PROJECT MANAGEMENT

SYSTEMS

1.0 Introduction To Project Management.

 LEARNING OBJECTIVES

• Understand the theories, concepts and principles

of project management.
• Know and understand the project development
and project life cycle.
• Apply the criteria and process in the
identification and selection of projects.
 Definitions, Theories, Basic
Concepts, and Principles
• Projects- Unique one - time operations designed to
accomplish a specific set of objectives in a limited time
frame.
• Examples of projects include construction of shopping
complex, roads, bridges, school buildings, ports,
computerization projects, among others and to be
completed on specified time frame
• Project management differs from management of more
traditional activities because of its limited time framework
and the unique set of activities involved, which gives rise
to a host of unique problems.
 What Is a Project?
• A project is “a temporary endeavor undertaken to
accomplish a unique product or service”
(PMBOK® Guide 2000, p. 4)
• Attributes of projects
– unique purpose
– temporary
– require resources, often from various areas
– should have a primary sponsor and/or customer
– involve uncertainty
• Project management- a team based approach in the implementation of any undertakings
to attain objectives in a given time.

• Differs in general operations management due to the following;

1. Limited time frame
2. Narrow focus, specific objectives
3. Less bureaucratic

• Project management is used because;

1. Special needs that don’t lend themselves to functional managements.
2. pressures for new or improved products or services, cost reduction
• Key matrix of project management;
1. time
2. cost
3. performance objectives.
• Key success factors of project management;
1. Top-down commitment
2. A respected and capable project manager
3. Enough time to plan
4. Careful tracking and control
5. Good communications
• Major Administrative issues in project management

1. Executive responsibilities
a. project selection
b. selection of a project manager
c. Organizational structure (to whom the project
manager report?)
2. Organizational alternatives
a. Manage within functional unit
b. Assign a coordinator
c. Use a matrix organization with a project leader.
 How Project Management
Relates to Other Disciplines
• Much of the knowledge needed to manage
projects is unique to the discipline of
project management
• Project mangers must also have
knowledge and experience in
– general management
– the application area of the project
 History of Project Management
• Some people argue that building the
Egyptian pyramids was a project, as was
building the Great Wall of China
• Most people consider the Manhattan
Project to be the first project to use
“modern” project management
• This three-year, $2 billion (in 1946 dollars)
project had a separate project manager
and a technical manager
Project Management Tools and
Techniques
• Project management tools and techniques assist
project managers and their teams in various
aspects of project management
• Some specific ones include
– Project Charter, scope statement, and WBS (scope)
– Gantt charts, network diagrams, critical path analysis,
critical chain scheduling (time)
– Cost estimates and earned value management (cost)
• Main Tools of project management

1. Work breakdown structure- initial planning tool needed to

develop a list of activities, activity sequences, and a
realistic budget.
2. Network diagram- a visual aid that is used to estimate
project duration, identify activities that are critical for timely
project completion, identify areas where slack time exists,
and develop activity schedules.
3. Gantt charts- A visual aid used to plan and monitor
individual activities.
4. Risk management- analysis of potential failures or
problems, assessment of their likelihood and
consequences, and contingency plans.
 Sample Gantt Chart

The WBS is on the left, and each task’s start and finish date
are shown on the right using a calendar timescale. Early Gantt
Charts, first used in 1917, were drawn by hand.
 Sample Network Diagram

Each box is a project task from the WBS. Arrows show dependencies
between tasks. The bolded tasks are on the critical path. If any tasks on the
critical path take longer than planned, the whole project will slip
unless something is done. Network diagrams were first used in 1958 on the
Navy Polaris project, before project management software was available.
 Project Management Software
• By 2003, there were hundreds of different products to assist in
performing project management
• Three main categories of tools exist:
– Low-end tools: Handle single or smaller projects well, cost under
$200 per user
– Midrange tools: Handle multiple projects and users, cost $200-
500 per user, Project 2000 most popular
– High-end tools: Also called enterprise project management
software, often licensed on a per-user basis
• Project 2002 now includes a separate version for enterprise project
management (see Appendix A for details on Project 2002)
• Key Managerial Decisions in Project
Management Success
1.Deciding which project to implement
2. Selecting the project manager
3. Selecting the project team
4. Planning and designing the project
5. Managing and controlling project
resources
6. Deciding if and when a project should
be terminated
 Advantages of Using Formal
Project Management
• Better control of financial, physical, and human
resources
• Improved customer relations
• Shorter development times
• Lower costs
• Higher quality and increased reliability
• Higher profit margins
• Improved productivity
• Better internal coordination
• Higher worker morale
 You Can Apply Project
Management to Many Areas
• Project management applies to work as
well as personal projects
• Project management applies to many
different disciplines (IT, construction,
finance, sports, event planning, etc.)
• Project management skills can help in
everyday life
Project development
 Project Development
Is a cycle of activity which runs through the
principal phases of pre-investment phase,
investment phase and post investment
phase.
The Project Development Cycle
Project Project
Evaluation Identification

Project Project
monitoring Preparation

Project
Project
Appraisal
Implemen-
And
tation
Detailed Financing
Project
Engineering
 The Project Life Cycle
Project
Project
Feasibility
Termination
Study
Project
Evaluation and
Project Project
monitoring Financing

Project Project
Implemen- Plan
tation Implementation
Detailed
Project
Engineering
 Basis In Project Identification
• Problem Based
• Need based
• Resource based
• Opportunity based
• Personal interest based
 Categorizing Projects
• One categorization is whether the project
addresses
– a problem
– an opportunity
– a directive
• Another categorization is how long it will take
to do and when it is needed
• Another is the overall priority of the project
 Project selection
• Methods in selecting projects
1. Economic
2. Financial
• Project selection criteria
1. Net Present Value
2. benefit Cost Ratio
3. Internal Rate of Return
4. Payback Period
5. Return on Investment
 Methods for Selecting Projects
• There are usually more projects than available time
and resources to implement them
• It is important to follow a logical process for selecting
IT projects to work on
• Methods include:
– focusing on broad needs
– categorizing projects
– performing financial analyses
– using a weighted scoring model
– implementing a balanced scorecard
 Focusing on Broad
Organizational Needs

• “It is better to measure gold roughly than

to count pennies precisely”
• Three important criteria for projects:
– There is a need for the project
– There are funds available
– There’s a strong will to make the project
succeed
 2. The Project Management
Processes Concepts and principles
LEARNING OBJECTIVES
• Know and Understand the Concepts and Principles
of The Project Management Processes
• Be Able to Understand the Relationships of the
Project Management Processes
• Understand the Project Planning Concepts and
Principle
• Be able to understand and apply project scope
management.
The Triple Constraint
• Every project is constrained in different
ways by its
– Scope goals: What is the project trying to
accomplish?
– Time goals: How long should it take to
complete?
– Cost goals: What should it cost?
• It is the project manager’s duty to balance
these three often competing goals
Figure 1-1. The Triple
Constraint of Project
Management
Figure 1-2. Project Management
Framework
 9 Project Management
Knowledge Areas
• Knowledge areas describe the key competencies that
project managers must develop
– 4 core knowledge areas lead to specific project objectives
(scope, time, cost, and quality)
– 4 facilitating knowledge areas are the means through which
the project objectives are achieved (human resources,
communication, risk, and procurement management)
– 1 knowledge area (project integration management) affects
and is affected by all of the other knowledge areas
 Project Stakeholders
• Stakeholders are the people involved in or
affected by project activities
• Stakeholders include
– the project sponsor and project team
– support staff
– customers
– users
– suppliers
– opponents to the project
 Stakeholder Analysis
• A stakeholder analysis documents
important (often sensitive) information
about stakeholders such as
– stakeholders’ names and organizations
– roles on the project
– unique facts about stakeholders
– level of influence and interest in the project
– suggestions for managing relationships
 Project Management Process
Groups
• Project management can be viewed as a
number of interlinked processes
• The project management process groups
include
– initiating processes
– planning processes
– executing processes
– controlling processes
– closing processes
Figure 3-1. Overlap of Process
Groups in a Phase (PMBOK®
Guide, 2000, p. 31)
 Table 3-1. Relationships Among Process
Groups and Knowledge Areas (PMBOK® Guide
2000, p. 38)
 Table 3-1. Relationships Among Process
Groups and Knowledge Areas (PMBOK® Guide
2000, p. 38)
 Project Initiation
• Initiating a project includes recognizing and starting a new
project or project phase
• Some organizations use a pre-initiation phase, while others
include items like developing a business case as part of
initiation
• The main goal is to formally select and start off projects
• Key outputs include:
– Assigning the project manager
– Identifying key stakeholders
– Completing a business case
– Completing a project charter and getting signatures on it
 Project Initiation Documents
• Business case:
• Charter: Note: Every organization has its
own variations of what documents are
required for project initiation. It’s important
to identify the need for projects, who the
stakeholders are, and what the main goals
are for the project
 Project Charters
• After deciding what project to work on, it is
important to formalize projects
• A project charter is a document that
formally recognizes the existence of a
project and provides direction on the
project’s objectives and management
• Key project stakeholders should sign a
project charter to acknowledge agreement
on the need and intent of the project
JWD’s Project Charter
JWD’s Project Charter
 Project Planning
• The main purpose of project planning is to guide execution
• Every knowledge area includes planning information
• Key outputs include:
– A team contract
– A scope statement
– A work breakdown structure (WBS)
– A project schedule, in the form of a Gantt chart with all
dependencies and resources entered
– A list of prioritized risks
JWD’s List of Prioritized Risks
 Project Executing
• It usually takes the most time and
resources to perform project execution
since the products of the project are
produced here
• The most important output of execution is
work results
• Project managers must use their
leadership skills to handle the many
challenges that occur during project
execution
 Project Plan Execution
• Project plan execution involves managing and
performing the work described in the project
plan
• The majority of time and money is usually
spent on execution
• The application area of the project directly
affects project execution because the products
of the project are produced during execution
 Important Skills for Project
Execution
• General management skills like
leadership, communication, and political
skills
• Product skills and knowledge
• Use of specialized tools and techniques
 Tools and Techniques for
Project Execution
• Work Authorization System: a method
for ensuring that qualified people do work
at the right time and in the proper
sequence
• Status Review Meetings: regularly
scheduled meetings used to exchange
project information
• Project Management Software: special
software to assist in managing projects
 Project Controlling
• Controlling involves measuring progress
toward project objectives, monitoring
deviation from the plan, and taking
corrective actions
• Controlling affects all other process groups
and occurs during all phases of the project
life cycle
• Status and progress reports are important
outputs of controlling
 Integrated Change Control
• Integrated change control involves
identifying, evaluating, and managing
changes throughout the project life cycle
(Note: 1996 PMBOK called this process
“overall change control”)
• Three main objectives of change control:
– Influence the factors that create changes
to ensure they are beneficial
– Determine that a change has occurred
– Manage actual changes when and as they
occur
Figure 4-3. Integrated Change
Control Process
 Change Control on Information
Technology Projects
• Former view: The project team should strive to do
exactly what was planned on time and within
budget
• Problem: Stakeholders rarely agreed up-front on
the project scope, and time and cost estimates
were inaccurate
• Modern view: Project management is a process of
constant communication and negotiation
• Solution: Changes are often beneficial, and the
project team should plan for them
 Change Control System
• A formal, documented process that describes
when and how official project documents and
work may be changed
• Describes who is authorized to make
changes and how to make them
• Often includes a change control board
(CCB), configuration management, and a
process for communicating changes
Change Control Boards (CCBs)
• A formal group of people responsible for
approving or rejecting changes on a project
• CCBs provide guidelines for preparing
change requests, evaluate change requests,
and manage the implementation of
approved changes
• Includes stakeholders from the entire
organization
 Making Timely Changes
• Some CCBs only meet occasionally, so it may
take too long for changes to occur
• Some organizations have policies in place for
time-sensitive changes
– “48-hour policy” allows project team members to make
decisions, then they have 48 hours to reverse the
decision pending senior management approval
– Delegate changes to the lowest level possible, but
keep everyone informed of changes
 Configuration Management
• Ensures that the products and their descriptions
are correct and complete
• Concentrates on the management of technology
by identifying and controlling the functional and
physical design characteristics of products
• Configuration management specialists identify
and document configuration requirements,
control changes, record and report changes,
and audit the products to verify conformance to
requirements
 Table 4-3. Suggestions for
Managing Integrated Change
Control
• View project management as a process of constant
communications and negotiations
• Plan for change
• Establish a formal change control system, including a
Change Control Board (CCB)
• Use good configuration management
• Define procedures for making timely decisions on
smaller changes
• Use written and oral performance reports to help
identify and manage change
• Use project management and other software to help
manage and communicate changes
 Project Closing
• The closing process involves gaining
stakeholder and customer acceptance of
the final product and bringing the project,
or project phase, to an orderly end
• Even if projects are not completed, they
should be closed out to learn from the past
• Project archives and lessons learned are
important outputs. Most projects include a
final report and presentations
 Post-Project Follow-up
• Many organizations have realized that it’s
important to review the results of projects a
year or so after they have been completed
• Many projects project potential savings, so
it’s important to review the financial
estimates and help learn from the past in
preparing new estimates
 The Key to Overall Project Success:
Good Project Integration Management
• Project managers must coordinate all of
the other knowledge areas throughout a
project’s life cycle
• Many new project managers have trouble
looking at the “big picture” and want to
focus on too many details
• Project integration management is not the
same thing as software integration
Project Integration Management
Processes
• Project Plan Development: taking the
results of other planning processes and
putting them into a consistent, coherent
document—the project plan
• Project Plan Execution: carrying out the
project plan
• Integrated Change Control: coordinating
changes across the entire project
 Figure 4-1. Project Integration
Management Overview

Note: The PMBOK® Guide 2000 includes similar charts for each knowledge area.
Figure 4-2. Framework for Project
Integration Management
Focus on pulling everything to-
gether to reach project success!
 Using Software to Assist in Project
Integration Management
• Several types of software can be used to assist in project
integration management
– Documents can be created with word processing
software
– Presentations are created with presentation software
– Tracking can be done with spreadsheets or databases
– Communication software like e-mail and Web authoring
tools facilitate communications
– Project management software can pull everything
together and show detailed and summarized
information (see Appendix A for details)
 3. Project Management Planning
Learning Objectives
• Understand the Project Planning Concepts
and Principle
• Be able to apply the GOPP, logical
framework analysis and project scope
management.
 Project Plan Development
• A project plan is a document used to
coordinate all project planning documents
• Its main purpose is to guide project
execution
• Project plans assist the project manager
in leading the project team and assessing
project status
• Project performance should be measured
against a baseline plan
 Attributes of Project Plans
Just as projects are unique, so are project
plans
• Plans should be dynamic
• Plans should be flexible
• Plans should be updated as changes
occur
• Plans should first and foremost guide
project execution
Common Elements of a Project
Plan
• Introduction or overview of the project
• Description of how the project is
organized
• Management and technical processes
used on the project
• Work to be done, schedule, and budget
information
PROJECT PREPARATION – THE
LOGICAL FRAMEWORK
APPROACH AND
LOGICAL FRAMEWORK MATRIX
• The Logical Framework Approach (LFA) is
a specific strategic planning methodology
that can be used to prepare many different
types of projects, including environmental
investment projects. The output of LFA is
the Logical Framework Matrix
(LogFrame).
 LFA fulfils several functions:

• It develops a structured set of project ideas by

clarifying objectives and outputs.

• It provides a clear, brief and logical

description of the proposed project.

• It helps to identify possible risks to project

implementation.

• It provides a useful basis for project appraisal.

 Logical Framework Approach is often
confused with the Logical Framework
Matrix.

LFA is a project preparation methodology,

whereas the LogFrame is a document with
a special structure, produced at the end of the
LFA process.
The LFA process can be divided
into the following five steps:
1. Situation analysis;
2. Stakeholder analysis;
3. Problem and objective analysis;

4. Analysis of alternatives;
5. Activity planning.
 Logical Framework Matrix
(LogFrame)
• The final step in the LFA is to create the
LogFrame.
• LogFrame is a document, which
summarizes the results of the LFA
process.
The Logframe has four columns and four
rows. Its main purpose is to link the
project goals and objectives to the inputs,
processes and outputs required to
implement the project.
 The general structure of the
LogFrame is given in the following
• Narrative Objectively Information Risks and
• Summary Verifiable Indicators Sources Assumptions
•
• Wider Objective How to measure How to check the What assumptions
• wider objective measurement are you making
• Project Purpose How to measure How to check the What assumptions
• immediate objective measurement are you making
• Outputs How to measure How to check the What assumptions
• outputs produced measurement are you making
• Inputs/Activities How to measure How to check the What assumptions
• Inputs measurement are you making
 Logframe Matrix structure
• Project Description
Goal: The broader
• development impact to
• which the project
• contributes – at a
• national and sectoral
• level
• Purpose:
• The development
• outcome expected
• at the end of the
• project. All components
• will contribute to this.
• evaluation.
• Component Objectives:
• The expected outcome
• of producing each
• component’s outputs.
• eview and evaluation.
• Outputs:
• The direct measurable
• results (goods and
• services) of the project
• which are largely under
• project management’s
• control.
• Activities:
• The tasks carried out to
• implement the project
• and deliver the
• identified outputs.
Performance Indicators Means of Verification Assumptions
Measures of the extent Sources of information
to which a contribution and methods used to
to the goal has been collect and report it.
made. Used during
evaluation.
Conditions at the end of Sources of information Assumptions concerning
the project indicating and methods used to the purpose/goal
that the Purpose has collect and report it. linkage.
been achieved. Used for
project completion and
Measures of the extent Sources of information Assumptions concerning
to which component and methods used to the component
objectives have been collect and report it. objective/purpose
achieved. Used during linkage.
Measures of the Sources of information Assumptions concerning
quantity and quality of and methods used to the output/component
outputs and the timing collect and report it. objective linkage.
of their delivery. Used
during monitoring and
review.
Implementation/work Sources of information Assumptions concerning
program targets. Used and methods used to the activity/output
during monitoring. collect and report it. linkage.
 Column Headings
• Narrative Summary The text that "narrates" or describes the
objectives.
• Objectively Verifiable Indicators The indicators, which demonstrate
the ways in
which the goals, project purpose, outputs and input shall be
achieved. The
indicators answer the following questions:
In what quality? In which quantity? By what time?
Indicators should be quantifiable wherever possible, but qualitative
indicators may
also be used if necessary. In general, ideal indicators are:
Independent, Verifiable, Specific, Accessible.
• Sources of information These specify the source of the information
used to measure or verify the indicators.
• Risks and assumptions These are important events, conditions, or
decisions which are necessarily outside the control of the project,
but which are critical for the project objective to be attained
 Row Headings
• Wider Objective - The higher-level objective that the project is expected to
contribute to; this is the objective based upon the “focal problem” identified
during
the LFA. The addition of the word "contribute' implies that this project alone is
not
expected to achieve the wider objective.
• Project Purpose – The anticipated effect that the project will achieve by
delivering
• the planned outputs. This should correspond to one of the objectives based
upon the
“sub-problems” from the LFA. There is a tendency for this to be expressed in
terms
of a "change in behaviour" of a group or institution; the project outputs are
expected to facilitate this change.
• Outputs - The tangible results that the project management team should be able
to
guarantee. Outputs are generally delivered within specified time frame.
Inputs/Activities – Inputs are the resources that the project "consumes" in the
course of undertaking the activities. Typically they will be human resources,
 LogFrame Matrix Example

• IMPROVING THE AIR QUALITY IN “BLACK HOLLOW” BY INTRODUCTION OF

• TROLLEY BUSES
• WIDER OBJECTIVE OBJECTIVELY VERIFIABLE SOURCES OF INFORMATION RISKS AND
• INDICATORS ASSUMPTIONS

• To improve air ambient quality Full compliance with the Directive Mandatory measurement
• in Black Hollow No. 1999/30/ of ambient air quality in
• EC for the Black Hollow region “Black Hollow
agglomeration” as required

• by the Air Quality Framework

Directive No. 96/62/EC and
• performed by the competent
authority required by the
same Directive
• PROJECT PURPOSE OBJECTIVELY VERIFIABLE SOURCES OF INFORMATION RISKS AND
• INDICATORS ASSUMPTIONS
• To replace buses with trolley Share of passengers carried
• buses in the downtown by trolley-buses will achieve
area of Black Hollow 65% after the project is completed Annual survey made and published Co-financing
assured
• by the Black Hollow Public
• Transportation authority
• OUTPUTS OBJECTIVELY VERIFIABLE SOURCES OF INFORMATION RISKS AND
• INDICATORS ASSUMPTIONS
• 1. Completed, ready-to-operate 1. The route complies with all the 1. Checklist with the requirements Construction
• trolley bus route A requirements necessary for verified by the city hall. permits issued
• obtaining the official permit by in time
• the Rail Authority to operate
• trolley buses.
2. Completed, ready-to-operate 2. The route complies with all the 2. Checklist with the
• trolley bus route B requirements necessary for requirements verified by the
• obtaining the official permit by city hall.
• INPUTS/ACTIVITIES
• INDICATORS
ASSUMPTIONS
• 1.1. Construction of the
funds available
• trolley route
and on time
• 1.2. Construction of the
• power subsystem
• 1.3. Construction of the
• ground electric
• transmission line
• 1.4. Necessary adjust-
• ments of the roads
• on the route
• standard
• 1.5. Purchase of the
• trolley buses
• 2.1. Construction of the
• trolley route
• 2.2. Construction of the
• power subsystem
• 2.3. Construction of the
• ground electric trans-
• mission line
• 2.4. Necessary adjust-
• ments of the roads on
• the route
• state standard
•
•
OBJECTIVELY VERIFIABLE SOURCES OF INFORMATION RISKS AND
1.1. 4 350 m of two track trolley 1.1. Operational permit issued All
laid
1.2. 1 converter station 2 x 660 V 1.2. Operational permit issued
at A
1.3. Trolley route supplied by 1.3. Operational permit issued
electricity in all the length
1.4. All the roads on the route 1.4. Operational permit issued
capable of carrying trolley buses in
compliance with the respective state
1.5. 5 trolley buses with the carrying 1.5. City Hall book-keeping records
capacity of 140 people
2.1. 3 500 m of two track trolley laid 2.1. Operational permit issued
2.2. 1 converter station 2 x 660 V at B 2.2. Operational permit issued
2.3. Trolley route supplied by 2.3. Operational permit issued
electricity in all the length
2.4. All the roads on the route 2.4. Operational permit issued
capable of carrying trolley buses
in compliance with the respective
 Project Scope Management Processes
• Initiation: beginning a project or continuing to the next
phase
• Scope planning: developing documents to provide the
basis for future project decisions
• Scope definition: subdividing the major project
deliverables into smaller, more manageable components
• Scope verification: formalizing acceptance of the project
scope
• Scope change control: controlling changes to project
scope
Project Initiation: Strategic Planning
and Project Selection
• The first step in initiating projects is to look
at the big picture or strategic plan of an
organization
• Strategic planning involves determining
long-term business objectives
• IT projects should support strategic and
financial business objectives
 Scope Planning and the
Scope Statement
• A scope statement is a document used to
develop and confirm a common understanding
of the project scope. It should include
– a project justification
– a brief description of the project’s products
– a summary of all project deliverables
– a statement of what determines project success
 Scope Planning and the Work
Breakdown Structure
• After completing scope planning, the next step
is to further define the work by breaking it into
manageable pieces
• Good scope definition
– helps improve the accuracy of time, cost, and
resource estimates
– defines a baseline for performance measurement
and project control
– aids in communicating clear work responsibilities
 The Work Breakdown
Structure
• A work breakdown structure (WBS) is a
deliverable-oriented grouping of the work
involved in a project that defines the total
scope of the project
• It is a foundation document in project
management because it provides the
basis for planning and managing project
schedules, costs, and changes
 Approaches to Developing WBSs
• Using guidelines: Some organizations, like the DoD,
provide guidelines for preparing WBSs
• The analogy approach: Review WBSs of similar
projects and tailor to your project
• The top-down approach: Start with the largest items of
the project and break them down
• The bottom-up approach: Start with the detailed tasks
and roll them up
• Mind-mapping approach: Write down tasks in a non-
linear format and then create the WBS structure
Sample Mind-Mapping
Approach
 Basic Principles for Creating WBSs
1. A unit of work should appear at only one place in the WBS.
2. The work content of a WBS item is the sum of the WBS items below it.
3. A WBS item is the responsibility of only one individual, even though many
people may be working on it.
4. The WBS must be consistent with the way in which work is actually going
to be performed; it should serve the project team first and other purposes
only if practical.
5. Project team members should be involved in developing the WBS to
ensure consistency and buy-in.
6. Each WBS item must be documented to ensure accurate understanding of
the scope of work included and not included in that item.
7. The WBS must be a flexible tool to accommodate inevitable changes while
properly maintaining control of the work content in the project according to
the scope statement.
*Cleland, David I. Project Management: Strategic Design and Implementation, 1994
 Scope Verification and Scope Change Control
• It is very difficult to create a good scope statement
and WBS for a project
• It is even more difficult to verify project scope and
minimize scope changes
• Many IT projects suffer from scope creep and poor
scope verification
– FoxMeyer Drug filed for bankruptcy after scope creep on a
robotic warehouse
– Engineers at Grumman called a system “Naziware” and
refused to use it
– 21st Century Insurance Group wasted a lot of time and
money on a project that could have used off-the-shelf
components
4. Project Financing and Budgeting
Learning Objectives
• Be Familiar and Understand the Concepts and
Principles of Project Financing and Budgeting
• Know and understand how project cost is
analysed and identify sources of financing
• Identify and Analyze Project Costs and Benefits
• Compute for the Financial and Economic
Viability of Projects
 How much will it cost?
• How much will the project cost
– To develop
– To operate
– To maintain
• Can we sustain project operations and
maintenance?
 How much will it cost?
• How much is needed to operate and maintain the
project in usable form?
• If we can charge user fees, how much should it be?
How much more is needed to collect the fees
(administrative cost of collecting the fees)?
• Given the fees, what is the projected number of users?
• If we do not collect the fees, what is the projected
number of users?
• If the project cannot be expected to pay for itself, will
the provincial government be willing to subsidize its
operations and maintenance? By how much?
 How much will it cost?

If operations and maintenance of the

project cannot be sustained, either
from project revenues or subsidies
from the province, the project
investment should not be undertaken.
 Total Project Cost
Cost Items Loan Equity Total
• Fixed Cost
1.Machineries,
Equipments
2. Buildings
And other Infra
• Operating
Cost
1. Labor
2. Materials
• Miscellaneous
• Contingency
 Sources of Financing
• Equity (Owner’s Investment)

• Loan (Banks and other sources)

• Grant (Government and other Sources)

• Co-Financing
The Budget Cycle

Budget Budget
Accountability Preparation

Budget Budget
Execution Authorization

Budget
Review
 KNOW the project
?
• What is the output of the project?
– Output, not outcomes
• Characterize the output
– Public, private, mixed
– Tradeable, nontradeable, partly tradeable
 UNDERSTAND the project
• What are the desired
outcomes? ?!!?

– outcomes NOT outputs

• What are the desired

impacts?
 Financial Analysis of Projects
• Financial considerations are often an
important consideration in selecting projects
• Three primary methods for determining the
projected financial value of projects:
– Net present value (NPV) analysis
– Return on investment (ROI)
– Payback analysis
 Net Present Value Analysis
• Net present value (NPV) analysis is a
method of calculating the expected net
monetary gain or loss from a project by
discounting all expected future cash inflows
and outflows to the present point in time
• Projects with a positive NPV should be
considered if financial value is a key
criterion
• The higher the NPV, the better
 Net Present Value Example

Note
that
totals
are
Uses
equal,
Excel’s
but
npv
NPVs
function
are
not.
 JWD Consulting NPV Example

Multiply
by the
discount
rate each
year, then
take cum.
benefits –
costs to
get NPV
 NPV Calculations
• Determine estimated costs and benefits for the life
of the project and the products it produces
• Determine the discount rate (check with your
organization on what to use)
• Calculate the NPV (see text for details)
• Notes: Some organizations consider the
investment year as year 0, while others start in
year 1. Some people enter costs as negative
numbers, while others do not. Check with your
organization for their preferences.
 Return on Investment
• Return on investment (ROI) is calculated by
subtracting the project costs from the benefits and
then dividing by the costs
ROI = (total discounted benefits - total discounted
costs) / discounted costs
• The higher the ROI, the better
• Many organizations have a required rate of return or
minimum acceptable rate of return on an investment
• Internal rate of return (IRR) can by calculated by
setting the NPV to zero
 Payback Analysis
• Another important financial consideration is
payback analysis
• The payback period is the amount of time it will
take to recoup, in the form of net cash inflows, the
net dollars invested in a project
• Payback occurs when the cumulative discounted
benefits and costs are greater than zero
• Many organizations want IT projects to have a
fairly short payback period
 5.1. Introduction to the Concepts
And Use of PERT/CPM
Learning Objectives
• Aware and Understand the Concepts and
Principles of PERT/CPM
• Analyze Business Problem and Relate to the
Applicability Of the Use of
• PERT/CPM
• Identify Business Problems and Use PERT/CPM
in its solution
• Solve Business Problems Using PERT/CPM
 Introduction to the Concepts
And Use of PERT/CPM

• PERT-Program Evaluation and Review

Technique, for planning and coordinating
large projects and is concern about
scheduling of activities
• CPM-Critical Path Method, for planning
and coordinating large projects and is
concern about importance of activities
 By Using PERT/CPM Managers
Are Able To Obtain;
• A graphical display of project activities.
• An estimate of how long the project will
take.
• An indication of which activities are the
most critical to timely project completion.
• An indication of how long any activity can
be delayed without delaying the project.
 The Network Diagram
• Main features of PERT/CPM is the use of a
network or precedence diagram to depict
major project activities and their sequential
relationships
• Two conventions in network construction;
1. Activities on Arrow- arrows designate
activities.
2. Activities on node- nodes designate
activities
 Order furniture
Locate
2 4
facilities remodel
start 1 Furniture
Set-up
end
Move in 6
interview 3 5
Hire and train

ACTIVITIES ON ARROWS

2
1 Order 6
Locate furniture Furniture
facilities Set up
start
5
remodel 7
3 Move in
interview 4
ACTIVITIES
Hire and
ON NODES
train
Common terms used in PERT/CPM

• Activities- project steps that consume resources and /or time.

• Events- the starting and finishing of activities, designated by
nodes in the AOA convention.
• Path- a sequence of activities that leads from the starting node
to the finishing node.
• Critical path- the longest path; determines expected project
duration.
• Critical activities- activities on the critical path.
• Slack- allowable slippage for a path; the difference between the
length of a path and the length of the critical path.
• Deterministic time- time estimate that are fairly certain
• Probabilistic time- estimates of times that allow for variation.
• Optimistic time- the length of time required under optimum
condition (To).
• Pessimistic time- the length of time required under the worst
condition (Tp)
• Most likely time- the most probable amount of time required
(Tm)
• Computing slack time;
Slack= Late start- Early start or Late finish- Early finish
• Computing estimated time (Te);
Te= (To+4Tm+Tp)/6
 NETWORK CONVENTIONS

AOA INTERPRETATION AON

a b c Activities must be completed in sequence;

first a, then b, and then c.
a b c
Both a and b must be completed before c can start
a a
c
b c
Activity a must be completed before b or c can start.
b
b b
a
a c
Both a and b must be completed before c or d can start
a c a c
b d b d
Use dummy activity to clarify relationships:
a c 1. To separate two activities that have the same starting
and ending nodes. No dummy needed
b Dummy
activity 2.When activities share some, but not all, precedence
activities No dummy needed No dummy needed
• To determine the early start and early finish the
backward pass is used.
-Begin with the starting activity. Start is an activity
with zero (0) duration hence this is the early start
of the first activity. The early start is added to the
duration to get the early finish. The early finish is
then the early start of the succeeding activity.
This is done for all the activities. However, if
there are two activities preceding an activities
the highest early finish of the two activity will be
considered as the early start of the succeeding
activity.
• To determine the late start and the late finish the
backward approach is used.
-This is done by starting with the analysis with the last
activity of the network. The duration of the network will
be considered as the late finish of the last activity in the
network. The late finish of the last activity is deducted to
the duration to get the late start. The late start will then
be the late finish of the next activity. This is done for all
the activities. Activities with two preceding activity the
activity with the lowest late start will be considered as the
late finish of the succeeding activity.
 A Network Showing the Schedules
of Each Activity
5 13
5 13 13 15
5
c d 13 15
8 2 15 25
0 5 2 15 25
b 25 33
0 5 5 12 7 6
a i
5 8 15 10 25 33
0 3 8 k
start e 6 19 f 8
1 6 end
3 3 3 9 j 9
19 25
g 7 17
0 1 h 3 20
13 14 1 16 33
2
4 1 3
14 16