AEROSPACE ENGINEERING

- PROJECT MANAGEMENT -
PROJECT MANAGEMENT

SEMESTER:
FALL 2021

THEORY SLIDES:
PRJ COST-PROCUREMENT MNG
COORDINATOR :
Pr. Daniel Garcia-Almiñana
Engineering Projects Department
ETSEIAT - TR5 - Office 209
PROJECT MANAGEMENT

Roadmap to the PROJECT

MANAGEMENT PLAN:

COST MANAGEMENT
PROJECT MANAGEMENT
 WBS & COST ESTIMATION

Scope management Time management

PROJECT MANAGEMENT

1 2 WBS 4 5
Project Activity list - Sequence activities
Scope - Allocate resources
statement
- Estimate durations

3 WBS Dictionary

6 Develop Schedule

Cost management

7 Activity list +
cost estimates
8 Determine the budget 9 Develop Budget 10 Control costs
€

Time
PROJECT MANAGEMENT THE BUDGET – components and terms

Total amount Unforeseens

Management Risks
reserve
Contingency Uncertainties
reserve
Activity
contingency
reserve

Project
budget Cost
Control Work-
baseline
accounts Package
(BAC) Activity cost
cost estimates
estimates (D2, direct &
indirect
costs)

Budget components
PROJECT MANAGEMENT FUNDING REQUIREMENTS

Project budget
Cumulative cost

Management reserve
BAC – Budget at completion

Funding Cost baseline

requirements

PV – Planned value =
(BCWS – Budgeted Cost Work Scheduled)

Time
PROJECT MANAGEMENT EARNED VALUE MANAGEMENT
PROJECT MANAGEMENT COST BASELINE – PLANNED VALUE
Cumulative cost

Management reserve
BAC

PV

Time
 COST BASELINE – PLANNED VALUE

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

PROJECT MANAGEMENT

WP1 10 10 10 30
WP2 15 25 10 50
WP3 45 45 90
WP4 60 100 40 200
WP5 10 10 10 30
WP6 5 5 10
CUM (PV) 10 20 45 70 125 170 230 330 380 390 405 410 410

PV ‐ BAC
450
400
350
300
250
200
150
100
50
0
1 2 3 4 5 6 7 8 9 10 11 12
 EARNED VALUE – VARIANCE
Graph analysis
PROJECT MANAGEMENT

 Schedule
Cumulative cost

Management reserve variance?

BAC
SV=EV-PV

 Cost variance?
CV=EV-AC

AC – Actual cost
 Schedule
indicator
PV
EV – Earned value
SPI=EV/PV

 Cost indicator
Time
CPI=EV/AC
 FORECAST ANALYSIS Graph analysis

 What is the project

likely to cost?
PROJECT MANAGEMENT

EAC EAC=BAC/CPI
Cumulative cost

EAC=BAC-CV
Management reserve
BAC  When is it likely to
finish?
EACt=schedule/SPI

 What will be the

remaining costs?
ETC=EAC-AC

 How efficiently must

AC we use our remaining
resources?
PV TCPI=(BAC-EV)/(BAC-AC)
EV TCPI=(BAC-EV)/(EAC-AC)

Time
PROJECT MANAGEMENT PROJECT STATUS & FORECAST ANALYSIS

 Variances:
 Schedule Variance (SV); SV= EV-PV
 Cost Variance (CV); CV=EV-AC
 Variance at Completion (VAC); VAC=BAC-EAC

 Performance Indices
 Schedule Performance Index (SPI); SPI=EV/PV
 Cost Performance Index (CPI); CPI=EV/AC
 To-complete performance index (TCPI);
TCPI=(BAC-EV)/(BAC-AC) or (BAC-EV)/(EAC-AC)

 Forecast
 Time estimate at completion (EACt); schedule/SPI
 Estimate at completion (EAC); EAC=BAC/CPI or BAC-CV
 Estimate to complete (ETC); ETC=EAC-AC
PROJECT MANAGEMENT PROJECT STATUS & FORECAST ANALYSIS

Performance Schedule
Measures SV>0 & SPI>1.0 SV=0 & SPI=1.0 SV<0 & SPI<1.0
CV>0 & Ahead of schedule On schedule Behind schedule
CPI>1.0 Under budget Under budget Under budget
Cost CV=0 & Ahead of schedule On schedule Behind schedule
CPI=1.0 On budget On budget On budget
CV<0 & Ahead of schedule On schedule Behind schedule
CPI<1.0 Over budget Over budget Over budget
 SUMMARY

Project Management Question EVM parameter

PROJECT MANAGEMENT

How are we doing time wise? Schedule analysis and forecasting

- Are we ahead or behind schedule? - Schedule variance: SV

- How efficiently are we using time? - Schedule performance index: SPI

- When are we likely to finish work? - Time estimate at completion: EACt

How are we doing cost wise? Cost analysis and forecasting

- Are we under or over budget? - Cost variance: CV

- How efficiently we are using our resources? - Cost performance index: CPI

- How efficiently must we use our remaining resources? - To-complete performance index: TCPI

- What is the project likely to cost? - Estimate at completion: EAC

- Will we be under or over budget? - Variance at completion: VAC

-What will be the remaining work cost? - Estimate to complete: ETC

PROJECT MANAGEMENT

Roadmap to the PROJECT

MANAGEMENT PLAN:

PROCUREMENT MANAGEMENT
PROJECT MANAGEMENT
 MAKE OR BUY ANALYSIS
 Reasons for purchasing goods or services:
Lack of skilled workers
PROJECT MANAGEMENT

 Lack of capacity
 Cost considerations
 …

The making decision The buying decision

Less expensive? Less expensive?

Less risky? Less risky?

Easy integration of operations Reduced need of items (non cost-effective to produce)

Using existing idle capacity Limited existing capacities or capabilities

Keep direct control Indirect control

Keep design/production know-how Use the skills of suppliers

Minimize dependence from suppliers Keep multiple sources (qualified vendor list)

Stabilize existing workforce Reduce the need to increase existing workforce

 MAKE OR BUY ANALYSIS
MAKE OR BUY?
PROJECT MANAGEMENT

Make : Buy:
Incidence in Incidence in
HHRR procurement

 The “making” decision implies:

 Increasing the need in HHRR management
 Changes in risk management
 …

 The “buying” decision implies:

 Increasing the need in procurement management
 Changes in risk management
 Changes in WBS (new WP’s, new activities for PM)
 …
 TYPES OF CONTRACT

 Fixed Price or Lump Sum : Buyer and seller enter a fixed-

PROJECT MANAGEMENT

price contract by agreeing on the final cost of a good or

service, which is set by the contract both parties sign and
agree to honor.

 Cost-reimbursable contracts : Contract category involving

payments (cost reimbursements) to the seller for all
legitimate actual costs incurred for completed work, pus a fee
representing seller profit.

 Time and Material Contracts (T&M) : A contractual

agreement where a buyer will pay the seller based on the
number of hours put into the project plus any added material
expenses.
 TYPES OF CONTRACT

 Fixed Price or Lump Sum :

PROJECT MANAGEMENT

 Firm fixed price (FFP) contract. A type of fixed price contract

where the buyer pays the seller a set amount (as defined by the
contract), regardless of the seller’s costs.
 Fixed price incentive fee (FPIF) contract. A type of contract
where the buyer pays the seller a set amount (as defined by the
contract), and the seller can earn an additional amount if the
seller meets defined performance criteria.
 Fixed price with economic price adjustment (FP-EPA) contract.
A type of contract that is used when the seller’s performance
period spans a considerable period of years. It is a fixed price
contract with a provision allowing for predefined final
adjustments to the contract price due to changing conditions,
such as cost increases. The EPA clause must relate to a
reliable financial index that is used to adjust the final price.
 TYPES OF CONTRACT

 Cost-reimbursable contracts :
PROJECT MANAGEMENT

 Cost plus fixed fee (CPFF) contract. A type of cost-reimbursable

contract where the buyer reimburses the seller for the seller’s
allowable costs (allowable costs are defined by the contract)
plus a fixed amount of profit (fee).
 Cost plus incentive fee (CPIF) contract. A type of cost-
reimbursable contract where the buyer reimburses the seller for
the seller’s allowable costs (allowable costs are defined by the
contract), and the seller earns its profit if it meets defined
performance criteria.
 Cost plus award fee (CPAF) contract. A type of cost-
reimbursable contract where the buyer reimburses the seller for
the seller’s allowable costs (allowable costs are defined by the
contract), but the majority of the fee is earned based only on
the satisfaction of certain broad subjective performance
criteria defined and incorporated into the contract.
 TYPES OF CONTRACT
 Fixed Price or Lump sum
PROJECT MANAGEMENT

Advantages Disadvantages
Requires less effort by the buyer to manage Scope and quality shall be clearly stated, otherwise some
contracts reductions may arise
Risks may be transferred to the buyer Seller may initially underquote and later try to increase its
margins with Change Requests
Time and costs may become predictable (and Not having a proper SOW may result in seller not
higher) providing some of the deliverables

 Cost-reimbursable contracts
Advantages
Less costly than fixed price because seller does not
have to account for their risk
Simple to draft contracts
Disadvantages
Requires auditing all of the seller invoices and thus
increases buyer efforts
Seller may have less incentive to control cost

 Time and Material Contracts (T&M)

Advantages Disadvantages
Easy to create Seller has no incentive to control costs

Good for human resource punctual needs Requires monitoring of daily output
Good for small projects
 TYPES OF CONTRACT (Risks & Monitoring)

100% 0%
PROJECT MANAGEMENT

Buyer
Firm Fixed Price Contracts (FFP)
Fixed Price with Economic Price Adjustment
Contracts (FP-EPA)

Fixed Price Incentive Fee Contracts (FPIF)

Buyer risk (%)

Seller risk (%)

Time and Material Contracts (T&M)

Cost Plus Fixed Fee Contracts (CPFF)

Cost Plus Incentive Fee Contracts (CPIF)

Cost Plus Awards Fee Contracts (CPAF)

Seller

0% 100%