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INSTRUCTORS RESOURCE MANUAL

CHAPTER THIRTEEN
Project Evaluation and Control

To Accompany
PROJECT MANAGEMENT:
Achieving Competitive Advantage
By
Jeffrey K. Pinto

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

CHAPTER 13

PROJECT PROFILE: Solar Power on the Rise


Introduction
13.1 CONTROL CYCLES A GENERAL MODEL
13.2 MONITORING PROJECT PERFORMANCE
Project S-Curves
Milestone Analysis
Gantt Charts
13.3 EARNED VALUE MANAGEMENT
Creating Project Baselines
Why Bother with Earned Value?
Terminology for Earned Value
Conducting an Earned Value Analysis
13.4 USING EARNED VALUE TO MANAGE A PORTFOLIO OF PROJECTS
PROJECT PROFILE: Earned Value at Northrop-Grumman
13.5 ISSUES IN THE EFFECTIVE USE OF EARNED VALUE ANALYSIS
13.6 HUMAN FACTORS IN PROJECT EVALUATION AND CONTROL
Critical Success Factor Definitions
Summary
Key Terms
Solved Problems
Discussion Questions
Problems
Case 13.1 The IT Department at Kimble College
Case 13.2 The Superconducting Supercollider
Internet Exercises
MSProject Exercises
PMP Certification Sample Questions
Bibliography

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TRANSPARENCIES

13.1 A GENERAL MODEL OF THE PROJECT CONTROL


CYCLE

The Project Control Cycle

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13.2 BUDGETED COSTS FOR SAMPLE PROJECT


Duration (in weeks)

Design

10

Engineer

15

20

25

20

Install
Test

30

35

40

45

Total

Total

12

28

Cumul.

12

20

32

60

68

74

78

80

80

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13.3 PROJECT S-CURVE

Cumulative Cost
($ in thousands)
80

60

40

20

10

15

20

25

30

35

40

45

Elapsed Time (in weeks)

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13.4 PROJECT S-CURVE SHOWING NEGATIVE


VARIANCE
Cumulative Cost
($ in thousands)
80

60

$10,000 Negative Var.


40

20

10

15

20

25

30

35

40

45

Elapsed Time (in weeks)


Cumulative Budgeted Cost
Cumulative Actual Cost

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13.5 GANTT CHART WITH MILESTONES

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

13.6 TRACKING GANTT WITH PROJECT ACTIVITY DEVIATION

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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13.7 EARNED VALUE TABLE WITH PERCENTAGE OF


TASKS COMPLETE

Duration (in weeks)

Design

10

Engineer

15

20

25

30

35

40

45

% Comp.
100

Install

20

Test

100
6

50

Total

12

28

Cumul.

12

20

32

60

68

74

78

80

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13.8 CALCULATING EARNED VALUE


(All numbers are in thousands $)

Planned
Design

% Comp.

Earned Value

100

Engineer

28

100

28

Install

30

50

15

Test

14

Cumul.
Earned
Value

51

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13.9 PROJECT BASELINE, USING EARNED VALUE

Cumulative Cost
($ in thousands)
80
Project Baseline
60
Earned Value
40

20

10

15

20

25

30

35

40

45

Elapsed Time (in weeks)

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13.10EARNED VALUE MILESTONES

AC
Actual
Overspend

Cost
PV

EV

Budget

Slip

Schedule

Performed

Schedule

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13.11EARNED VALUE TABLE

Activity

Jan

Feb

Staffing

Blueprinting

Mar

Apr

May

Jun

Jul

Plan

%C

Value

15

100

15

10

80

10

60

Prototype
Devel
Full Design

Construction

10

21

33

30

32

25

10

10

20

Transfer
Punch List

15

118

Monthly Plan

17

10

55

15

Cumulative

15

21

38

48

103

118

Monthly Actual 8

11

11

10

30

19

27

38

48

78

44

Cumulative
Actual

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13.12 SCHEDULE VARIANCES FOR EVM

Schedule Variances
Planned Value (PV)

103

Earned Value (EV)

44

Schedule Performance Index

EV/PV = 44/103 = .43

Estimated Time to Completion

(1/.43 x 7) = 16.3 months

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13.13 COST VARIANCES FOR EVM

Cost Variances
Actual Cost of Work (AC)

78

Earned Value (EV)

44

Cost Performance Index

EV/AC = 44/78 = .56

Estimated Cost to Completion

(1/.56 x $118,000) = $210,714

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13.14 CRITICAL SUCCESS FACTORS IN PROJECT


IMPLEMENTATION
1. PROJECT MISSION
2. TOP MANAGEMENT SUPPORT

3. PLANS AND SCHEDULES

4. CLIENT CONSULTATION

5. PERSONNEL

6. TECHNICAL TASKS

7. CLIENT ACCEPTANCE

8. MONITORING AND FEEDBACK

9. COMMUNICATION

10.TROUBLE-SHOOTING

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DISCUSSION QUESTIONS
1. Why is the generic four-stage control cycle useful for understanding how to
monitor and control projects?
One of the more difficult challenges of project control is finding a way to accurately
measure progress. The four-stage cycle breaks project down into specific goals that can
be measured against the project baseline. Deviations from the planned budget or time
line can be identified and corrected swiftly. The fact that it is a cycle, implying repetition
of the process, demonstrates the constant need for project monitoring and control
measures. The final step in the cycle is to recycle the process resulting in continuous
project control.

2. Why was one of the earliest project tracking devices referred to as an S-curve?
Do you see value in the desire to link budget and schedule to view project
performance?
This early device compared project time and cost graphically. The nature of project time
and costs creates an S when the points are plotted on a graph, hence the term S-curve.
There is value in linking the budget and schedule as an indicator of project performance.
Following the S-curve, managers can get a rough depiction of expected progress. They
can also see deviations of their own project from the typically expected progression.

3. What are some of the key drawbacks with S-curve analysis?


The cause of S-curve drawbacks lies mainly in its lack of tying the schedule and budget
to actual project progress. S-curves give little indication as to the cause of variations
from projections. The S-curve simply points out deviation of cost in relation to time. It
does not relation task completion to time or cost. Therefore, when a deviation is
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discovered it is unknown whether the project is on target so far as physical progress


(whether work is being completed on, ahead or behind the anticipated time and budget).
Without knowing the cause of the variance, managers may make incorrect assumptions
about the status of the project.

4. What are the benefits and drawbacks with the use of milestone analysis as a
monitoring device?
Milestone analysis is beneficial in signaling the completion of important project stages
and in creating distinctions between work packages. This increases the teams ability to
respond to change and create logical review points. Milestones also provide periodic
goals that keep team members motivated. They represent significant accomplishments
within the larger picture of the project. It also draws the teams attention to the projects
status. Overall, the analysis provides a clear picture of project development. However,
this form of analysis only allows for reaction to problems, not foresight or prevention.
Problems are then able to compound and grow to the point of unmanageable resulting in
a significantly over budget/schedule project.

5. It has been said that Earned Value Management (EVM) came about because the
Federal Government often used Cost plus contractors with project
organizations. Cost plus contracting allows the contractor to recover full project
development costs plus accumulate profit from these contracts. Why would
requiring contractor firms to employ earned value management help the
government hold the line against project cost overruns?
Earned Value Management goes beyond reporting costs and progress. It links costs
incurred to the time and budget baseline as well as to measurable performance
milestones. By using EVM, the government is requiring that costs incurred during the
project be directly tied to performance or progress of the project. The cost of the project

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is based on the budgeted cost of work performed. Therefore, negative or positive


variances in performance are measured by the value of the work performed, not by the
costs spent to complete the work. This allows companies to have a better understanding
of what variances mean and their impact on the overall project. By understanding why
the meaning of variances, managers are in a better position to take corrective action and
to keep the project on schedule.

6. What are the major advantages of using EVM as a project control mechanism?
What do you perceive are its disadvantages?
The major advantages of EVM are that it is a comprehensive approach to measuring
progress (links cost, time and completion), its use of objective criteria, and it enables
more accurate information for decision making. Disadvantages may include the time
consuming nature of analysis in large scale projects, mathematical formulas used for
efficiency do not take into account unique problems that stall the project or spike costs in
one area (which may not lead to overall poor efficiency), and a lack of information
regarding what type of corrective action may need to be taken.

7. Consider the major findings of the research on human factors in project


implementation. What common themes seem to emerge from the research of
Baker, Morris, and Pinto?
The overarching theme is that in order to understand why a project is progressing the way
it is the project must be evaluated on human performance criteria. There are several
human factors proven to be influential in project success. Some of the main areas that
need to be measured are motivation, leadership, expertise and top management support.
The problem with this area of assessment is that it lacks a straightforward, objective
system for measurement.

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8. The ten critical success factors have been applied in a variety of settings and
project types. Consider a project with which you were involved. Did any sub-set
of these factors emerge as clearly the most important for project success? Why?
This question requires students to give a specific answer based on their own experience
with projects. Responses will vary depending upon the project they select to respond to
with the critical success factor model.

9. Identify the following terms: PV, EV, and AC. Why are these terms important?
How do they relate to each other?
PV refers to Planned Value. This is the expected (planned) budget for all project
activities that are planned to occur within a specific time period. Planned Value is
compared with Earned Value to determine the real progress that has been made on a
project.
EV refers to Earned Value. Earned value is the budgeted cost of the work performed.
This is important in establishing the true progress of the project and in understanding the
meaning of variances from the project baseline.
AC stands for Actual Cost. These are the total costs incurred to complete project work.

10. What do the schedule performance index and budget performance index
demonstrate? How can a project manager use this information to estimate future
project performance?
The indexes compare the planned value and actual cost of the project with the earned
value (EV) measure to assess true project performance. The goal for an organization is

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to maintain SPI and BPI of 1.0 or higher, indicating that the projects progress is ahead of
schedule. The lower the projects SPI and CPI are from 1.0, the less progress is being
made on the project and the higher the likely overruns on schedule and budget we can
anticipate.
11. Suppose the SPI is calculated as less than 1.0. Is this good news for the project or
bad news? Why?
This would probably be viewed as bad news. A performance index of less than 1.0
indicates that the project, based on current EV and PV information, is not progressing at
the planned rate. Depending upon how much less than 1.0 the SPI is, the projects
schedule could either be marginally or significantly delayed.

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CASE STUDIES

Case Study 13.1 - The IT Department at Kimble College


This case identifies some of the serious problems and challenges involved in accurately
tracking and determining the status of ongoing projects. In this case, there is no clear
method for tracking and identifying project performance midstream. Either it succeeds,
or (more often) it comes in very late and over budget. Dan Gray, the new head of the IT
department, is not helping the process because he himself has a tendency to paint a rosy
picture of his projects.
Questions:
1. As a consultant monitoring this problem, what are your proposed solutions? To
what degree has Dans management style contributed to the problems?
This department needs to develop a monitoring and control system that allows project
managers and administrators the ability to get real-time information on project
development so there are no end-game surprises, when a project is suddenly late
and over budget. The use of earned value, milestones, or some other tracking
mechanism is critical.
2. What are some of the types of project status information you could suggest they
begin to collect to assess the status of their projects?
Use of standard monitoring and control metrics such as milestones would begin to
give some interim updates on project status. The problem with milestones is that they
are a reactive measure (you know you missed one only when you miss one). On the
other hand, earned value, combined with frequent updates regarding project activity
development, can provide real-time information and well as the ability to make

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reasonable projections into the future to avoid any surprises regarding how projects
are performing.
3. How would you blend hard data and managerial or behavioral information to
create a comprehensive view of the status of ongoing projects at Kimble College?
Using concepts such as earned value, coupled with softer information provided by tools
such as critical success factor analysis, will give project managers and top management a
more comprehensive assessment or how projects are performing, how effectively project
teams are functioning, and early-earning signs in cases where behavioral issues may be
poised to negatively affect the projects performance. Hard data and soft data each
serve a purpose in detailing a clear view of the projects current status as well as the
status of project team performance, which is critical to the ability to successfully
complete the project.

Case Study 13.2 The Superconducting Supercollider


A famous example of a project that started with great fanfare and was quietly shut down
was the Superconducting Supercollider. A particle physics structure as it was conceived,
the project received funding after an intense (and some would argue, divisive)
competition among various communities seeking to house the complex. A combination
of incremental funding coupled with very poor project oversight led to allegations of
slipshod work, inflated costs, and unnecessary expenses. All these problems contributed
to a rapid decline in the attitude of the Federal Government toward keeping the project
alive and it was finally killed through withdrawal of funding. This case also makes an
excellent discussion point for that argument that good project management also requires

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good stakeholder management; that is, keeping all the powerful project stakeholders
happy and supportive of the project.

Questions:
1. Suppose you were a consultant called into the project by the Federal Government
in 1990, when it was still seemingly viable. Given the start to the project, what
steps would you have taken to reintroduce some positive spin on the
Superconducting Supercollider?

This question asks students to think about developing stakeholder management strategies
for the project to enhance its reputation. Early warning signs were already emerging
about poor cost control and slow, expensive development. However, there was still a
window of time in which a canny project manager could have worked to reestablish
support for the project from the key funding agencies and powerful congressional
members. Students should consider steps to reengage these crucial supporters.

2. What were the warning signs of impending failure as the project progressed.
Could these signs have been foreseen and addressed or, in your opinion, was the
project simply impossible to achieve? Take a position and argue its merits.

There are several points of departure that students can adopt in answering this question.
First, the divisive nature of the competition for the location of the Superconducting
Supercollider was guaranteed to ensure that losing communities, and their federal

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representatives, would be upset and unlikely to give the project the benefit of the doubt
downstream. Second, the way that project funding was initially doled out at a slow pace
(due to Federal budget deficit concerns) made it difficult for the project to kick off
strongly; in fact, they had to begin slowly and never were able to gain much momentum.
Third, the project also was sold on the basis of European financial support, which never
materialized. When this lack of funding became evident, it gave the projects enemies
powerful ammunition to move to kill the program.

The larger question regarding how much of these problems were foreseeable is a
debatable issue and one that can generate a lot of in-class discussion as students take one
position or the other. The ultimate goal of this component of the case is for them to
develop some guidelines for their own careers in projects, in terms of how to uncover
warning signs of project difficulties and what positive steps can be taken to address them
before they become debilitating to the project.

3. Google Superconducting supercollider on the internet. How do the majority of


stories about the project present it? Given the negative perspective, what are the
top three lessons to be learned from this project?

This is a summary question that asks students to consider the lessons to be learned from
this disaster. Most internet sites that address just the science underlying the
Superconducting Supercollider offer a mixed view of it and are supportive of the particle

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physics science that drove its development. Federal watchdog groups, on the other hand,
view the project as a classic case of governmental waste with nothing to show for it.

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PROBLEMS

1) Using the following information, develop a simple S-curve representation of the


expected cumulative budget expenditures for this project.
Duration (in days)
10

20

30

40

50

60

70

80

Activities

12

20

10

Cumulative

12

24

44

54

62

68

70

(Figures are in thousands $)

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Solution:

2) Suppose the above expenditure figures were modified as follows:


Duration (in days)
10

20

30

40

50

60

70

80

Activities

10

14

20

24

28

Cumulative

12

22

36

56

80

108

116

Figures are in thousands


Draw this S-curve. What does the new S-curve diagram represent? How would you
explain the reason for the different, non S shape of the curve?
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Solution:

The non-S shape of the curve reflects the fact that project expenditures occurred later in
the project, suggesting that the projects activities may not have followed the traditional
life cycle model for resource usage.

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3) Assume the following information:

Budgeted Costs for Sample Project


Duration (in weeks)

Design
Engineer

10

15

Install
Test

20

25

30

12

12

24

35

40

45

Total

Total
Monthly
Cumul.

a) Calculate the monthly budget and the monthly cumulative budgets for the
project.
b) Draw a project S-curve identifying the relationship between the projects
budget baseline and its schedule.

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Solution:
a)
Budgeted Costs for Sample Project
Duration (in weeks)

Design

10

15

Engineer
Install

20

25

12

12

24

Test

30

35

40

45

Total
Monthly

12

24

34

12

Cumul.

11

23

47

81

93

99

103

105

Total

a. S-Curve rendering

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4) Use the following information to construct a Tracking Gantt chart using MS


Project.
Activities

Duration

Preceding Activities

5 days

none

4 days

3 days

6 days

B, C

4 days

2 days

D, E

Highlight project status on day 14 using the tracking option and assuming that all tasks to
date have been completed on time. Print the output file.

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Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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5) Using the above information, highlight the projects status on day 14 but assume that activity D has not yet begun. What
would the new tracking Gantt chart show? Print the output file.

Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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6) Use the following table to calculate project schedule variance based on the units
listed below.

Schedule Variance Work Units


Planned

A
20

B
15

C
10

D
25

E
20

F
20

Value
Earned

10

10

10

20

25

25

Total
110

Value
Schedule
variance

Solution:
Schedule Variance Work Units
Planned

A
20

B
15

C
10

D
25

E
20

F
20

Total
110

Value
Earned

10

10

10

20

25

25

100

Value
Schedule

-10

-5

-5

-10

variance

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7) Using the following data, calculate the planned and actual monthly budgets
through the end of June. Assume the project is planned for a 12-month duration
and $250,000 budget.

Activity

Jan

Feb

Staffing

Blueprinting

Prototype
Development

Mar

Apr

May

Jun

6
2

Full Design

8
3

Construction

Plan

%C

15

100

10

100

10

70

10

21

67

30

32

25

10

10

Transfer

Value

Monthly Plan
Cumulative
Monthly Actual

10

15

14

40

Cumul. Actual

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Solution:

Activity

Jan

Feb

Staffing

Blueprinting

Prototype
Development

Mar

Apr

May

Jun

6
2

Full Design

8
3

Construction

Plan

%C

Value

15

100

15

10

100

10

10

70

10

21

67

14

30

32

25

10

10

54

Transfer

Monthly Plan

11

11

10

50

Cumulative

19

27

38

48

98

Monthly Actual

10

15

14

40

Cumul. Actual

10

25

31

45

54

94

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8) Using the data from #7 above, calculate the following values:


Schedule Variances
Planned Value of Work Scheduled (PV)
Earned Value (EV)
Schedule Performance Index (SPI)
Estimated Time to Completion
Cost Variances
Actual Cost of Work Performed (AC)
Earned Value (EV)
Cost Performance Index (CPI)
Estimated Cost to Completion

Solution:
Schedule Variances
Planned Value (PV)

98

Earned Value (EV)

54

Schedule Performance Index (SPI)


Estimated Time to Completion

EV/PV = 54/98 = .55


(1/.55) x 12 mos. = 21.75

mos.
Cost Variances
Actual Cost of Work Performed (AC)

94

Earned Value (EV)

54

Cost Performance Index (CPI)

EV/AC = 54/94 = .58

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Estimated Cost to Completion

(1/.58) x $250,000 = $434,622

9) You are calculating the estimated time to completion for a project of 1-year
duration and a budgeted cost of $500,000. Assuming the following information,
please calculate the schedule performance index and estimated time to
completion.

Schedule Variances
Planned Value of Work Scheduled (PV)

65

Earned Value (EV)

58

Schedule Performance Index


Estimated Time to Completion

Solution:
Schedule Performance Index (SPI) = 58/65 = .89
Estimated Time to Completion = (1/.89) x 12 months = 13.45 months, or almost 2
months behind schedule.

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10)

Suppose, for the problem above, that your PV was 75 and your EV was

80. Recalculate the SPI and estimated time to completion for the project with this
new data.

Solution:
Schedule Performance Index (SPI) = 80/75 = 1.07
Estimated Time to Completion = (1/1.07) x 12 months = 11.25 months, or
approximately 3 weeks ahead of schedule.

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11)Assume you have collected the following data for your project. Its budget is
$75,000 and it is expected to last 4 months. After two months, you have
calculated the following information about the project:

PV

$45,000

EV

$38,500

AC

$37,000

Calculate the SPI and CPI. Based on these values, estimate the time and budget
necessary to complete the project? How would you evaluate these findings (i.e., are they
good news or bad news?)

Solution:
SPI = EV/PV = $38,500/45,000 = .86
CPI = EV/AC = $38,500/37,000 = 1.04
Estimated Time to Completion = (1/.86) x 4 months = 4.68 months
Estimated Cost to Completion = (1/1.04) x $75,000 = $72,078
The findings are a bit of good news and a bit of bad. The good news is that your
estimated cost to completion is lower than the original budget; however, the bad news is
that the project is behind schedule and is likely to take 4.65 months to complete, rather
than the originally planned 4 months.

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MSProject EXERCISES
Problem 13.1
Using the following data, enter the various tasks and create a Gantt chart using
MSProject. Assign the individuals responsible for each activity and once you have
completed the network, update it with the percentage complete tool. What does the
MSProject output file look like?
Activity

Duration

Predecessors

Resource

% complete

A. Research product

Tom Allen

100

B. Interview customers

Liz Watts

75

C. Design Survey

Rich Watkins

50

D. Collect Data

B, C

Gary Sims

Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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Problem 13.2
Now, suppose we assign costs to each of the resources in the following amounts:
Resource

Cost

Tom Allen

$50/hour

Liz Watts

$55/hour

Rich Watkins

$18/hour

Gary Sims

$12.50/hour

a. Create the resource usage statement for the project as of the most recent update. What
are project expenses per task to date?
Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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Problem 13.3
Use MSProject to create a Project Summary Report of the most recent project status.

Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

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Problem 13.4
Using the data shown in the network precedence table below, enter the various tasks onto
MSProject. Then select a date approximately halfway through the overall project
duration and update all tasks in the network to show current status. You may assume that
all tasks in the first half of the project are now 100% completed. What does the Tracking
Gantt look like?

Project - Remodeling an Appliance


Activity

Duration

Predecessors

A.

Conduct competitive analysis

B.

Review field sales reports

C.

Conduct tech capabilities assessment

D.

Develop focus group data

A, B, C

E.

Conduct telephone surveys

F.

Identify relevant specification improvements

G.

Interface with Marketing staff

H.

Develop engineering specifications

I.

Check and debug designs

J.

Develop testing protocol

K.

Identify critical performance levels

L.

Assess and modify product components

I, K

M.

Conduct capabilities assessment

12

N.

Identify selection criteria

O.

Develop RFQ

P.

Develop production master schedule

N, O

Q.

Liaison with Sales staff

R.

Prepare product launch

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

46

Solution:

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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