Project Mgmt Systems-Lecture11 (1)

8/14/2019 Project Mgmt Systems-Lecture11 (1)

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MQS111: PROJECT

MANAGEMENTSYSTEMS

Term 22012

Lecture 11


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MCM 211: PROJECT MANAGEMENT SYSTEMS

Sessions: 20

Course objective:

To develop project management capabilities for effective project planning, scheduling, monitoring and control.

Course content:

Project Management Fundamentals:

Project: Meaning, Types of construction projects; Project scope; Project deliverables; Technical requirements of a project; Project constraints; Project as a

business; Project stakeholders; Project Life cycle.

Project Management: Meaning; need for project management; Functions of project management; systems approach; project management system.

Project Planning: Project structure; Organizational breakdown structure; Work breakdown structure; Major aspects of project planning.

Project Scheduling: Steps in project scheduling; Scheduling techniques; Bar chart; Network scheduling; Linear scheduling.

Network Scheduling: Basic terminologies; Network diagramming methods; A-O-A and A-O-N networks; Time-scaled network; Fundamental concepts

underlying CPM and PERT; Network analysis for CPM; Floats and their significance; Time cost trade-off; Resources scheduling; Precedence

diagramming method; Analysis of PERT schedule, Line of balance method.

Project Monitoring and Control: Progress monitoring through records, reports and reviews; Project time and cost control; Use of S-curve; Earned valueconcept; Project variances and performance indices; Forecasts for project completion; Corrective actions; Updating project plans.

Computerising Planning and Control System: Computer system components, PM application packages, System specification, Selecting System,

Computerisation benefits and limitation, Role and function of the planning chiefs.

Reference Books

Meredith Jack R, Mantel Samuel J, Project Management A Managerial Approach, 5th edn. John Wiley, New York, 2006.

Lester A., Project, Planning & Control, Butterworths, Oxford, 2007.

Burke R., Project Management Planning & Control Techniques, John Wiley, New York, 2003.

Chitkara KK, Construction Project Management: Planning, Scheduling of Controlling, Tata McGraw Hill, New Delhi, 2007.

James P. Lewis, Project Planning Scheduling & Control, Tata McGraw Hill Publishing Co. Ltd., New Delhi 2004. Harison F. L., Advanced Project Management: A Structural Approach, Metropolitan Book co., New Delhi, 93.

John M. Nicholas, Project Management for Business & Technology, Prentice-Hall of India Pvt. Ltd. New Delhi, 2006.

Clifford F. Gray & Erik W. Laroun, Project Management The Managerial Process, Tata McGraw Hill Publishing Co. Ltd. New Delhi, 2006.

Feigenbaum L. Construction Scheduling with Primavera project planner, Prentice Hall, N.Delhi, 98.

Thakurta Shah K., Construction Project Management, Multitech Publishing Co., Mumbai, 2003.

Hira N. Ahuja; Project Management: Techniques in Planning and Controlling Construction Projects; John Wiley and Sons

Harold Kerzner; Project Management: A Systems Approach to Planning, Scheduling and Controlling, 2006.

Callahan, Queckenbush and Rowing; Construction Project Scheduling; McGraw Hill Publications

Donald S. Barrie, Boyd C. Paulson; Professional Construction Management; McGraw Hill Publications, 1992.


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Construction Cost Planning

Useful in developing standard costs, financialforecasts, project budget and cost control

Ultimate goal is to achieve project profit/cost

objectives


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Standard Costs

Used for costing work packages, work items oractivities

Standard Costs facilitate the planning and controlling

of costs


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Financial Forecasts

Indicate the trends of expected sales, production

expenses and profit and cash flow at specified

intervals of time.


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Project Budget

Quantifies the project plan in monetary terms and

outlines the financial plan for implementation.


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Construction Budget Planning

Reflects the financial plan of operations

It is divided into responsibility centers with specific

goals clearly outlined, along with the costs expected

to be incurred


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Construction Budget Planning

In a contracted construction project, the client and thecontractor have separate budgets.

The client's construction budget is primarily a capital

budget designed to formulate time- phased fundsrequirement and the sources from which these funds

are to be provisioned

On the other hand, a contractor's budget is a

resources-cost and sales-income-oriented budget


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Construction Project Controls

Scope Control

Resources Control

Cost Control

Time Control


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Project Cost Control

Primarily concerned with the project budgeted costs

It aims at controlling the changes to the project

budget

The goal is to minimize waste, update current budget

estimates, forecast cost trends and make decisionsabout the future

Uncontrollable costs fall under risk management


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Project Cost Control Objectives

The cost control objectives of the client and the

contractor differ

Client - After taking into consideration the contract

commitments, the escalation and the contingencies,

the client formulates his cost budget for the project. Contractor - It is the contractor who executes the

contracted works and it is he who bears the cost of

the input resources employed by him for the

execution of the work. These input resources and the

site expenses include the cost of men, materials,

machinery and capital.


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Cost Control Parameters

Stages in Profit Computation Nature of Control

A Sales value (income) Sales value control

B Less direct cost Direct cost control

C Gross margin (A - B)

D Less variable overhead Variable overheads control

E Contribution (C - D) Contribution control

F Less fixed overheads Fixed overhead control

G Operating profit (E - F) Budgetary

control

Budgetary


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Control Estimates The feasibility study during the inception stage outlines the

approximate cost of the project A master control estimate for establishing the baseline for

overall cost control

The master control estimate is prepared during the project

planning stage The approved original master control estimate, called project

budget, remains unchanged throughout the life of the project

Generally, expenditure is incurred at various levels/departments

within the amount earmarked in the project budget All costs are planned and controlled by the cost

controller/authorized manager


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Cost Planning

Level Scope Cost Control Responsibility0 Total project cost Cost accountant

1 Subproject cost Cost accountant

2 Task/logistics costs Respective managers/contractors

3 Workpackage costs Cost centers


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Budgeting Costs The budget relates the expected costs and revenue with the

time progress Budget - reflects the expected costs of performance under

expected conditions.

Standard Costs - stands for the costs achievable under efficient

operating conditions. Commitment Costs - marks the booked cost of resources

utilized/consumed or expected.

Value of work performed - implies the monetary value of the

work completed. In contracted projects, it is equal to the valueof the work done at contract rates.

Earned value analysis - is the method for measuring project

budgeted performance with the time progress


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Cost Monitoring Cost reports are generally initiated at the level of the

responsibility centers (cost centre) The cost reports of construction/production centers should

reflect a comparison of the standard and actual costs

Preferably, cost reports should be initiated weekly / monthly

and their frequency can be increased in the early stages of theproject

The project cost controller monitors the responsibility centre

cost reports. He updates the project budgeted costs, changes

order, keeps track of variations in the control estimates and

forecasts the trends pertaining to the remaining project costs.


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Cost Performance - Project Earned Value Depending upon the nature of the project, Earned Value of

project can be measured in one or more of the threeparameters

cost

effort (like man-hours)

value of work done

For example, the cost performance of a project can be

determined as

100Pr

(%)PrPr' pletionojectatComlueofContractVa

formedeofWorkPerEarnedValuCumulativeogresscialojectFinansContractor


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Evaluation of Financial Progress of ProjectWork Package

Particulars

Work Package Progress

Planned Value

at Completion

Earned Value

on Data Date

Work Package

Progress (%)

Project (%)

WP - A PV EV Progress(%) EV/BAC

Code A 126 15,000 15,000 100 3.0

127 20,000 16,000 80 3.2

128 45,000 9,000 20 1.8

Total WP - A 80,000 40,000 50 8.0

WP - B xxxxx xxxxx xxx x

WP - C xxxxx xxxxx xxx x

BAC 5,00,000 xxxxx xxx xx


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Earned Value Measurement The method of measurement of the up-to-date work done value

varies with the nature of the work The various methods of measuring the progress of different

types of work packages can be categorized as

Ratio method:

Repetitive-type work packages:


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Earned Value Measurement Non-repetitive complex construction work packages:

The activities in the work package are grouped into a chain of broadsequential stages

Thereafter, each stage in the chain can be assigned a pre-determined

percentage of the budget catered for the work package

The overall progress of the work package at a given point of time can

then be estimated by totaling the percentages of the stages completed Start-Finish method:

In certain tasks, such as the preparation of drawings, the procurement of

materials, the planning of project, the investigation of soil, the start and

completion are well defined but the progress of the intermediate stages

is difficult to estimate.

For such tasks, an arbitrary percentage can be assigned to mark the

start and the balance can be considered after the task is completed


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Sales Value (Value of Work Done) ControlWork Done Value Variances

Change OriginalWork

Materials at Site Work Order

A Budget forecasts

cumulative

xxxx xxx xx

B Contract value of work done

Upto previous month xxx xx xx

During current month xx x x

Cumulative (B) xxxx xxx xx

C Actual approved

(cumulative)

xxx xx xx

D Work done value or quantity

variance (A - B)

xx xx x

E Price variance (B - C) xx xx x

F Budget variance (A - C) xxx xx xx


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Sales Value (Value of Work Done) Control Accounting Work Done Progress

Value of work done = Contract price Actual quantity of workdone

Accounting Direct Materials Inventory

The value of the materials-at-site consumed during the month

= (Value of opening stock for the month) + (Value of materialsinducted during the month) (Value of closing stock for the

month)


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Sales Value (Value of Work Done) Control Revenue Variance made up of 2 components

Work done quantity variances Sale price variances


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Direct Cost Control Direct costs constitute over 60% of the total project costs.

Direct cost control with pre-determined labour rates andmaterials purchase prices, can best be exercised at the lowest

organizational level at the production centre or even the work

centre, where the cost is actually incurred

The basic concept behind controlling the direct costs is thateach work package for which the standard cost is established,

is identifiable, measurable and costable

Direct cost control is exercised by comparing the actual direct

costs with the standard direct costs, analysing the reasons for

variations, and applying corrective measures to improve the

performance


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Direct Cost Control A pre-requisite for controlling the direct costs is that the standards

must be expressed in terms of the physical and monetary value ofeach item of resource needed for accomplishing the work package

The primary purpose of introducing standard direct costs is to

generate information by comparing actual performance against thestandards and to analyze variance

Direct cost variance = Standard direct cost Actual direct cost.

If variance > 0, it is favourable (F).

If variance < 0, it is unfavourable (U).

Type of resources Physical measure Monetary value example

Direct labour Man-hours (MH) Labour employment cost

Direct materials Unit quantity Materials usage cost

Direct equipment Equipment hours (EH) Equipment utilization cost

Direct other expenses -- Other direct costs


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Causes of Unfavourable Direct Cost VariancesSome of the main causes for unfavourable variances are given

below Material price variance

Materials usage variance

Labour rate variance

Labour operating variance Equipment rate variance

Equipment operating variance

Other common reasons. Unrealistic standards, higher resource

procurement costs, higher sub-contract costs, mismanagementof resources


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Budgeted Performance Control Using Earned

Value Analysis

The earned value analysis is the management tool to track thedeviations from the budgeted cost performance on the data

date and to forecast trends.

It serves two main purposes

To apprise the project management of the possible cost overrun orunderrun for taking timely corrective actions, such as modifying cash flow

and updating financial forecasts and project profitability expectations.

To update key personnel on anticipated cost changes in their field of

responsibility, so as to create cost consciousness for exploring means of

minimising wastage and reducing costs.

The earned value cost analysis relates the budget costs with

the time progress


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The Commonly Used Budget Monitoring

Parameters

Budgeted Cost for Work Scheduled (BCWS): It represents thecumulative, time-phased cost projections made in the budget

for activities that are scheduled to be performed. It shows what

is planned for execution.

Budgeted Cost for Work Performed (BCWP) or the valueearned: It shows the cumulative cost budgeted for the work

performed.

Actual Cost for Work Performed (ACWP): It represents the

cumulative actual cost incurred on date in accomplishing thework


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Cost and Schedule Variances

Unfavourable Variance Favourable Variance


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Cost and Schedule Variances Scheduled Variance (SV) = (Earned work hours or value)

(Budgeted work hours or value) SV = BCWP BCWS

Cost Variance (CV) = (Earned work hours or value) (Actual

work hours or value)

CV = BCWP ACWP


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Cost and Schedule Variances

Time schedule overrun and under run are usually expressed interms of percentage


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Cost-trends Forecasts

Variance analysis reveals the extent and causes of variances Performance efficiency determines how efficiently the task was

done and what its implications would be on the future trends

The future cost and time performance can be predicted as

An index of 1.0 or greater indicates better performance and less

than 1.0 implies poor performance

Performance indices vary during the execution of a project

Cost Performance Index (CPI) = BCWP/ACWP

Scheduled Performance Index (SPI) = BCWP/BCWS


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Cost-trends Forecasts

The trends can be used to forecast : Estimate to completion (ETA) for the balance works:

Estimate at completion (EAC) for the project: EAC = ETC +

ACWP

Project cost overrun at completion in percentage (PCOC):

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Project Mgmt Systems-Lecture11 (1)