability to service a debt is important!

DSCR = (P.a.T + Deprn & amorzn + Interests +

Lease rentals)/{Repayment & Interest of term debt

+ Lease rentals} all values cumulatedover theperiod under consideration.


Risk the Break Even

All ratios

are furthersubjected

to

Sensitivity

Analysis


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A tool developed and used for aiding sequential

decision making in face of risk involved at every

stage e.g. oil-field development.

Identifying the problem and alternatives; Delineating the decision tree: diagrammatic

representation of the nature of decisions situations;

Specifying the probabilities, impacts and outcomes;

Evaluating the decision alternatives.Study handout on the example of a decision tree

analysis Spectrum with their electric moped.


Risk the Decision Tree Analysis


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Organizing for Projects

Projects are carried out by Institutions themselves

(e.g. Aircraft Coys) Or outsourced to Pure Project

Organizations (e.g. MMRDA).

Pure Project Organizations have a core, leanmanagement team and engage man-power from a

Contractor Pool allowing forflexibility in both

nature and quantum of Human Resources.

Institutions borrow personnel from internal expertgroups to form Project Teams (who in turn might

outsource specifics) to execute Projects.


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Organizing for Projects(contd)

Pure Project e.g.

Construction

C.E.O

Housing PortsRoads

PM 1

PM 2

PM 1

PM 2

PM 1

Contractor Pool

Project Team e.g. Auto-

mobile

Director

Design Markt.Manf.

Mgr 1

Mgr 2

Mgr 1

Mgr 2

Mgr 1

Mgr 2

PM

Rafting or Matrix Structure


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Planning Work in Projects

Elements

Objectives

Activities (What ?)

Schedule (When ?)

Budget ( How much ?)

Organization (Who ?)Work methods (Procedure, Standards )


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Planning Work in Projects (contd)

Project Planning & Control System

Objective

Budgets

Reports(Time, cost,Performance)

ManagementDecision making

Detailing:

(SoW, WBS)

Scheduling:

PERT, CPMetc.

Tracking:Time/Cost/Performance

Feedback


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Major Project Plan Documents 1. Statement of Work/Scope of Work (SoW)

A general description of the work to be performed- called deliverables

work excluded

Overall schedule of project

Construction of House

Construction, painting, internal electrical wiring, provision of electrical points,plumbing as per the design of the Architect and the work specifications

Electrical fittings and Sanitary fittings to be supplied by the owner(exemption)

Completion date- 6th June 2004


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2.Work Breakdown Structure (WBS) The breaking of overall project into sub elements Could be further broken down Enables preparation of individual work schedules, their inter

relation ships and precedence Enables estimation of Resource requirements Enables realistic Costing

It is the basis for costing and scheduling & is monitored in the

project control process to compute variance with actual costsand schedules.

Identifies the Functional divisions/ Managers, Contractors to be

involved for apportioning responsibilities


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Example of WBS - Construction of a building

1. Excavation

2. Foundation

3. Frame

4. Walls

5. Ceilings

6. Electrical wiring

7. Plumbing

8. Painting

Each of these will have a detailed Specification


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3. Specifications

The requirements to be met

Could be compatibility with established standards ora new specified requirement

Helps in realistic costing

Avoids ambiguity and consequent cost and time

over runs & legal issues


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A typical User (Customer) Contractor Exchange (in

absence of clear specifications)

Contractor: The lighting for the office is finished. As we

agreed, I wired 20 ceiling lights

Customer : But you said there would be enough lights tomake the room bright. This room seems kind of dark

Contractor : For a room this size, 15 lights are standard.

As we agreed, I put in 20 just to be sureCustomer: Yes, but you said 20 would make the room

bright and they dont. You will have to put in more lights



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Planning Work in Projects (contd) Constructing process maps is a method

currently favoured by Project Managers,

e.g. 4-fields mapping . It captures Projectphases, Tasks in the phases, Responsibilitymatrix for Tasks & the Standards for tasks

#3 Task flow

#1 Team Members# 4 Standards

Listed for eachtask**********

*****

#2 Phases (WBS)

With start/endCriteria. A

B

C

(ResponsibilityMatrix)

Eachphase hasmanytasks


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Designing & Tracking Tools

The Project Planning process stages are: Identify the constituent activities; Determine their logical sequence; Prepare estimates of time & resources;

Present the plan in a readily readable format.

The general approach to planning involves starting with arough overview and then conducting revisions of thisthrough an iterative process i.e. going through the cycle

several times to test the effect of the revisions made on theoutcomes;

The objective is to make major revisions early in theplanning cycle and then make minor refinements in the plan.


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The development ofdetailed time plans have varyingcomplexity, in line with the nature of the project, howeverthe significant area of commonality is: A construction of comprehensive but understandable picture

of the project activities; Communication with others.

The preference forgraphical techniques hinges on theability of people to understand what is going on i.e.visibility, illustrating inter-relations between activities

and time. The 3 most commonly used charts are: The Gantt Chart Program Evaluation & Review Technique: PERT charts Critical Path Method: CPM charts.


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Gantt (Bar) Charts: Simple to construct and understandSimple to construct and understand Can track progress of individual Activity easilyCan track progress of individual Activity easily Good for small projects; e.gGood for small projects; e.g Boil Water for TeaBoil Water for Tea

Activities:1. Fill kettle. 02mins.2. Put on the stove..01min

3. Light the stove. 01min.4. Wait for boiling . 05mins.5. Take off kettle . 01min.6. Put off stove . 01min.

Actualactivity

Plannedactivity


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Network Scheduling

Developed to address the drawbacks of Ganttchart esp. inter relationships/ inter dependenciesbetween Activities

Suited for complex projects involving manyactivities.

PERT developed for US Navy to manage complexPolaris Missile Program.

CPM developed in 1957 in an industrial setting (for Plantconstruction project for DuPont), and gives relatively

more importance to project cost.


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Concepts in Network DiagramsConcepts in Network DiagramsActivity-on-Arrow (AoA)Activity-on-Arrow (AoA)

Activity Symbol of Activity Time required

Fill kettle A 01 min.

Event- Beginning or End of an Activity

Beginning of fillingEnd of filling

A

01min.1 2

IMPORTANT RULE:

There can be ONLY ONE Arrow (Activity) between two events!

Pl i W k i P j ( d)


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Concurrent Activities Activities that can be carried out concurrently / simultaneously

Not interdependent

1

2

3B

A A = Fill kettle

B = Light stove

C

2D

3 4

5

C Preceding Activity

D Succeeding Activity

Activity Symbol of Activity Time required

Observing for water to boil C 5 mins.

Take kettle off stove D 1 min

1

Succeeding/Preceding Activities

Pl i W k i P j t ( td)


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1 2

3

4

AB

C

Example of two Activities with a Common immediate Predecessor

Dummy Activity- An imaginary Activity which does not consume resources

but included in the Network diagram to maintain network logic and

understand inter dependency of Activities

2 4

A: Fill Kettle

B: Set up tea cups

C: Wait for water to boil



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Activities:

Description Predecessor

A. Fill kettle. 02mins. Start

B. Place on the stove..01min A

C. Light the stove. 01min. StartD. Observe boiling . 05mins. C

E. Take off kettle . 01min D

F. Put off stove . 01min. E

e.g. A-o-A chart for Boiling of water for tea:

A B

C

D E F

0 1

2

3 4 5 6

Note: If we were to include set up tea cups as an activity and we would do it while

waiting for water to boil; activity D would then become a dummy & activity set uptea cu s would be a real activit .



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The Critical Path

The major use of networks is for determining: how longthe project will take & when each activity should be scheduled.

The project duration is determined by finding the longestpath through the network: A path is any route comprised of one or more arrows

(activities) connected in sequence; The longest path from the origin node to the terminal node is

called the Critical Path; This gives the expected duration of the project.


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The Critical Path: an Example

DA

St 1

B

C

2 3

E

F

En

4

A Shopping (H&W) - 1

B Prepare to cook (W) A

C Cooking (W) B 2

D Bathe & dress (W) C 1E Tidy house (H) A 1

F Bathe & dress (H) E

Project: Dinner party (H & W)

There are TWO paths: #1 St 1 -2 3 En ( i.e. A-B-C-D) &

#2 St 1 4 En (i.e. A-E-F)

Path # 1 takes: 1 + + 2 + 1 = 4 H

Path # 2 takes: 1 + 1 + = 3 H

The Project requires 4 H and path #1 determines the duration: thus Critical


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Activities not on the critical path can be delayed

without delaying the project however, by how

much?

The logic is to determine the latest allowable time that the activitycan be completed without delaying the completion of the project, i.e.

the start can be late (or early);

The time difference between early start and late start is called

slack orfloat;

The total slack time is the maximum delay that can occur for non-critical activities. Once this slack is used up, non-critical activities

become critical and any further delays will extend the project

completion.

The Critical Path



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Estimating Activity Duration( PERT)Estimating Activity Duration( PERT) The target Project completion date is dependent on the

proper estimation of duration of all Activities involved

Estimation of Activity duration is not always a straightforward process because of an element of uncertainty

PERT addresses the uncertainty in the duration by using

three time estimates

Optimistic

Most likely

Pessimistic



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Estimating Activity DurationEstimating Activity Duration contdcontd

Optimistic Time estimate a- Every thing goes accordingto plan with minimum difficulties

Pessimistic time estimate b Maximum possible time forcompletion considering all unfavourable conditions

Most likely Time estimate m - Lies between Optimisticand Pessimistic time estimates. Time required to

complete in normal conditions

Estimates are obtained from, experience, people &experts knowledgeable about the difficulties involved



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Expected Time (tExpected Time (tee) for completion of activity) for completion of activity

PERT assumes that a, b are equally like to occur, whereas m isfour times more likely to occur

Thus, te = (a+4m+b)/6

Variance, v = {(b-a)/6}2 is the measure of variability inthe activity completion time

Standard Deviation, = v1/2

The larger the difference between a & b, the larger thevariance and uncertainty with te; i.e the higher thelikelihood of completing earlier or later than te.



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Probability of Project CompletionProbability of Project Completion The expected Project Completion Time is the SUMof the

Expected completion time te of ALLactivities on the CriticalPath;

The Standard Deviation, , for Project Completion Time isthe Square root of the sums of Variances of ALLactivitiesalong the Critical Path:

= ( v1 + v2 + vn)1/2

The probability of completing the project in the given

completion duration, ts,is determined by the number ofstandard deviations separating them:

z = (ts te)/ , the corresponding probability can befound from a standard z-table.



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Probability of Project Completion (example)Probability of Project Completion (example)

Avity to

(a)(a)

tp

(b)

tm

(m)

te/v

A 2 10 3 4/1.78

B 3 5 4 4/0.11

C 4 12 5 6/1.78

D 5 7 6 6/0.11

E 5 9 7 7/0.44

F 4 12 5 6/1.78

Path PathVariance

path Z (ts = 11days)

Prob. in11 days

A-D 1.78+0.11 1.37 (11-10)/1.37 0.7673

B-E 0.11+0.44 0.74 (11-11)/0.74 0.5000

C-F 1.78+1.78 1.87 (11-12)/1.87 0.2981

A

B

C

D

E

F

The probability

of finish in lessthan 11 days =

.7673 x.5 x.2981

= 0.1143 i.e.

< 12% chance

te = (a+4m+b)/6; v = {(b-a)/6}

2 path = ( v1 + v2 + vn)

1/2

z = (ts te)/ ath

(ts = 11days)



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Planning Work in Projects (cont d)


Avity to

(a)(a)

tp

(b)

tm

(m)

te

A 2 10 3 4

B 3 5 4 4

C 4 12 5 6

D 5 7 6 6

E 5 9 7 7

F 4 12 5 6

A

B

C

D

E

F

The Critical Path

Path A-D (S-1-E): 4 + 6 = 10 days

Path B-E (S-2-E): 4 + 7 = 11 days

Path C-F (S-3-E): 5 + 7 = 12 days

i.e. the project is not expected tobe completed in less than 12 days.

The longest Path is C-F (S-3-E) and

is critical, defining the duration.

S E

1

2

3



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Developed in 1957 gives relatively more importance to

project cost, when Project activities are more accurately

forecast-able and a definite relationship between time and

cost can be established for each activity.

The CPM assumes that the estimated completion times can

be influenced by applying resources to particular key

activities that the time for any activity is variable,

depending on the amount of resources applied.

The PERT method has been criticized because it is based

on assumptions that sometimes yield uncertain results!

The Critical Path Method(CPM)



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CPM and PERT: a comparisonCPM and PERT: a comparison

Both employ Network diagrams & analysis of criticalpaths

CPM, however, use a deterministic approach in timeestimates for each Activity: only one time estimate isused. Thus, in CPM there is no statistical treatment ofuncertainty.

CPM is more Activity oriented. Hence it is possible to

measure percentage completion of an Activity CPM more suited for well defined projects, withrelatively small uncertainties like construction or in theProcess industries



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CPM and PERT: a comparisonCPM and PERT: a comparison

CPM includes a mathematical procedure for estimatingthe trade off between Project duration and Cost

PERT, puts greater emphasis on uncertainties and onEvents (Mile stones)

PERT is more suitable for R&D type of projects where

uncertainties are more and duration of an Activity cannotbe estimated accurately



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Analyzing Networks

For analyzing networks, e.g. to determine CriticalPath, Slack, Probable Completion Times, etc. weneed information on: Activity & Interrelations (preceding/succeeding)

Earliest event time & latest event time (to bedetermined)

Conventionally, these are included in the nodesas under (for a single activity):

Event Label

10

Earliest Event Time

0

Latest Event Time0

205

5



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Analyzing Networks: Constructing

An example:

A project consists of the activities, deterministic times andsequence as under:

Activity No. Duration (days) Sequence

A 5 with startB 3 after A finishes

C 4 after A finishes

D 5 after A finishes

E 6 after B finishes

F 7 after C finishesG 5 after D finishes

H 8 after F,G & H finishes

On finishing H, the project is completed.



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Analyzing Networks

10 00

20

A

5

30B

3

50

D

5

40C4

60

E

6

F7

G

5

70H8

Constructing the Network Diagram (Activity on Arrow)



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Analyzing Networks

10 00

20

30

40

50

60 70

A

5

B

3

D

5

C4

E

6

F7

G

5

H8

5

8

9

10

16

Latest !

24

Estimation of Earliest Event Times

Forward Pass



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Analyzing Networks

10 00

20

30

40

50

60 70

A

5

B

3

D

5

C4

E

6

F7

G

5

H8

5

8

9

10

16

Latest !

24

Estimation of Latest Event Times

2416

10

9

11

5

Earliest Reverse Pass



99/139

Path with no

Slack OR Float!


Analyzing Networks

10 00

20

30

40

50

60 70

A

5

B

3

D

5

C4

E

6

F7

G

5

H8

5

8

9

10

16

Latest !

24

Determination of Critical Path

2416

10

9

11

5

Earliest



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What do we do with determination of Critical

Path?

Provides us the key to prioritization

Provides us the back bone for further analysis:Of Resource needs and costs

Impact of adjusting Project Schedules

For reporting on an agreed base

If we can establish a Time-Cost relationship.


Analyzing Networks

Analyzing Networks: Time-Cost


101/139

Analyzing Networks: Time-Cost

Relationship (CPM)

In repeat or standard projects, duration & costof activities are reasonably well established: Resource requirements per unit of work is defined Technological or other minimum time to finish a job is

known A standard or normal time and cost can be

established

The Critical Path in a network are derived usingthe standard times.

But client requirements and/or deadlinepressures may require a Project to be expedited. With additional resource inputs, time reduction is

possible


102/139

Time-Cost Relationship: CPM (contd) Definitions:

Standard Time: the time

usually/normally required

to carry out an activity: Ts

Crash Time: the

minimum time requiredto carry out an activity.

Reduction impossible: Tc

Standard & Crash Costs:

Costs for resources

associated with theseTimes: Cs, Cc

Time

Cost

TsTc

Cc

Cs

Cost Slope:

Cost per time-unit

of activity.


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Assumptions: Time required for an activity can be

crashed (i.e. reduced) to its crash time to

reduce its duration; Additional costs are incurred, proportional to

the time reduction effected to cover the

added resource deployment;

To reduce the project duration, only

activities on the critical path need to be

crashed.

Time-Cost Relationship: CPM (contd)


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Example:Activity T

sT

cCs C

cSequence

A 5 3 30 60 Start

B 9 5 50 90 After A

C 8 7 50 100 After A

D 6 4 20 50 After BE 3 2 10 20 After C

F 4 1 50 80 After D, E

1 2

3

4

5 6A

B

C

D

E

F

4/1

3/2

6/4

8/7

9/5

5/3 13

0 5

14

20 24

0 5 2420

14

17

Project

Duration: 24W

Cost:

Rs.210m



105/139

1 2

3

4

5 6A

B

C

D

E

F

4/1

3/2

6/4

8/7

9/5

5/3 13

0 5

14

20 24

0 5 2420

14

17

If the Client wants a 1W reduction we will need to crashsome activities. Which one?

Activity Ts Tc Cs Cc

A 5 3 30 60

B 9 5 50 90

C 8 6 50 100D 6 4 20 50

E 3 2 10 20

F 4 1 50 80

Project

Duration: 24W

Cost:

Rs.210m

We want to reduce the

Project Duration. So we look

for activities on the Critical Path:

A, B, D or F?

Reduction must be at theleast cost/time unit. So we look

for activity with lowest cost slope.

B has the least slope: we

reduce B, adding Rs.10m to

Cost.

Cost Slope

15

10

5015

10

15

Project

Duration: 23W

Cost:Rs.220m

8/5 23

13

19

2319

16



106/139

1 2

3

4

5 6A

B

C

D

E

F

4/1

3/2

6/4

8/7

8/5

5/3

If the Client now wants to execute at the least possible time.What can the Project manager offer?


A 5 3 30 60

B 8 5 50 90

C 8 7 50 100D 6 4 20 50

E 3 2 10 20

F 4 1 50 80

Cost Slope

15

10

5015

10

15

We can crash B by 3 more

weeks to 5 at an additional

cost of Rs.30m. B then is at

Crash. This reduces the Project

duration to 20W.This makes the other Path i.e.

A, C, E & F Critical too! So any further reduction will

need to effect both Paths.

A-B-D-F: 23 W

A-C-E-F: 20 W


0 5

13

2323

1919

13

1316

505/5

20 W,

250m

10

1620

2016

13


107/139

1 2

3

4

5 6A

B

C

D

E

F

4/1

3/2

6/4

8/75/3

If the Client now wants to execute at the least possible time.What can the Project manager offer?


A 5 3 30 60

B 8 5 50 90

C 8 7 50 100D 6 4 20 50

E 3 2 10 20

F 4 1 50 80

Cost Slope

15

10

5015

10

15

5/520 W,

250m

We can reduce F by 3

W, costing 45 m & A by

2 W, costing 30m. A & F

are crashed. C, D & E are not yet at

crash. D can be reduced

by 2 W, costing 30m.

C & E can be crashed by

1 W each, costing 60m.

14 W,

Rs. 415m

Project

Duration: 24W

Cost:

Rs.210m

14

14

10

10

6

6

3

3

0

0

7

7


3/31/1

325 m4/4

7/7 3/3

415


108/139

To run a Project, an establishment need to be setup to coordinate the activities. Establishment is relatively independent of the Activities

e.g. Project Office, Communication, Security etc. the

extent may vary with nature of Projects. This set-up exists for the entire duration of the Project

and is minimally affected by activity variance. Thus, the cost for this is fixed/structural in nature and

has to be incurred for the duration of the project and is

directly proportional to time. Activity is inversely proportional to time.

Activity Cost and Establishment costs displaycontrary time-trends.



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Time

Cost

Activity

Establishment

Total

The Total Cost passes is

is U shaped i.e. passes through

a minimum point. Thus crashing a Project is also

determined by the establishmentcost to determine the Optimum

or least cost.

E.g. In our previous example if we

were asked for the Optimum Cost,

given the establishment cost is

@ Rs.15m/week. We would needto factor in this cost along with the

crashed activity costs.


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Duration Activity Cost Estabish--ment Cost @

Rs.15 m /w

Total Cost

24 W Rs.210m Rs.360m Rs.570m

23 W Rs.220m Rs.345m Rs.555m

20W Rs.250m Rs.300m Rs.550m

14W Rs.415m Rs.210m Rs.625mCrashedDuration

NormalDuration

Optimum

Duration


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Project Control

The basic questions that need toanswered are: Is the project as a whole (and its parts) on/

ahead /behind Schedule? Has the cost of the Project as a whole (and

its parts) as per/ more than/ less thanbudget?

What is the trend in performance? The Standard Variance analysis

approach is inadequate!


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Project Control (contd)

E.g. (Costs in Rs. 000)

Activity A Activity B

Bud. Cost in Period 50 30

Cum. Bud. Till Date 200 75

Actual cost in Period 55 28

Cum. Actual till date 240 80

Standard Budgetory Control Variances:Variance for Period: - 5 2

Cum. Variance till Date - 40 - 5

Is work on

schedule?


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Definitions:

Budgeted cost of work Scheduled (BCWS): represents

the total cost budgets for all work packets to be

completed and work-in-progress scheduledto be

finished on date;

Budgeted cost of work Performed (BCWP): represents

the total cost budgets for all work packets to be

completed and work-in-progress executed on date;

Actual cost of work Performed (ACWP): represents thetotal cost budgets for all work packets to be completed

and work-in-progress executed on date;


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With these 3 parameters, a Project may be

monitored:

Cost Variance = BCWP ACWP

Cost Performance Index: BCWP/ACWP Schedule Variance = BCWP BCWS (in cost terms)

Schedule Performance Index: BCWP/BCWS

Estimated Cost Performance Index: BCTW/(ACWP +

ACC)Where, BCTW = Budgeted cost of total work & ACC = Additional

cost for completion)


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E.g. Project Start 01/01; End 30/10 andreview 30/06 i.e. 24 w (figs. In Rs. L)

BCWS: 15

BCWP: 14

ACWP: 16BCTW: 25(40 w)

ACC: 12

Cost Variance: BCWP ACWP (14 -16) = -2

Schedule Var.: BCWP BCWS (14 15)= -1

Time Variance: Status date Date at which BCWS=BCWP

Est. Cost Index: {BCTW/(ACWP+ ACC)} {25/(16+12)} = 0.89

SpentMore

Behind

Schedule

Will spend more;

funds required



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Project Control (cont d)

25

40Weeks

Rs. L

BCTW

Review Date

24

BCWS

BCWP

Time.Var.

ACWPCost Var.

Schedule

Var.

X ACWP

+ ACCOverspend

1615

14

P j t C t l ( td)


117/139

Project Control (contd)What do these terms really indicate?

A project manger can charge the client at pre-agreed ratesfor work completed on date of review This is BCWP andrepresents the Earned value of the project.

The manager has paid out at actual to his supplier for thework performed This is ACWP.

If the Actual is less then Earned, then the cost is successfullymanaged!

However, if the progress is behind schedule then the clientpays only for completed task and the Projects earnings areless than budgeted. Schedule variance is this shortfall.

P j t C t l (P ti P bl )


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Project Control (Practice Problem)

You have employed a Contractor to install 10000computers @ 20 computers/day and @ Rs.200 /installation. Every 10 days, there is a review andpayment. At the end of the 30th Review, you find:

#s installed 5800Bill raised Rs.62000/-

A) Determine: Time, Cost & Schedule Variances

B) What is the earned value for the Contractor?

C) What do you report to your management about theCompletion of the project, assuming the Contractorhas put his best efforts and unforeseen situationshave arisen in work execution.

P j t C t l (P ti P bl )


119/139

BCWS: 30x10x20 x Rs.200= Rs.1.2 M

BCWP: 5800 x Rs.200/- = Rs.1.16 M

ACWP: Rs.0.62 M

Cost Variance: Rs.1.16 Rs.0.62 = Rs. 0.54 M

Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M

Time Variance: 1 weeklate (5800 should have been installed by the 29th

review!)

Earned Value: 5800 x Rs.200 = Rs.1.16 M, (contractor has probably

under billed.)

Project will be at least 1 week late and will complete the project within

the budget, subject to bill verification.




120/139

BCWS = Rs.1.2 M; BCWP = Rs.1.16 M ACWP: Rs.1.18 M Cost Variance: Rs.1.16 Rs.1.18 = - Rs. 0.02 M Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M Time Variance: 1 weeklate (5800 should have been installed by the

29th review!) Earned Value: 5800 x Rs.200 = Rs.1.16 M, contractor will be paid

this amount. The Rs.0.02 M excess has to be examined. Project will be at least 1 week late and the projectwill overshootthe

budgetif the billing is found correct. Then the installation rate worksout to (Rs.1.18M/5800) Rs. 204/- per installation

ACC: (10000-5800) x Rs.204 = Rs.0.87 M; Projected Cost: Rs.(1.18+ 0.87) = Rs.2.05M againstBCTW: Rs.

(10000 x Rs.200) = Rs.2.00 M


If the billing is corrected to Rs.1.18 M

Project Scheduling with Resource


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j g

Constraints

In real life, there will be constraints on availability &use of resource: Not every resource required will be freely available

influencing design of project activities

Particularly true when multiple activity/ projectsrequires the same resource e.g. Specialist skills

Further, crashing will need to take this constraintinto consideration



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Constraints ctd.

Resource Loading is the amount of resource necessary forthe Project:

Changes through the duration of the execution since nature

and type of activities vary with time

Results in variable requirement/loading of a resource over

time The usual resource loading pattern is:

A slow but steady build-up

Intense peaking at a certain point in time

A gradual decline

Most Projects require few resources at early and latestages and many in the middle.

This problematic for mangers who would like to deal

with uniform pool of workers, equipment etc.



123/139

j g

Constraints ctd.

The process of smoothening the resourcerequirements though the Project duration is

termed Resource Leveling: Aimed at sequencing the project activities to level the

requirement of the constrained resource, e.g. shiftworking on bottle-neck machine.

The results in resource requirements for the overall

project is maintained at a fairly constant level

Fair amount of leveling can done by juggling the

activities around: Taking advantage of Slack

Delaying non-critical activities.



124/139

j g

Constraints ctd.

Consider a Maintenance Project involving overhauling amachine using a team of mechanics. The machine has

different sub-systems which can be independently

worked upon: Hydraulic, Electrical & Mechanical. The

Project details are given as under:

Activity days team strength

A) Disassembly (1-2) 2 3

B)Ohaul Hydraulic (2-3) 2 2

C)Ohaul Mechanical (2-4) 4 3

D)Ohaul Electrical (2-5) 1 1E)Assembly (4-6) 2 3

Note: No mechanic can work more than 5 days at a stretch



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j g

Constraints ctd.

A B C D E

Gang 1 1 1 1 1

Man /day

2 2 3 1 3

Durn. 2 2 4 1 21 2A

2

3

4

5

6

B

2

4C

D

1

2E

1 2 3 4 5 6 7 8

2 2 6 4 3 3 3 3

1 1 3 2 1 1 1 1

Man Reqd.

Gang Reqd.

Day



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j g

Constraints ctd.

A B C D E

Gang 1 1 1 1 1

Man /day

2 2 3 1 3

Durn. 2 2 4 1 21 2A

2

3

4

5

6

B

2

4C

D

1

2E

1 2 3 4 5 6 7 8

2 2 3 4 5 5 3 3

1 1 1 2 2 2 1 1

Man Reqd.

Gang Reqd.

Day

1 mechanic can join from day 3, 1 more

from day 4, 1 more from day 5 and 2

mechanics can leave from day 7; so no

mechanic works more than 5 days



127/139


Many Projects which are done in companies are

aimed at improving the current status or solving

recurring problems, e.g.: In Operations: reduction of rejections

In Design: reducing documentation & testing time In Finance: reducing accounts receivable & bad debts

Though the subjects are different, most of these

require the same approach based on utilizing in-

company knowledge and experience Thus there is a standard process for these

Projects, developed from the TQM philosophy.

Improvement Projects: Information & Decision


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Improvement Projects: Information & Decision

When work is delegated or distributed two dimensions, Responsibility

and Authority are prime concerns. But there is more, especially during aset-up/change process;

People have to "do" something to make the processes happen. Thereforeit is useful to describe what should be done by whom

The RASCI model is a relatively straightforward tool that can be used for

identifying roles and responsibilities R = Responsible - owns the problem / project A = to whom "R" is Accountable - who must sign off (Approve) on work

before it is effective S = can be Supportive- can provide resources or can play a supporting

role in implementation C = to be Consulted- has information and/or capability necessary to

complete the work I = to be Informed - must be notified of results, but need not be

consulted

RASCI Chart for Road Repair

Information & Decision contd


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IRIA

I, SIRA

RAIC

IRCA

RASCI Chart for Road Repair

Resume trafficflow

Repair road &certify

Divert & usealternate route

Stop access

for period

PublicPoliceContractorMunicipality

Information & Decision contd


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Providing Information and granting Decision Rights requires to be

supported by decision-making abilities. Decision-making is a universally important competence in business.

Some decisions clearly have a greater impact on the businessthan others, but the underlying skill is the same;

The difference is in the scope and depth of the process you go

through to reach your decision In day-to-day operations, these are mostly in the domain of:

Choice making Problem-solving/Improvements

In these areas, the people need to be supported with simple tools/aids,

viz. Decision support tools for making a choice quantitatively

Problem Solving tools E.g. The 8-D methodology, Six Sigma

Decision Making: informed choice


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Decision Making: informed choice

One reason why decision-making can be so problematic is that the mostcritical decisions tend to have to be made in the least amount of time.

People feel pressured and anxious;

The time pressure means taking shortcuts,jumping to conclusions, or

relying heavily on instinct to guide your way.

The other extreme is the guy who simply can't make a decision becausehe analyses the situation to death!

Between instinct and over-analysis is a logical and practical approach to

decision-making that doesn't require endless investigation, but helps

weigh up the options and impacts is needed.

Decision-making is a skill setthat needs be learned and improved; One such approach is called the Kepner-Tregoe Matrix. It provides an

efficient, systematic framework for gathering, organizing and evaluating

decision making information.

Making an informed choice


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Kepner-Tregoedescribes the following steps to approach

decision analysis:

1. Prepare a decision statement having both an action and a

result component;

2. Establish strategic requirements (Musts), operational objectives

(Wants);

3. Generate alternatives. Check if Musts are met by eachalternative;

4. Rank objectives (Wants) and assign relative weights;

5. Assign a relative score for each alternative on an objective-by-

objective basis;

6. Calculate weighted score for each alternative and identify top

two or three;

7.Make a final, single choice between top alternatives.


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ALTERNATIVES

MUSTS

W

AN

TS

1 23

Problem Solving


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The problem with problems is not that they occurin spite of our bestefforts, stuff happens. Unforeseen circumstances will always conspire

against us to disrupt the smooth operation of our production and

operations systems and upset our plans.

The problem with problems is that we fail to prevent them from

happening again. Problems do not confine themselves to organizational niches or

structures: they encompass many parts, even the whole organization.

Solutions, therefore, more often than not require a team effort to find a

lasting cure:

Engaging different skills, knowledge & aptitude Requiring divergent resources

These reside scattered in different parts of the organization

Problem Solving: Team approach


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Ford Motorsis credited with formalizing TOPS (Team Oriented Problem Solving)

methodology:

Involvement: cross-functional and cross-hierarchical,

Knowledge & Information sharing,

Camaraderie and bonding,

Multi-dimensional, thus a holistic solution,

Using the 8D (8Disciplines) process, renamed Global 8D (G8D):

Step-by-step (P-D-S-A) approach: subsequent steps based on soundly established previous steps, few come-backs,

Problems tackled in bite-size pieces

Provisions for emergency response, escape and recurrence preventing measures

The 8-D method of problem solving is appropriate in "cause unknown"situations and

is not the right tool if concerns center solely on decision-making or problem

prevention

8 D Process


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D 0 - The Planning Stage:. 8-D is especially useful as it results innot just a problem-solving process, but also a standard and a

reporting format.

Does this problem warrant/require an 8D? If so comment why and

proceed.

Is an EmergencyResponseAction needed? D 1 - Establishing the Team: Establish a small group of people

with the process/ product knowledge, allocated time, authority and

skill in the required technical disciplines to solve the problem and

implement corrective actions.

Team to set Objectives & Goals: brings belief, commitment &

realism

8 D Process


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D 2 - Problem Definition:

Provides the starting point for solving

the problem or nonconformance issue. Need to have correct problem description (photos, verbatim

statements, eye-witness accounts) to identify causes. 5Ws + H approach in is and is not answers e.g. Who is or is not

affected by the problem

Need to use terms that are understood by all. D 3 -Developing Interim ContainmentActions:

Temporary actions to contain the problem and fix until permanentcorrection is in place - document actions in an Action Item Table.

D 4 -Identifying & Verifying Root Cause: Analyze for Root

Cause of the problem. Brainstorming, 5 Whys, Ishikawa Diagrams, DOE etc. document actions in an AIT.

Identify and verify the Escape Point

8 D Process


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D 5 - Identify Permanent Corrective Actions:

solutions that address and correct the root cause. Solutions determined to be the best of all the alternatives. Document and verify the Permanent Corrective Action (PCA) in the

AIT.

D 6 -Implementing & Validating the PCA

Implement and validate to ensure that corrective action does what itis supposed to do. Detect any undesirable side effects. Document this on the AIT. Return to root cause analysis, if necessary

D 7 - Preventing Recurrence: determine what improvements in

systems and processes would prevent problem from recurring. Ensure that corrective action remains in place and successful Address similar systems Revise related documentation (Design/Process/Q-Systems)

8 D Process


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D 8 - Congratulate Your Team: ( ensure: was this problem solvingexercise effective? Has it been verified with a follow-up? ) Use all forms of employee recognition and document as necessary. Celebratesuccessful conclusion of the problem solving effort. Formally disengage the team and return to normal duties OR

Go for the next round of problem solving for the remaining issues

PD 0,1,2

& 3

AD 7 & 8