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Project Management
By:- Kumar Ratnesh
CHAPTER-1
2
Concept of Project
A project is a temporary endeavor undertaken to create a unique product or service. It implies– a specific timeframe– a budget– unique specifications – working across organizational boundaries
Project Management
Project management is about creating an environment conducive to
getting critical projects done!
Project management is about changing people’s behavior
Why Project Management?
• Today’s complex environments require ongoing implementations
• Project management is a method and mindset…a disciplined approach to managing chaos
• Project management provides a framework for working amidst persistent change
Why Projects Fail
• Failure to align project with organizational objectives • Poor scope• Unrealistic expectations• Lack of executive sponsorship• Lack of project management• Inability to move beyond individual and personality
conflicts• Politics
Why Projects Succeed!
• Project Sponsorship at executive level• Good project charter• Strong project management• The right mix of team players• Good decision making structure• Good communication• Team members are working toward common
goals
Why this matters to YOU• Most of us get to where we are by some technical or
specific set of skills• If you want to get things done, you need a good
blend of– Business knowledge– People management – Knowledge of organizational politics– AND an area of technical expertise
Those are the people that make things happen!
What is Project ？ • Objective • Activities Outputs ⇒• Duration • Budget （ Input)• Resources (Input)
An undertaking for the purpose of achieving established objectives, within a given budget and time period.
CONCEPT
►The dictionary meaning of project is speculative meaning .
►It deal with three dimensions :-innovation , risk , and vision.
►Gilliner:- defines “it as the whole complex of activities involved in using recourses to gain benefits”.
CHARACTERISTICS OF A PROJECT
►Investment pattern
►Expected result
►Time limit
►Location
PROJECT MANAGEMENT
►Project management is the modern context is a highly sophisticated and fast developing concept and practice.
►It has been defined as “The process of planning directing a project from its inception to its completion in a given cost to generate a given results”.
PHASES OF PROJECT MANAGEMENT
►Identification
►Formulation
►Appraisal
►Selection
► Implementation
►Management
ROJECT CLASSIFICATION
►Quantitative & non-quantitative project
►Sectoral project
►Techno- Economic project
►Financial institution classification
CHAPTER-2
15
PROJECT IDENTIFICATION
►It is concerned with the collection, completion and analysis of economic data for the eventual purpose of locating possible opportunity for investment and with the development of the characteristics of such opportunity.
CONSTRAINTS IN PROJECT IDENTIFICATION
►Internal constraints
►External constraints
TECHNIQUES OF PROJECT IDENTIFICATION
►Desk research
►Techno-Economic survey
CRITERIA FOR PROJECT SELECTION
►Investment size
►Location
►Technology
►Equipment
►Marketing
STAGES OF PROJECT FORMULATION
►Feasibility Analysis
►Techno-economic analysis
►Project design and network analysis
►Input analysis
►Financial analysis
►Pre-investment analysis
PROJECT FEASIBILITY
►The methods are as follows:-
►Economic analysis
►Financial analysis
►Market analysis
►Technical assessment
►Managerial competence
TOOLS OF PROJECT APPRAISAL
►Financial appraisal
► Economic appraisal
►Technological appraisal
►Socio-economic appraisal
►Managerial appraisal
What is Project Cycle ?
• Project identification• Project formation• Appraisal• Implementation• Monitoring• Plan revision• Evaluation• Feedback
Project Cycle Management
Planning
Implementation
Evaluation
PDM
Plan
DoSee
Do See
Plan
See
Plan
Do
We are in this stage.
Project Design Matrix （ PDM ）Narrative Summary
Objectively Verifiable Indicators
Means of Verification
Important
Assumptions
Overall Goal
Project Purpose
Outputs
Activities Inputs
Pre-conditions
PDM Vertical Logic • Project Purpose
Objectives that the project should achieve within the project duration
• Overall Goal Direction that the project should take next
• OutputsStrategies for achieving the Project Purpose
• Activities Specific actions taken to produce Outputs
• Important Assumptions Conditions important for project success, but that cannot be controlled by the projects. Whether these conditions develop or not is uncertain.
PDM Horizontal Logic • Objectively Verifiable Indicators
Standards for measuring project achievement.
• Means of VerificationData sources from which indicators are derived.
• Inputs Personnel, materials, equipments, facilities and funds required by the project.
• Preconditions Conditions that must be fulfilled before a project gets underway
Characteristics of PCM
Participatory Approach
Logicality
Consistency Transparency
Problem-Solving
Development of PCM Method
• Late 1960s Logical Framework (USAID) ➢ International Agencies introduce the
Logframe
• Early 1980s ZOOP (GTZ) Objectives-Oriented
Project Planning ➢ European countries adapt the ZOPP
• Early 1990s PCM(FASID) ➢ JICA begins full-scale introduction of the PCM
Participants in the Workshop
Moderator
Resident of the community
Personnel of the donor agency
Expert in a related issue
Other organization
Recipient country governmental agency
Recipient country implementing agency
PCM Workshop
Working as a team
Visualizing ideas
Analyzing step by step Cards
&Board
Consensus
Brainstorming
Moderator
8 Rules 1. Write down your own statement on a card.2. Write only one idea on a card.3. Make your statement specific.4. Express your statement in a concise sentence. 5. Stick to the facts and avoid abstractions and
generalizations.6. Make it a rule to write cards before beginning
discussions.7. Do not remove a card from the board before a
consensus is obtained. 8. Do not ask who wrote a particular card.
7 Steps in PP
Stakeholders Analysis
Problems Analysis
Objectives Analysis
Project Selection
PDM Plan of Operation
Analysis Stage
Planning Stage
Appraisal
We are practicing by this stage.
STEP1 Stakeholders Analysis
Identify the issues, problems, and current conditions of the target area through analyzing the area and local residents targeted for assistance, related groups, related organizations and agencies.
Focus on people and organization.
Tentatively select a target group.
STEP2 Problems Analysis
Problems Analysis visually represents the causes and effects of existing problems in the project area, in the form of a Problem Tree. It clarifies the relationships among the identified problems.
STEP3 Objectives Analysis
Objective Analysis clarifies the means-ends relationship between the desirable situation that would be attained one problems have been solved and the solution for attaining it. This stage also requires an Objective Tree.
STEP4 Project Selection
Project Selection is a process in which specific project strategies are selected from among the objectives and means raised in Objectives Analysis, based upon selection criteria.
STEP5 Formation of the PDM
The project design Matrix (PDM) is formed through elaborating the major project components and plans based on the approach selected. The format of PDM is similar to that of the Logical Framework, and therefore can be commonly used worldwide.
STEP6 PDM Appraisal
The PDM Appraisal is conducted by an aid agency to ensure the project plan. It is composed of the following stage:
(1) Examination of the details of the PDM elements; (2) review of the PDM formation process; (3) examination from the perspective of the five evaluation criteria.
STEP7 Plan of Operations
The Plan of Operation is prepared by the project implementers, based on the PDM and other information. It is an effective tool for project implementation and management, and provides important data for monitoring and evaluation of the project.
Rules for Writing Problems
1. Write in a Sentence. Make Clear “Subject and Object”. 2. Avoid “No Solution”.3. Avoid Generalization.– Be Specific.4. Don’t Write a Cause and Effect in One Card. 5. Be Specific Whose problem.
Example: Format of Plan of Operation
Activities Expected Results
Schedule Person in Charge
Implementer Materials and Equipment
Cost Remarks
1-1
1-1-1
1-1-2
2-1
2-1-1
2-1-2
Monitoring and Evaluation
The Five Evaluation Criteria
1. Efficiency 2. Effectiveness
3. Impact 4. Relevance
5. Sustainability
• Efficiency The productivity in project implementation. The degree to which Inputs have
been converted into Outputs.
• Effectiveness The degree to which the Project Purpose has been achieved by the project
Outputs.
• ImpactPositive and negative changes produced, directly or indirectly, as a result of the Implementation of the project.
• Relevance The validity of the Overall Goal and Project Purpose at the evaluation stage.
• Sustainability The durability of the benefits an and development effects produced by the
project after its completion.
Laws of Project Management
• No major project is ever installed on time, within budget, or with the same staff that started it. Yours will not be the first.
• Projects progress quickly until they become 90% complete, then they remain at 90% complete forever.
• When things are going well, something will go wrong.
• When things just cannot get any worse, they will.
• When things appear to be going better, you have overlooked something.
• No system is ever completely debugged. Attempts to debug a system inevitably introduce new bugs that are even harder to find.
• A carelessly planned project will take three times longer to complete than expected
• A carefully planned project will take only twice as long.
• Project teams detest progress reporting because it vividly manifests their lack of progress.
Core Project Management Tools
• Project Charter• Work Breakdown Structure (WBS)• Project Schedule• Project Budget
Project Charter• What must be done?
– What are the required resources?– What are the constraints?– What are the short and long term implications?
• Why do it?• When must it be done?• Where must it be done?• Who does what?
– Who is behind the project?– Who is funding the project?– Who is performing the work of the project?
Project Charter
• Project Goal & Objective
• Sponsor• Stakeholders• Timeline• Resources required• Deliverables
• Decision making• Assumptions• Risks• Business process
changes• Project manager• Project team• Budget• Signatures
Assumptions
• Opportunity to put it all out there– Challenges facing the project– Implications– Organizational history– Political implications– Impact to traditional power– Requirements of decision-making
• Write down what cannot be said– Keep it objective
Project Schedule Tools• Many tools available
– Microsoft Project– Many more specialized softwar– Excel
• Most important– Monitor tasks– Gantt views of project
• one page views for executives• rollout and more complex views for work teams
– Critical Paths– Inputs from multiple teams that roll up to project manager– Dependencies– Resources assigned to tasks
Project Budget
• Direct Costs• Indirect Costs• Ongoing costs
Project Budget• Direct Costs
– Hardware– Software– Contractor fees
• Estimated hours• Hourly Rates per
contractor• Various contractor
rates
– Training– Fanfare– Other
TOTALS
• Indirect Costs– Your people’s time
and effort• Estimated time on
project• Estimated cost
based on hourly rate
– Other’s time and effort
– Opportunity cost• What projects or
tasks are NOT going to get done in order to get this project done?
Year 1 Year 2 Year 3
Managing the Project
• Triple Constraint• Five Stages• Project Manager Role• Decision Making Structure• Communication Plan• Meeting Management• Team Development• Navigating Organizational Politics
Five Stages of Project Management
Project Management (in our industry) is divided into five parts:
1.Project charter development2.RFP Development and Process 3.Planning & Design
• Project team creation• Project kick-off• Planning (WBS, schedule)• Budget
4.Implementation/construction5.Project termination, hand-off to operations mgt.
Project Manager’s Role
Lead
Define Plan Monitor Complete
Re-Plan
Communicate
Communicate
Project Manager’s Role
• Leadership• Organization• Communication• Finance• Technical savvy• Politicking• Team building• Praising• Punishing
Traditional OrganizationPresident
VP Academics VP Student Affairs VP Finance VP Development
Project Management is Change
• Project methodology is really about managing change– Change in current practices– Developing new practices– Getting people to change their behaviors
• How they do their work• How they work together• How they get the work of the project done• Avoidance of paving the cowpaths
• PM is a mindset, a discipline, that can help your organization increase effectiveness and put order to chaos
Limitations of Project Management
• PM works when there is buy-in for the methods and process
• It does not work when – buy-in is lacking or there is not support for the methods by
executives– ‘end arounds’ are tolerated– influential players operate project business outside the
project– decisions made by project teams are not supported– charters, schedules and other work products of the team are
not supported
Project Portfolio Management
• More common in disciplined IT organizations• Manages projects that are
– Proposed– Approved– In progress
• Requires organizational buy-in
Project Finance
How is most corporate investment organized?
• In corporations– Debt is usually recourse to entire organization’s
assets– Leverage is usually modest (obvious exceptions)
What is project finance?• Refers to a wide range of financing structures. These financing
structures usually have one thing in common --- the financing is not primarily dependent on the credit support (credit quality) of the sponsors or the value of the assets involved. Instead, debtholders (banks, public lenders) place a substantial degree of reliance on the performance (I.e., cash flows) of the project itself…
• Non-recourse (or at least limited resource) financing• Project finance is both a financial structure and a corporate
governance structure aimed at resolving capital market imperfections and efficiently allocating risk.
What types of projects?
• Somewhat arbitrary, but– Single purpose capital investment– Stand alone entity– Finite and long life– Large in size
Project finance versus conventional financing
• Modigliani Miller still holds if its assumptions are true– if there were no taxes or transactions costs– no costs of financial distress– no agency conflicts– no information costs– THEN PROJECT FINANCE WOULD ADD NO VALUE
RELATIVE TO CONV. FIN.
Project finance is very costly
• Transactions costs very large• Contracts: very complex organizational
structure, not much flexibility• Long negotiations, long time to close• Fees (0.6% of deal size, similar to M&A)• DISADVANTAGE RELATIVE TO CONVENTIONAL
FINANCE
Costs of distress/bankruptcy
• Risk of default and allocation of this risk very different than conventional debt
• Less risk contamination with other parts of firm
• Less co-insurance benefit• Rearranges “states” in which default occurs• Trade-off, clearly
Agency costs
• High leverage, dedicated cash flows, very specific contractual terms for repayment and contingencies– May limit opportunities for risk shifting– May limit cross subsidization incentives– May replace managerial incentives of a public-
sector project with a for-profit venture, contracts used to enhance incentives
May improve economics
• MM theorem assumes the investment is fixed
– It may be that the investment itself is improved by the structure
• Walt Disney got huge tax and governmental relief by setting up EuroDisney as a project structure rather than owning outright
– Tax, gov’t. reg.’s may be reduced
Outside guarantees
• Project finance is usually high leverage and non recourse to project sponsors– even with its possible benefits, this usually leads to high
risk debt, which is often illiquid, costly and sometimes simply not available
• Often a guarantee or credit support is offered by– Governments/international agency (IFC/World
Bank)/Sponsors/etc.
Different contractual relationships
• Contracts needed:– Management/shareholder agency relationship– Intercorporate agency relationship– Government/corporate agency relationship– Bondholder stockholder relationship
• Definition of the organization (corporation) is a nexus of these contracts
CHAPTER-3
74
75
PROJECT APPRAISALINTRODUCTION PROJECT APPRAISAL:
1. Technique to analyse if the project is feasible or not.2. It helps in recognizing needs and problems, and their
early analysis3. A tool for decision making4. Identifying input, output parameters and criteria for
evaluating systems.5. Evaluating feasibility in terms of technical, financial
and economic practicability.6. Developing and implementation of system so designed
in terms of - Engg. Calculations
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- Specification of finalization- Production, manufacturing Installation and commissioning
SALIENT ASPECTS OF PROJECT APPRAISAL
a. Need - New or improvedb. Realisability - Cost/benefit termsc. Practicability - Technically, Financially economically
viable.d. Optimality: Project to be best alternativee. Uncertainty : Probability of risk and cost of information
to achieve greater certaintyf. Controllability - Needs a feed back loop to review
update and keep system on rough track.
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Feasibility Study:
It involved creating, identifying, brain storming feasibility of ideas and then selecting to prove further one or more feasible solutions.
- Then prilimary design, optimal design (best alternatives)- Detailed design (a complete description of projects for its
implimentation.- Lastly planning for production:
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Feasibility Study: A Schematic Diagram
Yes No
Initial Screening
Is the Idea Prima Facie Promising ?
Plan Feasibility Analysis
Generation of Ideas
Conduct Market AnalysisConduct Technical Analysis
Basic and functional feasibliity
Terminate
Conduct Financial AnalysisRisk./ Return
Pre
limin
ary
Pra
cti
cal
An
aly
sis
79
Yes NO
Is the Project Worthwhile?
Prepare Funding Proposal
Including optimality and controllability
Conduct Economic and Ecological AnalysisSocial & Political Realisability
Terminate
80
Key issues in Project AnalysisPotential Market
Market Analysis Market Share Technical ViabilityTechnical Analysis Sensible Choices RiskFinancial Analysis Return Benefits and Costs in Shadow PricesEconomic Analysis Other Impacts Environmental DamageEcological Analysis Restoration Measure
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Feasibility Study has following sequence of events (Parts)
Need Analysis: Define objectives of the projects. New or improves.
Project Identification: Quantifies input, output, design parameters.
a. Project Inputs: (i) Purposeful – Controllable - Uncontrollable Controllable: Man hours, Capital Inflow, Activity Analysis: Uncontrollable: Cost of Raw Material, Reliability of Technology, Availability of Power, Govt. & Political Interference.
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(ii) Environment (Business) Interest, Insurance,
Legal, Regulatory, Pollution.
b. Project Output (i) Desired (ii) Undesired (i) Desired: Desired could involved physical quantities of
products how much, how many, could also involve value judgment status, comfort, Aesthetic Appeal (Keeping user in view undesired)
(ii) Undesired: Undesired Pollution, Waste material, Waste Energy, Danger (Bhopal Gas Tragedy, Nuclear Explosion). Discomfort to people living in vicinity.
c. Design Parameters: Like features attributes that
would affect behavior and performance. Most common are physical size, weight, etc.
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d. Constraint Specification: on input, output, design parameters which could be essential to evaluate the alternative solutions. Measure of the values indicate range of acceptable values.
e. Evaluation Criteria: Total revenue operating cost gross/ net profit, ROI/ EOI etc.
3. Practicability Analysis: Idea to eliminate the concepts that are not feasible. Are these operational financeable, Economical, Physically realizable, Politically acceptable ,
Physically Realizable which alternatives needs
the solutions within the specified parameters.
Financial Realizability: (i) Will the money required come as per time frame.
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(ii) Sources of Capital Inflow who where from: 4. Economic Practicality : (i) Even a financially feasible may not be
economically practical. (ii) Economic Feasibility Study of alternative
solutions by constraints operating cost, Maintenance and Spare part expenditure.
(iii) Total revenue that would accrue over the operational life of systems, (i.e. what is the break even point or optimum point of economic operations of the project)
We will consider those alternative solutions to be
economically feasible that meet the specified rates of return on investment.
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5. Social and Political Realizeability : The project may be physically, Financially, Economically feasible, but may encounter social at political obstacles.
Normally in case of large projects, there are additional considerations of health (Polio Campaign, Malaria, TB, CNG Buses) education (private and foreign universities) Welfare (METRO RAIL, Realignment over the range area, Civil Nuclear Technology).
86
Technical Appraisal By technical appraisal of project, we mean an assessment
of its basic technical and functional feasibility of project (Road – under/over bridge)
Besides costs and schedules, the project performance depends on how well the project is meeting the technical requirements of the end project (connect village to stadium)
- THREE STAGES OF TECH APPRAISAL
(i) Detailed technical Appraisal Which include describing the details of the
assignment and the key property.
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It also includes describing the deficiencies of particular acclamation.
The detailed technical appraisal method helps in commenting on the reviewer’s action, analysis and conclusions.
(ii) Exceptional Technical Appraisal appraisal reviews records only significant and
exceptional findings and action take by the reviewer. The exceptional review is often used for high – level
reviews within an organization when the first level review is a narrative report.
(iii)Form Technical Appraisal In form review, further abbreviates the documentation
associated with reviewing an appraisal report. Forms are developed for specific institutional or
agency needs and the Standard Appraisal Review
88
Report from is becoming more widely accepted by many users.
Factors Effecting Technical Appraisal
(i) Layout:- Layout of the project includes description of the project in terms of what they represent and when they occur, who has authorized it, number of people who will handle. It also states where quality control will be
exercised. A description and explanation of the methods of
that will be used to monitor progress e.g. bar charts could be used.
For Example – Weekly progress meeting to exercise control over the
project.
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(ii) Location:- The nine key factors that influence location of a project are: (keep NANO Car Project – In Mind)
- Costs- Infrastructure around the location- Labour Characteristics - Wage rates- Motivation of workers- Telecommunication systems- Government stability and industrial relations laws- Protection of patents A availability of management resources and specific
skills and system and integration costs. These factors have an impact on management
decisions and governments policies.
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Government policies: Regulatory barriers may preclude the use of innovative technologies e.g. some reservation for SME Sector (Now only 3s items)
Types of equipment or processes: Equipments are basically of two types – temporary and permanent equipments. (Olympic stadium in China)
The availability and quality of equipments affect the technical appraisal.
Appropriateness of Local Conditions: The project should be adaptable to local technical and environmental conditions, such as voltage, dust, temperature, humidity, etc.
The appropriate supply of material and equipments for keeping the project working should be available in proximity.
91
Impact of Environment: The potential impact of the project on the human and physical environment is examined to make sure that nay adverse effects can be controlled or minimized e.g. pollution.
Approach Followed: Procedures for obtaining engineering, architectural, or other professional services are examined.
Risk Factor: It is necessary to identify the risks associated with the project and estimate the scale of risk. There should also be contingency plans in place to minimize the risk of project failure or of a major gap between what’s promised and what’s delivered.
Cost Estimated: Technical appraisal is a review of the cost estimates of the engineering and maintaining the project.
Cost estimates also determine whether technical appraisal is accurate within an acceptable margin.
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Environmental Appraisal
A systems approach is a holistic approach to problem solving that involves formal considerations of the following parameters:
1. The total objectives of the project and, ore specifically, the performance measures of the whole project.
2. The project’s environment or the fixed constraints.3. The resources or inputs to the projects.4. The components of the project, their activities, goals,
and measures of performance.5. The management of the project, or the organization or
various components and their interactions. The next aspect to consider in the system approach is
the project’s environment.
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This can be viewed as whatever lies ‘outside’ the project, but that which can affect and be affected by the operations of the project.
In project parlance the environment means much more than just the weather.
For example, for automobile environment, we can consider the roads and highways; petrol pumps and servicing stations, etc. need to be included in our definition of the automobile system.
When we say that something lies ‘outside’ the project, and hence constitutes its environment, we mean that the project can do relatively little about its environment’s characteristics or behaviour.
Identification of the environment depends on the answers to the following two questions.
1. Can I do anything about it?
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2. Does it affect my situation or objectives’? If the answer to the first is ‘No’, and that do the
second is ‘Yes’, then ‘it’ is the environment.
Characteristics of the Environment
The environment provide, ‘given’ or ‘fixed’ inputs to the project.
It is also affected, directly or indirectly, by the outputs from the project;
Hence, it has a ‘dynamic’ influence on the project or by the project.
However, less attention is paid on environment because of two reasons
(a) Firstly : The environment is ‘outside’ the project and hence of little direct interest to us.
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(b). Secondly, by definition, the environment is something that we cannot control, and hence it is ‘fixed’.
Of course we could consider the effects of the output of a project on its environment. (METRO – NO Pollution – Less Noise, Dev of Area)
This is what is referred to as Environmental Impact Assessment (EIA), which would be a part of the feasibility study for most projects, especially for large industrial projects. (e.g. Refinery , Chemical plant, Nuclear plant)
96
Managerial Appraisal
One of the main preoccupations of management in any organization and in project organization is the allocation of scarce resources.
These resources include manpower, materials, facilities, and financial resources.
For every project being planned, the project manager must ask the following two questions:
- Are the resources required for the given project available ?
- Is this the best use to which these resources can be put ?
Most project are subjected to an evaluation before they are given the go-ahead.
An essential part of his evaluation is the financial
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appraisal.
Traditionally, this has been aimed at deciding whether or not a project will be profitable and selecting the one project out of several competing projects that appears the most profitable. The project manager should understand the processes so that he can benefit from them. (Difference between private – public Social Benefit projects).
It is with this intention that we present the various techniques of managerial evaluation, which consist of the technical, economic, financial, social and political appraisal and assessment of a project.
Project Selection
• Project selection is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved
• Managers often use decision-aiding models to extract the relevant issues of a problem from the details in which the problem is embedded
• Models represent the problem’s structure and can be useful in selecting and evaluating projects
Chapter 2-1
Criteria for Project Selection Models
• Realism - reality of manager’s decision
• Capability- able to simulate different scenarios and optimize the decision
• Flexibility - provide valid results within the range of conditions
• Ease of Use - reasonably convenient, easy execution, and easily understood
• Cost - Data gathering and modeling costs should be low relative to the cost of the project
• Easy Computerization - must be easy and convenient to gather, store and manipulate data in the model
Chapter 2-2
Risk Versus Uncertainty
• Analysis Under Uncertainty - The Management of Risk– The difference between risk and uncertainty
• Risk - when the decision maker knows the probability of each and every state of nature and thus each and every outcome. An expected value of each alternative action can be determined
• Uncertainty - when a decision maker has information that is not complete and therefore cannot determine the expected value of each alternative
Chapter 2-7
Risk Analysis
• Principal contribution of risk analysis is to focus the attention on understanding the nature and extent of the uncertainty associated with some variables used in a decision making process
• Usually understood to use financial measures in determining the desirability of an investment project
Chapter 2-8
Risk Analysis
• Probability distributions are determined or subjectively estimated for each of the “uncertain” variables
• The probability distribution for the rate of return (or net present value) is then found by simulation
• Both the expectation and its variability are important criteria in the evaluation of a project
Chapter 2-9
Risk Analysis
Chapter 2-10
Information Base for Selections
• Accounting Data• Measurements
– Subjective vs. Objective– Quantitative vs. Qualitative– Reliable vs. Unreliable– Valid vs. Invalid
• Technological Shock
Chapter 2-11
CHAPTER-4
105
In Nut Shell ! Project Scheduling
• Project Scheduling– Understanding Project plan
• Scheduling activities• Managing time
– Essential methodologies
• Overcoming time constraint• Effective project scheduling
Project Scheduling
• Project planning and Project Scheduling • Project scheduling involves,
– Estimated start time – Required completion time– WBS (Work Breakdown Structure)– Scheduling the activities – Allocating owners and resources
Scheduling Activities
• Activity duration– An estimate
• Influence – Estimated start time – Required completion time
Activity Description
Activity Number Duration Estimate
Owners
• Key concepts – Earliest start time (ES)– Earliest finish time (EF)
EF = ES + Duration – Latest finish time (LF)– Latest start time (LS)
LS = LF - Duration
Time
Earliest start
Estimated Duration
Earliest Finish
Latest start
Latest Finish Total Slack
Activity NumberActivity Description
Falling behind ?
• Activities and entire Project• Total slack (Float)
– Difference • All activities EF and Project required completion time
– Positive result• Activity can be delayed without any hassle
– Negative result• Activity work needs to be accelerated
• Free slack ??
Critical Path Analysis
• What is critical path analysis?– Understanding it’s Effect
• Calculating,– Critical path – Noncritical path– Most critical path
• Using calculated information– Advantages
• Scheduling in Information System– A random process
• Figures need to be realistic– Identifying requirements– allocating resources
• Project scheduling software – an advantage • Perfection comes with practice and
experience
Scheduling – a challenge
Project Scheduling Models
Project Scheduling Models
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5.1 Introduction
• A project is a collection of tasks that must be completed in minimum time or at minimal cost.
• Objectives of Project Scheduling– Completing the project as early as possible by
determining the earliest start and finish of each activity.
– Calculating the likelihood a project will be completed within a certain time period.
– Finding the minimum cost schedule needed to complete the project by a certain date.
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5.1 Introduction
• A project is a collection of tasks that must be completed in minimum time or at minimal cost.
• Objectives of Project Scheduling
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– Investigating the results of possible delays in Investigating the results of possible delays in activity’s completion time.activity’s completion time.
– Progress control.Progress control.– Smoothing out resource allocation over the Smoothing out resource allocation over the
duration of the project.duration of the project.
Task Designate
• Tasks are called “activities.” – Estimated completion time (and sometimes costs) are associated with each activity.– Activity completion time is related to the amount of resources committed to it. – The degree of activity details depends on the
application and the level of specificity of data.
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5.2 Identifying the Activities of a Project
• To determine optimal schedules we need to– Identify all the project’s activities.– Determine the precedence relations among activities.
• Based on this information we can develop managerial tools for project control.
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5.3 The PERT/CPM Approach for Project Scheduling
• The PERT/CPM approach to project scheduling uses network presentation of the project to– Reflect activity precedence relations– Activity completion time
• PERT/CPM is used for scheduling activities such that the project’s completion time is minimized.
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Earliest Start Time / Earliest Finish Time
• Make a forward pass through the network as follows:
– Evaluate all the activities which have no immediate predecessors.
• The earliest start for such an activity is zero ES = 0.• The earliest finish is the activity duration EF = Activity duration.
– Evaluate the ES of all the nodes for which EF of all the immediate predecessor has been determined.
• ES = Max EF of all its immediate predecessors. • EF = ES + Activity duration.
– Repeat this process until all nodes have been evaluated• EF of the finish node is the earliest finish time of the project. 119
Earliest Start / Earliest Finish – Forward Pass
120
A90
B15
C5
F25
I30
G14
D20
E21
H28
J45
90,105
90,115
90,120
105,110
110,124115,129 129,149
149,170
149,177
120,165149,194
170
194
A
0,90
B
I
F
C
G D
E
H
J
177
194
EARLIEST FINISH
Latest start time / Latest finish time• Make a backward pass through the network as
follows:
– Evaluate all the activities that immediately precede the finish node.
• The latest finish for such an activity is LF = minimal project completion time.
• The latest start for such an activity is LS = LF - activity duration.– Evaluate the LF of all the nodes for which LS of all the
immediate successors has been determined. • LF = Min LS of all its immediate successors. • LS = LF - Activity duration.
– Repeat this process backward until all nodes have been evaluated.
121
Latest Start / Latest Finish – Backward Pass
122
B
F
C
A
I
E
DG HH28
166,194
JJ45
149,194
E21
173,19490,105
90,115
90,120
105,110
115,129 129,149
149,170
149,177
149,194
153,173
146,166194
129,149
0,90
129,149
D20
129,149129,149
129,149129,149129,149
129,149129,149
G14
115,129
I30
119,149
29,119
C5
110,115B1595,110
5,95F25
90, 115
0,90A90
Slack Times
• Activity start time and completion time may be delayed by planned reasons as well as by unforeseen reasons.
• Some of these delays may affect the overall completion date.
• To learn about the effects of these delays, we calculate the slack time, and form the critical path.
123
Slack Times
– Slack time is the amount of time an activity can be delayed without delaying the project completion date, assuming no other delays are taking place in the project.
124
Slack Time = LS - ES = LF - EF
125
Critical activities
must be rigidly
scheduled
Critical activities
must be rigidly
scheduled
Activity LS - ES SlackA 0 -0 0B 95 - 90 5C 110 - 105 5D 119 - 119 0E 173 - 149 24F 90 - 90 0G 115 - 115 0H 166 - 149 17I 119 - 90 29J 149 - 149 0
Slack time in the Klonepalm 2000 Project
The Critical Path
• The critical path is a set of activities that have no slack,connecting the START node with the FINISH node.
• The critical activities (activities with 0 slack) form at least one critical path in the network.
• A critical path is the longest path in the network.
• The sum of the completion times for the activities on the critical path is the minimal completion time of the project.
126
The Critical Path
127
B
F
C
A
I
E
DG HH28
166,194
JJ45
149,194
E21
173,19490,105
90,115
90,120
105,110
115,129 129,149
149,170
149,177
149,194
D20
0,90129,149
G14
115,129
I30
119,149
A90
C5
110,115B15
95,110
F25
90, 1150,90
Possible Delays
• We observe two different types of delays:
– Single delays.
– Multiple delays.
• Under certain conditions the overall project completion time will be delayed.
• The conditions that specify each case are presented next.
128
Single delays
• A delay of a certain amount in a critical activity, causes the entire project to be delayed by the same amount.
• A delay of a certain amount in a non-critical activity will delay the project by the amount the delay exceeds the slack time. When the delay is less than the slack, the entire project is not delayed.
129
Multiple delays of non critical activities: Case 1: Activities on different paths
130LS =119
A90
J45
H28
E21
D20
I30
G14
F25
C5
B15
ES=149
LS=173 DELAYED START=149+15=164
ES=90DELAYED START=90+15 =105
Activity E and I are each delayed 15 days.
THE PROJECT COMPLETION TIME IS NOT THE PROJECT COMPLETION TIME IS NOT DELAYEDDELAYED
FIN
ISH
131
AA9090
90
BB
1515
Gantt chart demonstration of the (no) effects on the project completion time when delayingactivity “I” and “E” by 15 days.
Activity I
FF2525
II
3030
105
CC
55
115
GG1414
129
DD
2020149
EE2121
HH
2828
JJ
4545
194
194
Activity E
Multiple delays of non critical activities:Case 2: Activities are on the same path,
separated by critical activities.
132
A90
B15
C5
F25
I30
G14
D20
E21
H28
J45
FIN
ISH
ES=149
LS =173 DELAYED START=149+15 =164
ES=90DELAYED START =94
LS =95
THE PROJECT COMPLETION TIME IS NOT DELAYEDTHE PROJECT COMPLETION TIME IS NOT DELAYED
Activity B is delayed 4 days, activity E is delayed 15 days
Multiple delays of non critical activities:Case 2: Activities are on the same path,
no critical activities separating them.
Activity B is delayed 4 days; Activity C is delayed 4 days.
133
A90
B15
C5
F25
I30
G14
D20
E21
H28
J45
FIN
ISH
DELAYED START= 109 + 4 =113;
ES= 90
DELAYED START =94
DELAYED FINISH =94+15=109
LS =110
3 DAYS DELAYIN THE ENTIRE
PROJECT
THE PROJECT COMPLETION TIME IS DELAYED 3 DAYSTHE PROJECT COMPLETION TIME IS DELAYED 3 DAYS
5.6 Gantt Charts
• Gantt charts are used as a tool to monitor and control the project progress.
• A Gantt Chart is a graphical presentation that displays activities as follows:– Time is measured on the horizontal axis. A horizontal bar is
drawn proportionately to an activity’ s expected completion time.– Each activity is listed on the vertical axis.
• In an earliest time Gantt chart each bar begins and ends at the earliest startfinish the activity can take place.
134
Here‘s how we build an Earliest Time Gantt Chart for KLONEPALM 2000
135
136
Immediate EstimatedActivity Predecessor Completion Time
A None 90B A 15C B 5D G 20E D 21F A 25G C,F 14H D 28I A 30J D,I 45
AA9090
90
BB
1515
FF2525
II
3030
105
CC
55
115
GG1414
129
DD
2020
149
EE2121
HH
2828
JJ
4545
194
194
Gantt Charts- Monitoring Project Progress
• Gantt chart can be used as a visual aid for tracking the progress of project activities.
• Appropriate percentage of a bar is shaded to document the completed work.
• The manager can easily see if the project is progressing on schedule (with respect to the earliest possible completion times).
137
Monitoring Project Progress
138
AA9090
BB
1515
FF2525
II
3030
CC
55
GG1414
DD
2020
EE2121
HH
2828
JJ
4545
194
194
135
The shaded bars representcompleted work BY DAY 135.
Do not conclude that the project is behind schedule.
Activity “I” has a slack and therefore can be delayed!!!
Gantt Charts – Advantages and Disadvantages
• Advantages. – Easy to construct– Gives earliest completion date.– Provides a schedule of earliest possible start and finish times
of activities.
• Disadvantages– Gives only one possible schedule (earliest).– Does not show whether the project is behind schedule.– Does not demonstrate the effects of delays in any one activity
on thestart of another activity, thus on the project completion time.
139
5.7 Resource Leveling and Resource Allocation
• It is desired that resources are evenly spread out throughout the life of the project.
• Resource leveling methods (usually heuristics) are designed to: – Control resource requirements– Generate relatively similar usage of resources
over time.
140
Resource Leveling – A Heuristic
• A heuristic approach to “level” expenditures– Assumptions
• Once an activity has started it is worked on continuously until it is completed.
• Costs can be allocated equally throughout an activity duration.
141
Step 1: Consider the schedule that begins each activity at its ES.
Step 2: Determine which activity has slack at periods of peak
spending.
Step 3: Attempt to reschedule the non-critical activities performed
during these peak periods to periods of less spending, but
within the time period between their ES and LF.
5.8 The Probability Approach to Project Scheduling
• Activity completion times are seldom known with 100% accuracy.
• PERT is a technique that treats activity completion times as random variables.
• Completion time estimates are obtained by theThree Time Estimate approach
142
The Probability Approach – Three Time Estimates
143
• The TThe Three Time Estimatehree Time Estimate approachapproach provides completion time estimate for provides completion time estimate for each activity.each activity.
• We use the notation:We use the notation:
a = an optimistic time to perform the a = an optimistic time to perform the activity.activity.
m = the most likely time to perform the m = the most likely time to perform the activity.activity.
b = a pessimistic time to perform the b = a pessimistic time to perform the activity.activity.
144
= the mean completion time =a + 4m + b
6= the standard deviation =
b - a6
Approximations for the mean and Approximations for the mean and the standard deviation of activity the standard deviation of activity completion time are based on the completion time are based on the BetaBeta distribution. distribution.
The Distribution, Mean, and The Distribution, Mean, and Standard Deviation of an Standard Deviation of an
ActivityActivity
The Project Completion Time Distribution - Assumptions
145
To calculate the mean and standard deviation of the project completion time we make some simplifying assumptions.
The Project Completion Time Distribution - Assumptions
• Assumption 2– The time to complete one activity is independent of
the time to complete any other activity.• Assumption 3
– There are enough activities on the critical path so that the distribution of the overall project completion time can be approximated by the normal distribution.
146
• Assumption 1Assumption 1– A critical path can be determined by using the A critical path can be determined by using the
mean completion times for the activities. mean completion times for the activities. – The project mean completion time is determined The project mean completion time is determined
solely by the completion time of the activities on solely by the completion time of the activities on the critical path.the critical path.
The Project Completion Time Distribution
The three assumptions imply that the overall project
completion time is normally distributed, the
following parameters:
147
Mean = Sum of mean completion times
along the critical path.
Variance = Sum of completion time
variances along the critical
path.
Standard deviation = Variance
5.10 Cost Analyses Using The Critical Path Method (CPM)
• The critical path method (CPM) is a deterministic approach to project planning.
• Completion time depends only on the amount of money allocated to activities.
• Reducing an activity’s completion time is called “crashing.”
148
Crash timeCrash cost
• There are two crucial completion times to consider for each activity.– Normal completion time (TN).
– Crash completion time (TC), the minimum possible completion time.
149
• The cost spent on an activity varies between– Normal cost (CN). The activity is completed in
TN.
– Crash cost (CC). The activity is completed in TC.
Crash timeCrash cost – The Linearity Assumption
• The maximum crashing of activity completion time is TC – TN.
• This can be achieved when spending CN – CC.
• Any percentage of the maximum extra cost (CN – CC) spent to crash an activity, yields the same percentage reduction of the maximum time savings (TC – TN).
150
Crash time/ Crash cost -The Linearity Assumption
151
Marginal Cost =Additional Cost to get Max. Time Reduction
Maximum Time reduction
= (4400 - 2000)/(20 - 12) = $300 per day
M = M = E
R
Crashing activities – Meeting a Deadline at Minimum Cost
• If the deadline to complete a project cannot be met using normal times, additional resources must be spent on crashing activities.
• The objective is to meet the deadline at minimal additional cost.
152
7.11 PERT/COST
• PERT/Cost helps management gauge progress against scheduled time and cost estimates.
• PERT/Cost is based on analyzing a segmented project. Each segment is a collection of work packages.
153
PROJECTPROJECT
Work Package 1Activity 1Activity 2
Work Package 2Activity 3Activity 5
Work Package 3Activity 4Activity 6
Work Package - Assumptions
– Once started, a work package is performed continuously until it is finished. – The costs associated with a work package are
spread evenly throughout its duration.
154
Monitoring Project progress
• For each work package determine:– Work Package Forecasted Weekly cost =
Budgeted Total Cost for Work Package Expected Completion Time for Work Package (weeks)
– Value of Work to date = p(Budget for the work package)where p is the estimated percentage of the work package completed.
– Expected remaining completion time = (1 – p)(Original Expected Completion Time)
155
Monitoring Project progress
156
• Completion Time AnalysisCompletion Time AnalysisUse the expected remaining completion time Use the expected remaining completion time estimates, estimates,
to revise the project completion time.to revise the project completion time.• Cost OverrunCost Overrun//Underrun AnalysisUnderrun Analysis
For each work package (completed or in progress) For each work package (completed or in progress) calculatecalculate
Cost overrun =Cost overrun = [Actual Expenditures to Date] - [Value of [Actual Expenditures to Date] - [Value of
Work to Date].Work to Date].
Monitoring Project Progress – Corrective Actions
• A project may be found to be behind schedule, and or experiencing cost overruns.
• Management seeks out causes such as:
– Mistaken project completion time and cost estimates.
– Mistaken work package completion times estimates and
cost estimates.
– Problematic departments or contractors that cause delays.
157
Monitoring Project Progress – Corrective Actions
• Possible Corrective actions, to be taken whenever needed.
– Focus on uncompleted activities.
– Determine whether crashing activities is desirable.
– In the case of cost underrun, channel more resources to
problem activities.
– Reduce resource allocation to non-critical activities.158
