Project Management & Contract Administration - Semester 2

UPES
CENTRE FOR CONTINUING EDUCATION
MBCQ724D
PROJECT MANAGEMENT AND
CONTRACT ADMINISTRATION
www.cce.upes.ac.in
Course Design
Advisory Council
Chairman
Mr. Sharad Mehra
Members
Dr. S J Chopra Dr. Sunil Rai Dr. Veena Dutta
Chancellor Vice Chancellor Registrar
Dr. Kamal Bansal Mr. Ashok Sahu

Dean-Academics Head-Online Business
SLM Development Team

Dr. Raju Ganesh Sunder Dr. Rajesh Gupta
Professor & Head-Academic Unit Sr. Associate Professor
Mr. Tarun Batra Mr. Rahul Sharma Mr. Shantanu Trivedi

Asst. Director-Product Development Lecturer Lecturer
Author
Dr. Rajesh Gupta
Course Code: MBCQ724D

Course Name: Project Management and Contract Administration
Version: July 2018

Contents
Unit 1 Introduction to Projects ....................................................................................... 3
Unit 2 Overview of Project Management ..................................................................... 11
Unit 3 Project Selection Non-numeric Models ............................................................. 17
Unit 4 Project Selection Numeric Models .................................................................... 25
Unit 5 Case Study .......................................................................................................... 33
Unit 6 Project Selection Scoring Models ...................................................................... 37
Unit 7 Project Planning ................................................................................................. 43
Unit 8 Work Breakdown Structure ............................................................................... 51
Unit 9 Developing Project Network .............................................................................. 57
Unit 10 CPM ..................................................................................................................... 63
Unit 11 Case study ........................................................................................................... 69
Unit 12 PERT.................................................................................................................... 73
Unit 13 Slack .................................................................................................................... 81
Unit 14 Project Crashing ................................................................................................. 91
Unit 15 Developing Gantt Chart .................................................................................... 97
Unit 16 Case Study ........................................................................................................ 101
Unit 17 Developing Baseline Cost Curve ..................................................................... 105
Unit 18 Project Budgeting and Activity Costing ......................................................... 109
Unit 19 Project Monitoring with Gantt Chart ............................................................ 111
Unit 20 Project Monitoring (Earned Value Analysis) ................................................. 115
Unit 21 Case Study ........................................................................................................ 125
Unit 22 Project Monitoring with S Curve ................................................................... 127
Unit 23 Resource Planning ............................................................................................ 135
Unit 24 Resource Loading and Leveling ...................................................................... 141
Unit 25 Project Termination .......................................................................................... 145
Unit 26 Case Study ........................................................................................................ 149
Block–I
Detailed Contents
UNIT-1: INTRODUCTION TO PROJECTS
UNIT-2: OVERVIEW OF PROJECT MANAGEMENT
UNIT-3: PROJECT SELECTION NON-NUMERIC MODELS
UNIT-4: PROJECT SELECTION NUMERIC MODELS
UNIT-5: CASE STUDY

3
Unit 1 Notes
Introduction to PProject
roject ___________________
___________________
___________________
Learning Objectives: ___________________

After studying this unit, the student will be able to:
___________________
\ Understand the importance of project approach.
\ Understand the differentiating characteristics of projects from ___________________
conventional organizations.
___________________
\ Understand the phases of the life cycle of projects and their significance.
\ Understand the objectives of the project and interdependence of cost on ___________________
schedules.
___________________
___________________
Defining a Project
Consider the following activities:
• A flyover is built in a city.
• Metro rail is constructed in New Delhi.
• A ship is built for the navy.
• A new residential building is constructed.
Do you see anything common in all these activities?
Now consider some more activities:
• A company launches a new product development program.
• A manufacturing organization begins a survey for assessing
customer satisfaction with its products.
• A manufacturing organization constructs a new warehouse.
• A new machine is procured and installed.
Do you see anything common in all these activities? Do you see
anything common in first set and second set of activities?
You can observe that although all these activities are entirely
different from each other, they all are temporary in nature,i.e., they
start one day and finish one day, contrary to mass manufacture
where the operations are perpetual.
All these activities described above fall in the category of projects.
A project can be defined as a temporary endeavor to achieve a
specific,well-defined objective.
Project Management and Contract Administration
4
Notes
Projects in Contemporary Organizations
Initially, the projects were considered different from the conventional
___________________
manufacturing systems. The word project was associated with large
___________________ projects like infrastructure projects, shipbuilding, construction, etc.
But in due course of time, it was realized that if conventional
___________________ manufacturing systems can adopt the project methodology, it results
___________________ in higher efficiency for the organization.
___________________ Hence, project method comprises three major entities.
___________________ Parent Organisation Project Team Customer
___________________
Figure 1.1: Projects in contemporary organizations
___________________
The parent organization selects the team leader and the team
___________________ members from its different divisions as per requirement of skills
and qualifications for the project. The project team is responsible
___________________
for interacting with the customer and ensure that the outcome of
the project meets the requirements of the customer.
Note that the customer for the product may be the parent
organization itself, for example, development of an IT system for a
company’s operations or construction of a new warehouse or
installation of new technology.
Characteristics of Projects
The projects differ from traditional forms of production and are
characterized by some unique features as follows:
• The projects have a purpose: Each project has a well-defined
purpose or objective. For example, the project of new product
development may have the objective of achieving a competitive
edge. The construction of a flyoveron the road may have a
purpose of reducing traffic congestion. The purpose of
constructing an underpass on the road may be to provide a
safe road cross to pedestrians.
• The projects have a life cycle: The projects, as already
discussed, are temporary endeavors. While the projects are in
progress, they pass through well-defined stages of life cycle.
• Each project produces a unique product: The projects are
not repetitive manufacturing activities. The product of a project
is unique. Future projects will never create the same
specifications of a product.
• Interdependence: Each project is comprised of a number of
tasks. All the tasks involved in a project are unique
independent entities, but they depend upon each other for
Unit 1: Introduction to Project
5
their performance. For example, a specific task may not be
Notes
able to start unless some of the precedingtasksare completed.
___________________
Project Life Cycle
___________________
One of the characteristics of projects that we discussed in the last
section is that the projects are temporary endeavors and ___________________
characterized by a life cycle. Although the projects differ in size,
___________________
nature, product, and requirements, the life cycle of all projects is
typically similar. The phases of the life cycle of projects are shown ___________________
in the form of a graph below. The x-axis of the graph indicates the
___________________
time and the y-axis indicates the level of effort required during
various stages. ___________________
___________________
___________________
___________________
Planning Scheduling Evaluation and

Conception Selection Monitoring & control termination
Figure 1.2: Stages in the life cycle of a project
Conception: During this stage, the management of the parent

organization, comes across various ideas of projects, each project
having its own necessity, and significance. The project ideas are
generally the outcome of brainstorming or other means of idea
generation. The ideas thus generated are subjected to screeningon
the basis of management’s priorities, organizational needs, and
importance of the project to achieve organizational goals.
Selection: The scarcity of resources may prohibit the management
to launch all screened projects simultaneously. The management
then selects various projects to be undertaken considering various
criteria like management priorities, competitive necessity,
significance of project, etc. For example, the management may
considera project for new product development more significant than
the construction of a new warehouse. A number of numeric and
non-numeric techniques are used by management for the purpose
of project selection. The numerictechniques include the financial
assessment of projects and also the comparative scoring.
6
Planning: The selection phase is followed by planning the project.
Notes
During this phase, various aspects relating to the projectare planned
which include scope definition, resource requirement planning, skills
___________________
required for the project, manpower requirement, procurement
___________________ requirement, financial planning, and specification definition. The
outcome of this process is a project plan which remains to be a
___________________
roadmap to the project. The project plan is also used as a tool for
___________________ project control. Another important aspect of this phase is identifying
the risks involved during the project life and planning to counter
___________________ these risks in the event of them becoming a reality.
___________________ Scheduling: The project time schedules are developed during this
___________________ phase. The project is broken into smaller tasks and work packages,
and the time required for individual tasksis assessed. The breaking
___________________ of the project into smaller tasks and work packages is called Work
Breakdown Structure (WBS). The interdependence of the tasksis
___________________
also established during this phase. The time required for completion
___________________ of the project is then assessed using the compiled information of
tasks interdependence and task time requirements. Various
techniques used for scheduling are PERT, CPM, Gantt chart, and
Milestone analysis.
Monitoring and control: Once the project is in process, it is
necessary to ensure that the various activities are completed at the
scheduled time and within decided budget. Exceeding time or cost
will lead to schedule overrun or cost overrun. Also, since the projects
are also characterized by scarcity of resources and the simultaneous
demand for resources by different tasks and work packages, it
becomes essential to apply techniques for rational and optimum
utilization, and allocation of the resources in such a manner that
the impact on project objectives is minimum. The process of
comparing the project progress with plans refers to monitoring.
Control refers to identifying deviations and taking action to minimize
the impact of deviations. This phase also monitors the assessed
risks and in the event of a risk becoming a reality, responds to risk,
mitigating its impact and changes are made to the plan if necessary
due to the occurrence of the risk.
Evaluation: Evaluation refers to analyzing the project performance
to ensure that the project objectives are met. Evaluation involves
schedule performance, cost performance, specifications achievement,
actions taken to respond to risks, resource use and allocation, and
management of outsourcing and contracting. The evaluation is
carried out at the end of the project and during different stages of
project progress. The during project progress evaluation provides
the basis for taking corrective actions if needed and the end of
project evaluation is carried out to learn from the completed project
so as to perform the future projectsmore efficiently and effectively.
The technique generally used for evaluation is called project audit.
7
Termination: The project comes to the finishing part at this stage.
Notes
This phase identifies the need for terminating a project. Please
note that termination does not always mean successful completion
___________________
of the project. Termination of project may be a result of project
failure or changed management priorities or lack of funds and ___________________
resources. Final accounting of project is carried out in this phase,
___________________
andthe projectis closed. The project assets are distributed among
different divisions, and the project team members are returned to ___________________
their parent divisions. If the termination is due to successful
___________________
completion of the project, the product is handed over to the customer.
___________________
It is also important to understand the life cycle of the project with
reference to the speed of the project. Typically, the projects have a ___________________
slow beginning followed by quick momentum and finally a slow
finish. The following graph can help understand it. ___________________
Slow Beginning: The projects typically begin slowly. The ___________________

specifications are under development and negotiation at this time, ___________________
and changes are being incorporated. Since the project is new, the
requirement of resources is being assessed. As the team members
are drawn from different divisions of the organization, there is a lot
of confusion and conflict regarding the authority and reporting
hierarchy.
Quick Momentum: As the aspects relating to project become clear,
and direction is established, the project gains speed. This is the
phase of quick momentum. The speed increases fast and reaches a
peak. This is the phase when monitoring and control of the projectare
in existence.
Project completion
Slow beginning Quick Momentum Slow finish
Figure 1.3: Project life cycle
Slow Finish: As the project approaches the finish, the various

parts of project output now need integration. The integration may
8
require careful analysis and inspection of each part before it is
Notes
integrated. This phase may also require minor changes to the parts
of the project outcomes.
___________________
___________________ Project Objectives

___________________ A project will be called successful if it can achieve the project
objectives. There are three criteria for defining and evaluating the
___________________
success of a project:
___________________
• Performance
___________________
• Cost
___________________ • Time
___________________ The planned measures of the three criteria make the target for the
___________________ project.
___________________ Performance: The product of a project must perform what it was

intended for. The specifications of project output must meet the
planned and agreed specifications. Performance is generally one of
the aspects leading to conflict between client and project team leader.
It is essential to clearly define the project objectives in the planning
phase leaving no scope for dispute. Performance is the most
important criteria for the success of a project.
Performance
Target
Time Cost
Figure 1.4: Project success criteria
Cost: No project can be provided with unlimited resources. Each

project is associated with a budget in totality and a budget for each
part of the project. For a project to be termed as successful, it is
essential that the project is completed within defined budget. The
reasons causing cost overrun need to be identified at the planning
stage and controls need to be applied to avoid such circumstances
to arise.
Time: Finishing in scheduled time is an important aspect of projects.
Schedule overruns not only cause intangible losses like loss of
9
reputation, loss of trust, and customer dissatisfaction but also leads
Notes
to cost overrun. Many times the schedule overruns lead to financial
compensations to the customer apart from additional expense in
___________________
resources. A project for being termed as successful needs to be
completed in scheduled time. ___________________
A project is successful if it can achieve its performance objectives ___________________

within scheduled time and allotted budget or cost.
___________________
Review Questions ___________________
1. Define a project. How is a project different from conventional ___________________

forms of manufacturing?
___________________
2. “The project approach leads to higher efficiency and
effectiveness.” Comment. ___________________
3. “The tasks involved in a project are independent entities but ___________________

interdependent.” Elaborate.
___________________
4. Explain the stages involved in a project’s life cycle with the
help of a diagram.
5. What are the criteria for assessing the success of a project?
11
Unit 2 Notes
Overview of PProject
roject Management ___________________
___________________
___________________

___________________
\ Appreciate the need for the use of project management tools.
___________________
\ Understand the various aspects involved in project management.
\ Identify tools and techniques of project management at different stages ___________________
of project progress.
___________________
___________________
Need for Project Management
___________________
In the last unit, it has been explained that there are three project
objectives – performance, cost, and quality. So, the project needs to
be expedited in a manner which ensures that project is completed
in planned time and cost and conforms to specifications and
performance standards. In order to achieve this objective, it is
necessary to make use of tools and techniques which help in
managing these objectives of the project.
In addition, the project is executed by a project team, members of
which come from different functional areas and conflicts in the
team are inevitable. Conflicts may also arise between the project
team leader and customer or the project team leader and parent
organization’s management.
Riskis involved at each stage of the project. The risk needs to be
anticipated and managed in a manner that it does not have any
adverse impact on project performance.
Inability to effectively manage any of the above-mentioned aspects
may lead to project underperformance or even the project failure.
Project management is the set of concepts, tools, and techniques to
effectively manage all aspects of the project effectively during all
stages of the project.
Aspects of Project Management

The aspects of project management are as follows:
Scope management: This aspect deals with planning and
fulfillment of the project specifications. The scope of the project
includes the responsibilities of the project team. The scope of the
12
project needs to be defined unambiguously in agreement with the
Notes
customer to avoid any conflict later. The scope management also
includes the management of scope creep (change in project
___________________
specifications by the project team or the customer).
___________________
Time management: Completion of a project in scheduled time is
___________________ crucial to its success. The aspect of time management involves project
scheduling, activity scheduling, identifying the slack of activities
___________________ (time by which activities can be delayed without delaying the project),
___________________ monitoring of progress with respect to time and corrective actions
if needed.
___________________
Cost Management: The budget is one of the constrained resources
___________________ for projects. Lack of financial resources may cause a project to shut
down before completion. So it is necessary to estimate the cost
___________________
involved in the project and also the cost involved in individual
___________________ tasks of the project. Cost management is about analyzing and
anticipating the cost involved in a project and its continuous
___________________
monitoring to avoid cost overrun. It involves planning, budgeting,
allocating and controlling the project cost.
Human resource management: People involved in a project are
important to its success. Forming the right and competent project
team is necessary for any project. Also, since the personnel in the
team are from different functional groups, it is necessary to define
responsibilities unambiguously and avoid any conflicts. Human
resource management is about selection of personnel for the project,
team development, managing conflicts, and motivating and leading
the team.
Cost Time
Management Management
Human
Scope Project
Resource
Management
Procurement Risk
Figure 2.1: Aspects of project management
Risk Management: Risk is involved in the project at every stage

of its life cycle. The risk, ifbecomes a reality may result in cost
overrun and schedule overrun or even project failure. Risk
management is about anticipating the risks for the complete project,
Unit 2: Overview of Project Management
13
assessing the gravity of risks, planning for responding to risks and
Notes
actually responding to risk if it materializes. Risk management
also involves management of changes in project plans if needed as
___________________
a result of a riskactually happening.
___________________
Procurement management: Outsourcing is an integral part of
projects. Organizations outsource part of projects either because of ___________________
lack of in-house competence or because outsourcing may be
economical as compared to doing it in-house. The outsourced part ___________________
is not in direct control of the project leader, so it is essential to ___________________
install controls to ensure the quality of work outsourced.
Procurement management is about selecting vendors, contracting ___________________
and contract management.
___________________
Tools and Techniques of Project Management ___________________
The following diagram illustrates the common tools and techniques ___________________
used for project management during various stages of its life cycle.
___________________
• WBS
• Budgeting
• Work element
costing
Level of effort
• Risk
identification
• Risk • CPM
assessment • PERT
• Risk response • Slack • Project audit
development • Gantt chart • Project audit
• Resource life cycle • Extinction
leveling • Audit report • Addition
• Resource • Integration
allocation • Starvation
Human resource management Procurement management

Conflict management Quality management
Time
Conception selection Planning Scheduling Monitoring Control Evaluation Termination
• Idea generation • Project crashing

• screening • Gantt chart
• Mile stone analysis
• CPI / SPI / Critical Ratio
Numeric (profitability) Numeric (scoring) Non numeric • Forecasting final project cost
Pay back period Unweighted 0-1 Sacred cow • Tracking signal
Rate of return Unweighted factor scoring operating necessity • Risk response control
Net present value weighted factor scoring competitive necessity • Change control (Scope creep)
Figure 2.2: Tools and techniques of project management
Conception phase
This phase is about generating ideas for projects. The projects ideas
generated during this phase are subjected to project selection in the
next phase. The techniques involved during this phase include idea
generation and screening. The sources of idea generation may be
brainstorming, or idea shared by any stakeholder of the organization.
Screening is about evaluating the viability of the generated ideas.
14
Selection phase
Notes
This phase evaluates the screened project ideas with an objective to
___________________ prioritize them in view of the management’s priorities and their
___________________
significance to organization’s objectives. The various techniques
include numeric (profitability) models, numeric (scoring) models and
___________________ non-numeric models.
___________________ Numeric (profitability) models evaluate project ideas on the basis of
financial feasibility and include payback period, rate of return and
___________________
net present value.
___________________
Numeric (scoring) models compare the project ideas on subjective
___________________ factors and include unweighted 0-1 scoring, weighted factor scoring
and unweighted factor scoring models.
___________________
Non-numeric models, in fact, do not include sacred cow, competitive
___________________
necessity and operative necessity.
___________________
Planning phase
This phase is about planning the project with respect to cost, risk,
and resource requirement.
The techniques used for cost planning involve work breakdown
structure, work element costing, and budgeting.
Tools used for planning risk include risk identification, risk
assessment, and risk response development.
The technique used for planning resource requirements is work
breakdown analysis.
Scheduling
This phase of project management plans the time schedules for
various tasks involved in the project and also for the project in
totality. The start and finish time of varioustasksis determined
along with slack of the tasks. The critical activities of the project
are identified which if delayed, will cause the project to be delayed.
The interdependence of various tasksis also established during this
phase. The techniques used during this phase involve Critical path
method (CPM), project evaluation and review technique (PERT),
Gantt chart and milestone analysis. The optimal utilization of
resources is also planned during this phase which uses techniques
like resource allocation and resource leveling.
Monitoring and control

While the project is in progress, it is important to ensure that
progress is in line with the plans. The monitoring and control is on
the basis of comparing and evaluating the work completed at a
Unit 2: Overview of Project Management
15
specific time with the planned schedule and planned budget for
Notes
various tasks of the project. Analytical techniques like cost
performance index (CPI), schedule performance index (SPI), critical
___________________
ratio (CR), milestone analysis and tracking signal are used during
this phase. Gantt chart is also used to compare performance with ___________________
plans.
___________________
The phase also monitors the identified risks and in the event of a
___________________
risk becoming a reality uses risk response control to minimize the
impact of the occurred risk. ___________________
The occurrence of the risk and the action taken to counter the risk ___________________
may sometimes lead to the requirement of reducing total time for
___________________
finishing the project, and the technique of project crashing is used
to evaluate the extent to which a project can be crashed and the ___________________
cost involved for crashing the project.
___________________
Evaluation
___________________
It is important to evaluate the performance of project at various
stages of its progress to identify any hidden or probable problems
so that corrective actions can be taken before the problems cause
major adverse impact on project objectives. The tool used for
evaluation is project audit, which involves an in-depth examination
of the project performance on various performance criteria. The
result of audit is an audit report which forms the basis of taking
corrective measures for the project and preventive measures for the
future project.
Termination
This phase recognizes the need for terminating a project with or
without successful completion. The conditions leading to project
termination include extinction, addition, integration, and starvation.
Review Questions
1. What are the various aspects involved in project management?
2. The success of a project depends on the use of appropriate
project management tools and techniques. Elaborate.
3. What is the importance of audit in the successful completion
of a project? How it helps the future project leaders?
4. Name various profitability based numeric models for project
selection.
5. Effective human resource management is essential for
successful completion of projects. Explain the statement.
17
Unit 3 Notes
Project Selection Non-numeric Models ___________________
___________________
___________________

After studying this unit, the student will be able to
___________________
\ Understand the importance of project selection
___________________
\ Identify and apply appropriate non-numeric selection model for project
selection
___________________
___________________
Can you identify the project proposals in the above scenario?
___________________
Consider a top management meeting of ABC Corporation in progress.
___________________
Managing Director: Gentlemen, we have called for this meeting to
discuss the recently observed fall in our sales. There seems to be a
serious quality issue which we need to resolve.
Marketing Manager: Sir, we need to launch a customer survey
project to get direct information about customer satisfaction and
complaints. The sales have recently dropped and the customer loyalty
seems to be shifting to a new competitor.
Product Manager: I understand the competitors have provided many
innovative features in their product. Why don’t we go for redesign
and development of additional features in our existing product or
develop a new product model itself? That may help in building customer
trust and loyalty.
Marketing Manager: I think we can go ahead with product design
part after the customer needs are understood through a survey.
Production Manager: We have been using our existing technology
to the full potential. I was just thinking of placing a request for new
technology procurement and installation. I feel that the new technology
will be able to raise the quality standards of the existing product to
the extent that may again attract the buyers to us. These days we are
just producing and stocking, sales not being able to push products in
the market.
Materials Manager: That reminds me, we need to build a new
warehouse to stock our raw materials and products. The current space
is not adequate to store all we have. We are sometimes forced to keep
our material in the open. Recently there was a theft also at night. I
really don’t know what our security is doing.
Security in charge: We are managing this large premise with just
a handful of security guards. If the company is not willing to employ
more staff, at least the boundary wall may be raised by another three
feet with wire fencing and halogen light.
18
The various project proposals that crop up can be:
Notes
• A customer satisfaction survey
___________________
• New product development
___________________ • Existing product redesign and modification
___________________ • New technology purchase and installation
___________________ • Construction of a new warehouse
___________________ • Raising and fencing of boundary wall with halogen lighting
___________________
Need for Project Selection
___________________
A number of project ideas may crop up as a result of brainstorming
___________________ or suggestions or necessity. Organisations rarely can initiate all
projects simultaneously because of resource scarcity. The project
___________________
ideas are subjected to screening to identify the project ideas which
___________________ are significant to organization’s objectives. Even the ideas for the
project, which have been termed as significant to the organization,
maybe a good number and it becomes necessary to select project
proposals for implementation. It requires prioritization of the
available project ideas.
Project selection is the process of evaluating and analyzing the
available project proposals to identify and prioritize the projects on
the criteria of their significance to organizational goals and the
budget constraints.
Process of Project Selection

The project selection process involves the following:
Gathering of project ideas: The ideas are gathered for projects
from different channels like employee suggestions, operative or
competitive necessity, and customer requests.
Screening: The gathered ideas are subjected to screening which
evaluates ideas on the basis of their significance to the organization
and financial viability. The ideas not significant for organizational
objectives or not financially viable are rejected, and the ones which
are viable and significant are subjected to the next step.
Choice of selection model: The project ideas with cross the
screening stage need to be evaluated and compared. A model is
required for comparison and evaluation. Various models are available
for this purpose. The numeric and non-numeric models are available
based on both subjective and profitability criteria. A model is chosen
which is suitable to the decision environment and selection criteria.
Unit 3: Project Selection Non-numeric Models
19
Employee Customer Notes
suggestions requests
Management ___________________
priorities
___________________
Operational needs Competitive
needs ___________________
Project Ideas
___________________
___________________
Screening
___________________
___________________
___________________
Significant Reject
and viable? ___________________
___________________
Determine
selection criteria
Choose a project
selection model
Compare projects Meets

using model criteria?
Select
Figure 3.1: Project selection process
Evaluation of project ideas: The available screened project ideas

are subjected to evaluation using the selected model. The results of
evaluation are compared on the basis of selection criteria. The ideas
which do not meet the selection criteria are dropped. Those ideas
which meet the selection criteria are prioritized on the basis of
their relative significance and financial analysis results.
Selection: The projects are selected for implementation on the basis
of their relative priority.
Types of Project Selection Models

The project selection models broadly fall into two categories:
• Numeric
• Non-numeric
20
The numeric models are based on either financial analysis of
Notes
profitability or on factor scoring on a defined scale. The non-numeric
models do not, in fact, rely upon the formal analysis but are based
___________________
on situation or management priority.
___________________
Numeric models
___________________
Numeric models further are of two types:
___________________
Profitability based: These models evaluate the financial viability
___________________ of the projects. The models in this category include:
___________________ • Payback period • Present value
___________________ • Net present value • Benefit-cost ratio
___________________ • Rate of return
___________________ Scoring based: These models compare the projects on a scale, on

the basis of various factors which affect organizational objectives.
___________________
The models in this category include
• 0-1 Rating model
• Factor scoring model
• Weighted factor scoring model
Non-numeric models
These models are based on the subjective situational selection of
projects. Non-numeric models include:
• Sacred cow
• Operating necessity
• Product line extension
• Competitive necessity
• Comparative benefit model (Q-Sort)
Project
selection
Numeric Non-Numeric
Profitability Scoring based Competitive

Sacred cow necessity
Playback Present Unweighted Factor Operative Product line

period value 0-1 Scoring Scoring necessity extension
Comparative
Net present Weighted benefit
value factor scoring model
Figure 3.2: Project selection models

21
Non-Numeric Models Notes
Sacred Cow Model
___________________
This model selects the project on the basis of wish and enthusiasm
___________________
of some senior and powerful manager in the organization. Being
the dream of senior officer, it is accepted by the junior managers ___________________
although they may not be fully convinced of the idea. The junior
___________________
managers in such situation are unable to express their disagreement
even though they may have all the doubts in the success of the ___________________
project.
___________________
Many times in organizations we find senior officers saying in a
___________________
meeting:
• Why don’t we develop an IT system that merges all our ___________________
operations and also connects us to the customer..................... ___________________
• I think we should try to design software for.....................
___________________
• Can’t we initiate a project for..............................
Such suggestions of the officer are taken as an instruction by the
junior officers and project is initiated.
The model is sacred in the sense that the project remains in existence
until it is successfully finished or the senior officer himself realizes
that the idea will not work and terminates the project midway.
Operating Necessity
The project may be selected for implementation because it is
necessary for the plant to remain in operation.
If heavy rains are expected, and a lot of material is stocked in the
open, it may be necessary to construct a covered warehouse
immediately. If a power cut is expected for a long duration in next
few months, installation of generator becomes necessary. If
government policy restricts the operation of industry that causes
water pollution, installation of water treatment plant may be
necessary to avoid plant shut down.
All the situations mentioned above are in the category of operating
necessity because if those projects are not initiated, the organization
shall not remain operative.
Often formal evaluation and financial viability is skipped in such
situations and project is started immediately.
Competitive Necessity
A project may be selected because it becomes essential to maintain
competitive status in the market.
22
Consider the following situations
Notes
• The competitor has introduced new features in the product
___________________ with reduced price threatening the loss of market share to the
organization.
___________________
• The competitor has developed software which makes it possible
___________________
for customers to contact and order online and the product can
___________________ be delivered at the doorstep, threatening shift of customer
loyalty because of ease.
___________________
What action does the management of the organization is expected
___________________
to take to counter the threat and retain its market share?
___________________
The first situation would call for a redesign of the product that will
___________________ enhance product specification and can be produced at lower cost. In
the second situation, it may be necessary for the organization to
___________________
develop a system that allows better reach to the customers.
___________________
Both the situations described above make it necessary for the
organization to initiate a project for product design and development
or customer contact system development. Projects are necessary
because the market share and loyalty of customers to the
organization are threatened. These are the examples of project
selection on the basis of competitive necessity model.
Like operating necessity, the model of competitive necessity also

bypasses formal evaluation and financial analysis.
However, note that operating necessity dominates the competitive

necessity because it is important first to be operative to remain in
the market.
Product Line Extension

The objective of any project is the growth of the organization. A
project may be selected because it is in alignment with the existing
product line of business or it fills a gap in the existing operating
system leads to the vertical integration of the organization.
An FMCG company may initiate a project for installation of the

facility for an additional FMCG product because it is in alignment
with existing distribution channels and existing customer segment.
(Project in alignment with existing product line)
A manufacturing company initiates a project for establishing a

testing laboratory, so the product testing can be carried out in-
house in place of being outsourced. (Project fills a gap in the existing
system)
23
A textile factory manufacturing thread initiates a project for
Notes
establishing a facility for cloth manufacturing. (Vertical Integration)
However the projects, before being initiated, are subjected to careful ___________________
financial and subjective analysis. The project is initiated if it is ___________________
found to be financially viable and meets organization’s objectives.
The payback period of the new FMCG product may be too large or ___________________
return on investment may be too low. The cost of establishing and ___________________
operating a testing house may not be economical and also the skills
needed may not be available with the organization. The distribution ___________________
channels for thread and cloth may be different with different market ___________________
segments.
___________________
Comparative Benefit Model ___________________
The selection models discussed so far consider one project at a time. ___________________
The objective of those models is to consider a project and either
accept or reject it. ___________________
Comparative benefit model compares many projects in consideration

at a time. The projects under consideration are evaluated on their
relative merit and are prioritized.
The technique used for comparative benefit model is Q-Sort.
Q-Sort adopts the following process:

• The relative merits of the projects are assessed.
• The projects are divided into Good, Fair and Poor categories
on the basis of their relative merits.
• If the number of projects in any category exceeds eight, it is
further subdivided into + and –, for example, good+ and Good–,
fair+ and fair–, poor+ and poor–.
• The process is repeated until all groups have 8 or less members.
• On the basis of relative merits of projects, all projects within
the group are arranged in order from best to worst.
• The priority of the project is determined on the basis of the
group they belong to and their position within the group.
24
Notes
Identify all Projects
___________________
___________________
Divide in three groups
(good, fair, poor)
___________________
___________________
___________________
Number of
Subdivide the projects
___________________ members in each
in large groups
group is < 8?
___________________
___________________
___________________
Arrange in order from
best to worst as per
___________________
merit
Determine relative
priority position of the
projects
Figure 3.3: Q-Sort Techniques

25
Unit 4 Notes
Project Selection Numeric Models ___________________
___________________
___________________

___________________
___________________
\ Identify and apply appropriate non-numeric selection model for project
selection
___________________
___________________
Present Value ___________________
Present value analysis is one of the most common financial analysis ___________________
models for the projects. A project needs investment, which could
include an initial investment at time zero and subsequent
investments at different times of the project. Similarly, a project
yields returns at different times during the life of the project.
The management is interested in ascertaining the value of future
investment or future return at the present time or time zero. The
value depends upon the rate of interest. Higher the rate of interest,
lower shall be the value at zero time.
The value of a future transaction at present time, for a specific rate
of interest (also termed as the rate of discount), is called the
PRESENT VALUE of the transaction.
Present value is calculated using the following formula
F
PV =
(1 + r)n
Where, PV is present value

F is Future transaction
r is rate of interest
n is number of years
Example
If a project is expected to generate ` 1000 at the end of 1 year and
` 5000 at the end of 2 years, calculate the present value of both the
transactions if the rate of interest is 12%.
26
Solution:
Notes
F
PV =
___________________ (1 + r ) n
___________________ For the first transaction
___________________ 1000
PV =
___________________ (1 + 0.12)1
1000
___________________ = = ` 892.9
1.121
___________________
For the second transaction
___________________
5000
PV =
___________________ (1 + 0.12) 2
___________________
5000
= = ` 3985.96
___________________ 1.12 × 1.12
As the number of years increases, the calculation becomes more

cumbersome. Present value tables may be used for finding the
present value.
The PV table indicates present value of Rs.1 for various numbers
of years and rate of interest. This present value multiplied by the
future amount gives the present value of future amount.
Example
For the data in the example,
The factor for year 1 and rate of interest 12% is 0.89286 in the table
So present value of ` 1000, received after one year
= 0.89296 × 1000 = 892.96
So present value of ` 5000, received after two years
= 0.79719 × 5000 = 3985.95
Example
A project is expected to generate revenue of ` 7000 after five years
from now. If the rate of interest is 10%, calculate the present value
of the revenue.
7000
PV =
(1 + 0.10)5
Unit 4: Project Selection Numeric Models
27
Solution
Notes
Instead of calculating we will use the present value table
___________________
___________________
So present value of ` 7000, received after five years
___________________
= 0.0.62092 × 7000 = ` 4346.44
___________________
Net Present Value (NPV) ___________________
A project may incur a cost at time zero (initial investment) and at ___________________
various points of time during the life of the project (future
___________________
investment). Also, the project generates revenue at different points
in time during its life cycle (future revenue). The project may also ___________________
generate revenue by sale of assets at the end of project life (Salvage
value). ___________________
Net present value is the difference between the total present value ___________________
of all revenues and the total present value of all investments.
NPV = ∑ (Total present value of all revenues) −
∑ (Total present values of all investments).
A positive value of NPV indicates profit from the project while a
negative value indicates loss from the project.
Example
The expected investment and revenue from a project are given below.
The life of the project is estimated as ten years.
Year Investment (`
`) Revenue (`
`)
(Initial investment) 50,000
1 20,000
2
3 10,000
4 35,000
5 5,000
6 25,000
7
8 40,000 5,000
9
10 12,000
Salvage value 2,000
28
Calculate the net present value of the project. Should the
Notes
management take up this project? The rate of interest is 8%.
___________________ Solution
___________________ Let us identify the factors for all transactions from the PV Table
___________________ and calculate the individual present values.
___________________ Year Investment Revenue Factor Present Present

(`
`) (`
`) from Value Value
___________________ PV Table (Investment) (Revenue)
___________________ 0 50,000 1.0 50,000
___________________ 1 20,000 0.92593 18518.6
___________________ 2
___________________ 3 10,000 0.79383 7938.3
___________________ 4 35,000 0.73503 25726.05
5 5,000 0.68058 3402.9
6 25,000 0.63017 15754.25
8 40,000 5,000 0.54027 21610.8 2701.35
10 12,000 0.46319 5558.28
Salvage 2,000 0.46319 926.38

value
Total 95303.35 56833.56
NPV = ∑ (Total present value of all revenues)

− ∑ (Total present values of all investments).
= 56833.56 − 95303.35 = −38469.79
The net present value of the project is ` −38469.79.
Since the NPV is negative, the project will result in a loss and
should not be taken up.
Use of Annuity
If the financial transaction (investment or revenue) is equal to n
number of years, calculation of PV for individual values can be
avoided by using the Present value annuity table. The Table gives
the present value factor of an annuity of ` 1 at a specific rate of
interest. This factor multiplied by annuity gives the present value
of the annuity.
29
Example
Notes
A project involves an investment of ` 30,000 at the end of each year
for five years. The returns are ` 25000 at the end of each year for ___________________
eight years. Calculate the NPV. The rate of interest is 10%. ___________________
Solution ___________________
The factor for an annuity for five years at 10% rate of interest is ___________________
3.79079.
___________________
Present value of investment of ` 30000 for 5 years
___________________
= 3.79079 × 30000 = ` 1,13,723.70
___________________
The factor for annuity for 8 years at 10% rate of interest is 5.33493
___________________
Present value of revenue of ` 25000 for 8 years
___________________
= 5.33493 × 25000 = ` 1,33,373.25
___________________
NPV = ∑ (Present value of all revenues)
− ∑ (Present values of all investments).
= 1,33,373.25 − 1,13,723.70
= ` 19,649.55
Example
The financial outlay (in `) of two projects is as follows:
Year Project A Project B
Investment Return Investment Return
Initial 40,000 60,000

investment
1 10,000 20,000 8,000 25,000
2 20,000 25,000
3 25,000 20,000 25,000
4 20,000 32,000 25,000
5 20,000 25,000
The rate of interest is 8%. Which of the projects gives higher profits?
30
Solution
Notes
Year Project A
___________________
Investment PV PV of Return Annuity Present
___________________ Factor Investment Factor Value
for of
___________________ 5 Years Annuity
___________________ Initial 40,000 1.0 40,000

investment
___________________
1 10,000 0.92593 9,259.30 20,000
___________________ 2 20,000
___________________ 3 25,000 0.79383 19,845.75 20,000 3.99271 79,854.20
___________________ 4 20,000
5 20,000
___________________
Total 69,105.05
___________________
NPV = 79,854.20 − 69,105.05 = ` 10,749.15
Year Project A
Investment PV PV of Return Annuity Present

Factor Investment Factor Value
for of
5 Years Annuity
Initial 60,000 1.0 60,000

investment
1 8,000 0.92593 7,407.44 25,000
2 25,000
3 25,000 3.99271 99,817.75
4 32,000 0.73503 23,520.96 25,000
5 25,000
Total 90,928.40
NPV = 99,817.75 − 90,928.40 = ` 8889.35
Project A will give higher profits because its NPV is higher than
NPV of Project B.
Payback Period
Payback period is one of the most commonly used methods to
evaluate projects on the basis of financial analysis. It determines
the period in years required to return the initial investment of the
project. The rate of interest is not taken into consideration in this
method.
31
The method considers the future revenues of the project and
Notes
determines the period required for payback of initial investment.
Interpolation is used if the number of years for payback is in fraction.
___________________
Example ___________________
The initial investment of a project is estimated to be Rs.5,50,000. ___________________

The project is expected to give an annual return of Rs.50,000. What
is the payback period of the project? ___________________
Solution ___________________
Total investment 5,50,000 ___________________

Payback period = = = 11 years
Annual return 50,000 ___________________
Example ___________________
Financial outlay of a project is as under: ___________________
Period Investment (`
`) Return (`
`) ___________________
Initial investment 1,00,000
1 20,000
2 25,000
3 60,000
4 15,000
5 25,000
Determine the payback period of the project
Solution
The payback at the end of 2 years = 20,000 + 25,000 = ` 45,000
For recovering, ` 1,00,000, another ` 55,000 is required. However,
in the third year, the revenue is ` 60,000. We will use interpolation
to determine payback period.
Total revenue in 3rd year = 60,000
` 60,000 is recovered in 12 months
` 55,000 will be recovered in (55,000 × 12)/60,000 = 11months
So, Payback period is 2 years and 11 months
Internal Rate of Return

The management of the organization has a rate of return that it
expects. If the rate of return of a project is more than the expected
return, the project is acceptable. However, if the rate of return
anticipated from a project is less than the expected return, the
32
project is liable to be rejected.
Notes
A common method of assessing whether a project meets the expected
___________________ return of the project is internal rate of return.
___________________ The internal rate of return is the interest rate which makes the
NPV of a project zero. If the internal rate of return is more than the
___________________
expected return, the project meets the expectations of the
___________________ management and is a candidate for being accepted.
___________________ The hit and trial method determines the internal rate of return.
___________________ Example
___________________ A project is expected to generate revenue of ` 5000 annually for five
years. If investment in the project is ` 15,000, determine the internal
___________________ rate of return. If management expects a rate of return 10%, is the
___________________ project viable?
___________________ Solution
Present value of investment = ` 19,000
For an annuity of ` 5,000 for five years:
Rate of interest Annuity factor Present value NPV

8% 3.99271 19963.55 963.55
9% 3.88965 19448.25 448.25
10% 3.79079 18953.95 −46.05
The investment being ` 19,000, the internal rate of return will be

between 9% and 10%. The internal rate of return now can be
identified by hit and trial on various values of rate of interest
between 9% and 10%.
At a rate of interest 9.9%
(1 + r)n r = 1.099 PV
1.0995 1.603 3118
1.0994 1.459 3426
1.0993 1.327 3767
1.0992 1.207 4141
1,0991 1.099 4548
Total PV 19000
NPV = 19000 − 19000 = 0
The internal rate of return is 9.99%.

Since the expected return is less than the internal rate of return,
the project is viable.
33
Unit 5 Notes
Case Study ___________________
___________________
___________________
New Delhi Laboratories Private Limited (NDL)
___________________
“Finally, we did it successfully,” Divyansh said while relaxing in the
___________________
office chair sitting in front of Anil. Anil looked at his face, exhausted
but reflecting confidence and satisfaction. ___________________
“So what have you learned during this project?” Anil asked. ___________________
“Well, it needs really a lot of time to describe the learnings from the ___________________
project, what looked simple in the beginning became an endless venture
while executing and we had a hard time bringing each piece of work ___________________
together and assemble all those pieces into a product,” Divyansh replied
___________________
his eyes lost into recollecting the memories of stressful days and
sleepless nights during past two years.
“I have all the time to listen to your experiences. And by the way, do
you think you could do better?”
“Do better? What are you coming to? You know I did my best.”
“I mean given a chance, would you have managed the project in a

different way?”
Divyansh thought for a moment and said “I think you are right.
When I think of it, I feel that I could manage the project better. But
I am better equipped for my next project now.”
“Have you been able to achieve all objectives that you planned for the
project?”
“To be honest, I did not really define the objectives when I started
with the project. But since you have asked, we have been able to
complete the project in time with reasonable deviations, and those
deviations were also the result of scope change at times. I admit, the
profits have not been up to expectation, but that was because we
ventured into a project for the first time and we could not anticipate
expenses accurately.” Divyansh replied.
“You are missing one more important objective,” Anil said.
“Okay, let me understand your experiences and your learnings from

the project.”
Divyansh wondered where to start and then decided to start from the
day they got a query from Qatar.
Contd…
34
Notes Anil is the founder and managing director of NDL; a venture started
in 1984 with facilities for transformer oil testing. The operations of
___________________ the company later expanded to electrical maintenance of panels,
transformers, and switchgears. The company started offering a
___________________ complete solution for maintenance of power equipment, and soon it
started a new division “NDL Power.” The business of the company
___________________
expanded in a geographical territory covering clients from all over
___________________ India and later a few international contracts also. The company which
started with four employees today employs over seventy personnel in
___________________ various capacities.
___________________ Divyansh, son of Anil, joined the company in 2011 after graduating
in a management course. He joined the company as CEO of operations.
___________________ He decided to expand in international markets and in place of offering
only part services, he decided to venture into full turnkey projects.
___________________
Question for Review
___________________
Was Divyansh missing an important project objective? If yes, which
___________________
objective was he missing?
Block–II
Detailed Contents
UNIT-6: PROJECT SELECTION SCORING MODELS
UNIT-7: PROJECT PLANNING
UNIT-8: WORK BREAKDOWN STRUCTURE
UNIT-9: DEVELOPING PROJECT NETWORK
UNIT-10: CPM
UNIT-11: CASE STUDY

37
Unit 6 Notes
Project Selection Scoring Models ___________________
___________________
___________________

___________________
___________________
\ Identify and apply appropriate scoring selection model for project selection
___________________
___________________
Numeric Models (Scoring Based)
___________________
The numeric models discussed above evaluate the project only on
___________________
the basis of profitability or financial returns. In practice, however,
there are a number of factors affecting project selection decision,
which are not quantifiable. An illustrative list of such factors is
given below:
• Training requirements
• Safety
• Consistent with current operations
• Availability of raw materials
• Potential market
• Government policies
• Impact on brand value and image of the organization
Unweighted 0-1 Scoring Model

This model evaluates the project on various subjective criteria and
indicates whether a project qualifies for specific criterion or not.
The project is selected if the total number of criteria on which the
project qualifies is adequate. Since the rating scale has only two
options – “Qualifies & Does Not Qualify,” the model is called 0-1
scoring model.
Consider the following criteria for project selection, decided by the

management.
38
Notes Factors
Should not take more than one year to complete

___________________
Should be compliant with government safety regulations
___________________
Should not require the hiring of additional man power
___________________
In-house competence should be available
___________________
Raw material should be available easily, and its prices should be stable
___________________
Should be complementary to existing business
___________________
Should help in improving company’s image and brand value
___________________
___________________ All projects in consideration are evaluated on each of the deciding

factors, and the project must qualify on an adequate number of
___________________ factors to be selected.
___________________ Factors PROJECT 1 PROJECT 2
Qualifies Does Qualifies Does

not not
qualify qualify
Should not take more than √ √

one year to complete
Should be compliant with √ √

government safety
regulations
Should not require the √ √

hiring of additional man
power
In-house competence should √ √

be available
Raw material should be √ √

available easily, and its
prices should be stable
Should be complementary √ √
to existing business
Should help in improving √ √

company’s image and brand
value
However, one of the limitations of this model is considering each

factor as equally important. Also, it does not consider the partial
applicability of the factors, it only works on the principle of Qualify
or Does not qualify. In practice, however, absolute presence or
absence of factors may not be there.
Unit 6: Project Selection Scoring Models
39
ACTIVITY Notes
A company manufacturing automobile spare parts is planning to initiate a
project for development and installation of an IT system for integrating its ___________________
marketing, operations, design, stores, and quality control sections. List the
factors that you would consider as criteria for evaluating the project. ___________________
___________________
Factor Scoring Model ___________________
The factor scoring model evaluates the project on various criteria ___________________
on a scale of 1 to 5, 1 being least qualifying and 5 being strongly
qualifying. The total score so obtained is calculated and the total ___________________
score is an indicator of the extent to which the project is compliant ___________________
to project objectives.
___________________
Factors PROJECT XYZ
___________________
1 2 3 4 5
___________________
Should not take more than one year √
to complete
Should be compliant with government √

safety regulations
Should not require the hiring of √

additional man power
In-house competence should be √

available
Raw material should be available √

easily, and its prices should be stable
Should be complementary to existing √

business
Should help in improving company’s √

image and brand value
The total score in the above example is 4+3+2+4+3+1+3 = 20

The model considers the partial presence or absence of factors in
the project. However, like the unweighted 0-1 model, this model
also suffers from the drawback of considering all factors as equally
important.
Weighted Factor Scoring Model

Weighted factor scoring model is similar to unweighted factor scoring
model except that is allocates weights to the factors. So, the relative
importance and significance of the factors affecting project selection
decision are established.
40
Notes Factors Weight PROJECT XYZ
1 2 3 4 5
___________________
Should not take more than 5 √
___________________
one year to complete
___________________ Should be compliant with 2 √
___________________
government safety regulations
Should not require the hiring 10 √

___________________
of additional manpower
___________________
In-house competence should 1 √
___________________ be available
___________________ Raw material should be 3 √

available easily, and its
___________________ prices should be stable
___________________ Should be complementary 5 √

to existing business
Should help in improving 4 √

company’s image and brand
value
Rating = (∑weight × rating)

= 5 × 4 + 2 × 3 + 10 × 2 + 1 × 4 + 3 × 3 + 5 × 1 + 4 × 3
= 20 + 6 + 20 + 4 + 9 + 5 + 12 = 76
Review Questions
1. Compare the relative merits and demerits of different scoring
models of project selection.
2. Explain the process of selection of projects.
3. Explain project selection by Q-sort method.
4. Describe sacred cow model of project selection. How effective
can this model be for project selection?
5. What are the merits and demerits of payback period method
of project selection?
Problems
1. A project is expected to generate annual revenue of ` 54,000.
The project has a life of 10 years. The project involves an
initial investment of ` 2,20,000. Calculate the NPV of the
project if the rate of interest is 8%.
Unit 6: Project Selection Scoring Models
41
2. Two projects are under consideration. The financial outlay is
Notes
as follows:
Period in years Initial 1 2 3 Salvage ___________________

investment
___________________
Project X Cash 2,00,000 1,50,000 80,000 10,000
inflow ___________________
Cash 50,000 30,000 30,000 30,000 30,000 ___________________

outflow
___________________
Project Y Cash 2,25,000 1,10,000 90,000 15,000
inflow ___________________
Cash 70,000 28,000 28,000 28,000 28,000 ___________________

outflow
___________________
The rate of interest is 10%
___________________
(a) On the basis of NPV, which project is a better project?
___________________
(b) What is the internal rate of return on the projects?
3. Calculate the payback period for the following data of a project.
Initial investment ` 20,000
Returns
Year 1 2 3 4
Return 5,000 7,000 11,000 3,000
4. Following is the data of two projects:
Year Project A Project B
Investment Return Investment Return
Initial 15,000 18,000

investment
1 8,000 10,000 6,000 14,000
2 10,000 14,000
3 3,000 10,000 14,000
4 7,000 10,000 4,000 14,000
5 10,000 14,000
Rate of interest is 10%

Determine the following for both projects and compare the
projects on all parameters.
42
• Payback period
Notes
• NPV
___________________
• Internal rate of return
___________________ 5. Calculate the payback period for the following data of a project.
___________________ Initial investment ` 50,000
___________________ Returns
___________________ Year 1 2 3 4
___________________ Return 20,000 15,000 18,000 5,000
___________________
___________________
___________________
___________________
43
Unit 7 Notes
Project Planning ___________________
___________________
___________________

___________________
\ Disintegrate the project into smaller tasks and work packages and create
the WBS ___________________
\ Develop responsibility matrix on the basis of WBS
___________________
___________________
Introduction ___________________
The selection of projects identifies the projects to be initiated. As ___________________

we have already understood, project is a complex system of a number
of unique bur independent tasks. Before initiating a project, it is
important to understand:
• Relation between the tasks
• Time requirement of each task
• Resource requirement of the tasks
• Fund requirement for the task
• Risks associated with the tasks
Also, the project team is acquired in accordance with project skill
requirement and as such personnel from different divisions of the
organization are introduced as team members. So it becomes
necessary to clearly describe the responsibilities of team members
so as to avoid any disputes during the project life.
These aspects relating to the product are decided during the planning
phase of the project.
The project planning refers to the process of identifying and
describing various aspects of the project to avoid any ambiguity
while the project is in progress. The project plan establishes the
direction and path of the project.
The outcome of project planning process is a project plan.
The major components of project plan include:
• Work breakdown structure
• Responsibility chart
44
Notes
Planning for Responsibility
As already discussed, the members of the project team are drawn
___________________ from different divisions of the organization, and there may be
confusion about hierarchy and responsibility of work. Hence it is
___________________
essential to assign the responsibility of specific tasks clearly and
___________________ unambiguously so as to avoid any conflict during the project life.
___________________ Types of Responsibilities

___________________ Primary responsibility: Primary responsibility refers to overall
responsibility for the task assigned including managing people
___________________
involved in task and ensuring time, cost and quality of the work.
___________________
Secondary responsibility: It refers to the responsibility assigned
___________________ to a person for ensuring better fulfillment of primary responsibility.
___________________
Supportive responsibility: The responsibility assigned for
providing technical or managerial support to the persons with
___________________ primary or secondary responsibility. Generally, the supportive
responsibility is assigned to a person, considered as an expert in
the area of work. Supportive responsibility may be given to any
member of the organization, whether in the project team or not.
Here it is important to understand the difference between
responsibility and authority. Responsibility is the work for which a
person is accountable and answerable. Authority is the extent to
which a person can make independent decisions.
While allocating responsibility, it should be ensured that it has a
proper mix of authority also.
Allocating Responsibility
• Identify all tasks involved in the project.
• Develop the work breakdown structure.
• Allocate primary responsibility for level 1 tasks.
• Allocate responsibility for level 2 tasks in consultation with
the person responsible for level 1 tasks.
• Allocate responsibilities in this fashion up to the last level of
work packages.
• Identify the need for secondary responsibility and supportive
responsibility for all the tasks.
• Allocate the secondary and supportive responsibilities
accordingly.
7.3.3 Responsibility Matrix

Responsibility matrix is a tool for assigning responsibility to the
project team members for the project tasks. Notations of different
sorts or colors may be used to indicate the type of responsibility.
Responsibility U Primary U Secondary
Task
Level Task Manager Assistant
No. Project Sales Manager MIS Hired
Business Sales
Manager Assistant Services Executive Consultant
Analytics Manager
– Survey for assessing

0
Unit 7: Project Planning
consumer needs
Development of survey
1 1.1
questionnaire
Identifying aspects for

2 1.1.1
survey
Preparation of
2 1.1.2
questionnaire
Approval of
2 1.1.3
questionnaire
Deciding the sample

1 1.2
customer group
Filter consumer data

base and select consumers
2 1.2.1
who purchased company’s
TV in last 3 years
Select 200 customers at

random and develop
2 1.2.2
details of product and
customers
45
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
46
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________

Task
Business Sales
Analytics Manager
Collect data of sales in

2 1.2.3 different zones and identify
zones with dropped sales
Hiring consultant for

1 1.3
conducting survey
2 1.3.1 Identifying consultant
Develop requirement docu-

2 1.3.2
ment and seek quotations
Personal meeting with

2 1.3.3
consultant
2 1.3.4
1 1.4 Conducting survey
1.4.1 Pilot survey by consultant
Analysis of results and

2 1.4.2 modification on
questionnaire
Task
Business Sales
Analytics Manager
2 1.4.3 Main survey by consultant
Submission of survey
2 1.4.4 reports by consultant
after scrutiny
Analysis of survey
1 1.5 results and report
preparation
Transfer of survey
2 1.5.1
data on computer
2 1.5.2 Generation of reports
Analysis and study

2 1.5.3
of reports
Compilation of analysis
2
1.5.4 results with
recommendations
47
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
48
Notes
Planning for Time
One of the key performance criteria, as we have discussed before is
___________________
time. It is important to estimate the time rationally before starting
___________________ the project execution and control it throughout the progress of the
project. Schedule overrun projects (projects finishing late) not only
___________________
result in customer dissatisfaction but also result in cost overrun.
___________________ The timely completion of the project depends upon the timely
completion of the activities involved in the project. However as we
___________________
will see in subsequent units, the impact of schedule overrun of all
___________________ activities is not equal. There are some activities in the project which
even if delayed to some extent, don’t impact the project finishing
___________________
time. However, some of the activities if delayed cause the project to
___________________ be delayed in totality.
___________________ The time estimates of the project activities are determined on the
basis of:
___________________
• Estimates from records of past projects
• Experience of the project team members
• Critical study of work involved in the task
Generally, three types of time estimates are determined for all

tasks and work packages:
• Pessimistic time: The time an activity will take under adverse
conditions.
• Optimistic time: The time an activity will take if conditions
are favorable.
• Most likely time: The time an activity will take with the
highest probability.
Advantages of Time Estimation

• It acts as a control tool for the project.
• It provides information, necessary for costing and budget
allocation.
• It provides information about the impact of various activities
on project completion.
• It forms a basis for planning the resources.
49
Time Estimate Matrix Notes
Time estimate (in days)
Level Task Task Pessimistic Most Optimistic ___________________
No. time likely time
time ___________________
0 – Survey for assessing ___________________

consumer needs
1 1.1 Development of survey ___________________
questionnaire
___________________
2 1.1.1 Identifying aspects for 10 7 4
survey ___________________
2 1.1.2 Preparation of questionnaire 15 9 6
___________________
2 1.1.3 Approval of questionnaire 5 3 2
1 1.2 Deciding the sample ___________________
customer group
___________________
2 1.2.1 Filter consumer database
and select consumers who 20 17 12
___________________
purchased company’s TV in
last 3 years
2 1.2.2 Select 200 customers at 6 5 4
random and develop details
of product and customers
2 1.2.3 Collect data of sales in 15 13 12
different zones and identify
zones with dropped sales
1 1.3 Hiring consultant for
conducting survey
2 1.3.1 Identify consultants 7 5 3
2 1.3.2 Develop requirement docu- 10 8 5
ment and seek quotations
2 1.3.3 Personal meeting with 15 11 9
consultants
2 1.3.4 Negotiation and finalization 5 4 3
1 1.4 Conducting survey
1.4.1 Pilot survey by consultant 14 10 8
2 1.4.2 Analysis of results and 10 7 3
modification in questionnaire
2 1.4.3 Main survey by consultant 30 22 12
2 1.4.4 Submission of survey reports 8 5 3
by consultant after scrutiny
1 1.5 Analysis of survey results
and report preparation
2 1.5.1 Transfer of survey data on 6 5 2
computer
2 1.5.2 Generation of reports 4 2 1
2 1.5.3 Analysis and study of reports 10 6 5
2 1.5.4 Compilation of analysis 12 9 8
results with recommendations
50
Notes
Summary
Planning is an integral part of project management. Planning needs
___________________
to be done for time, responsibilities and work specifications. The
___________________ method of defining work specifications of a project is Work
Breakdown Structure (WBS). WBS disintegrates the project into
___________________ small work components. It acts as a base for project costing and
___________________ time scheduling. It also helps in assigning project responsibilities
and identifying resource requirements of the project.
___________________
Time planning involves estimating time for various components of
___________________ the projects. Generally, the time estimates are for three conditions
___________________
– pessimistic, optimistic and most likely. The time estimates for the
project components help in estimating the project completion time
___________________ and the slack of activities, which further help in the allocation of
scarce resources.
___________________
The responsibility planning focusses on assigning project
___________________
responsibilities for its various components. Primary, secondary and
supportive responsibilities are assigned. The outcome of
responsibility planning is a responsibility matrix.
Review Questions
1. What do you mean by project breakdown structure? How is it
important for project planning?
2. Differentiate between different types of project responsibilities
with examples.
3. How are time estimates decided for project activities?
4. What is the significance of time planning? What are its
advantages?
5. “Project plan acts as a tool for project control.” Explain.
51
Unit 8 Notes
Work Breakdown Structure ___________________
___________________
___________________

___________________
\ Identify project as a system of work packages
___________________
\ Create a WBS for the project
___________________
Planning Work Scope—Work Breakdown Structure ___________________
___________________
Work breakdown structure is a technique of exploding the project
into smaller work packages with an objective of creating clarity ___________________
about the work to be done for accomplishing the project.
It creates a hierarchy structure of various tasks and activities
involved in a project. As the tasks move down to the lower level of
WBS, the work specification acquires greater clarity
Consider the project of construction of a building. The project may
be broken into major elements like identifying the builder, designing
of the building, procurement of material and equipment, laying of
the foundation, raising pillars, etc. These are level one tasks as
they have been directly derived from the project.
“Identifying the builder” may further be divided into seeking tenders
from builders, tender evaluation, selection of builder, etc. These are
level two tasks.
“Seeking tenders from builders” may further be broken into
developing building specifications, developing the tender document,
identifying prospective builders, and inviting bids from the builders.
These are all level three tasks.
The level three tasks identified above seem to be quite clear about
the work to be done and as such it is no more necessary to break
them into smaller element further. The last level tasks which will
not be broken further are called the work packages. Each work
package has its own requirement with respect to time, budget,
resources and competence.
When a set of work packages is completed, complete a higher-level
task in the hierarchy. When a set of level 3 tasks is completed,
complete a level 2 task and so on. The project is completed when all
level 1 tasks are completed.
52
The structure of WBS resembles the organization chart. However,
Notes
it is entirely different from the organization chart. The organization
chart depicts the hierarchy of the personnel whereas the WBS is a
___________________
technique of grouping the tasks needed for a project.
___________________
Construction of
___________________ Project building
___________________
Identifying Designing Material
Level 1 the contractor the building procurement
___________________
___________________
Seeking Evaluating Selecting
Level 2
tenders tenders contractor
___________________
___________________ Level 3 Development Preparing Identifying

of building Inviting
tender prospective
specifications bids
documents contractors
___________________
Figure 8.1: Work Breakdown Structure
___________________
Example 8.1
A manufacturing organization, manufacturing LED televisions is
interested in identifying the reasons for its dropping sales and
understanding customer expectations from its products. The sales
manager has suggested conducting a customer survey for this
purpose. The management has decided to initiate a customer survey
project on the recommendations of the sales manager, and the sales
manager has been appointed as the project manager.
The sales manager identifies the major tasks to be undertaken for
this project as under
• Development of survey questionnaire
• Deciding the sample customer group
• Hiring a consultant body for conducting survey
• Analysis of survey results
• Preparation of survey report with recommendations
SURVEY FOR ASSESSING CONSUMER NEEDS
Level 1 tasks
1.1 Development of survey questionnaire
1.2 Deciding the sample customer group
1.3 Hiring a consultant for conducting survey
1.4 Conducting survey
1.5 Analysis of survey results and report preparation
Unit 8: Work Breakdown Structure
53
Notes
SURVEY FOR ASSESSING CONSUMER
NEEDS
___________________
___________________
Development of Analysis of
Deciding the Conducting survey results
survey
sample
Hiring a
survey and report ___________________
questionnaire consultant for preparation
customer group
conducting survey
___________________
___________________
Figure 8.2: LEVEL 1 Tasks
The sales manager with the help of his team further breaks the ___________________
level 1 tasks in smaller components. ___________________
Level 2 tasks ___________________

1.1 Development of Survey questionnaire ___________________
1.1.1 Identifying aspects for survey
___________________
1.1.2 Preparation of questionnaire
1.1.3 Approval of questionnaire
Level 2 tasks
1.2 Deciding the sample customer group
1.2.1 Filter consumer data base and select consumers who purchased
company’s TV in last 3 years
1.2.2 Select 200 customers at random and develop details of product
and customers
1.2.3 Collect data of sales in different zones and identify zones with
dropped sales
Level 2 tasks
1.3 Hiring consultant
1.3.1 Identify consultants
1.3.2 Develop requirement document and seek quotations
1.3.3 Personal meeting with consultants
1.3.4 Negotiation and finalization
Level 2 tasks
1.4 Conducting survey

1.4.2 Analysis of results and modification in questionnaire
1.4.3 Main survey by consultant
1.4.4 Submission of survey reports by consultant after scrutiny
54
Notes
Level 2 tasks
1.5 Analysis of survey results
___________________
1.5.1 Transfer of survey data on computer
___________________ 1.5.2 Generation of reports
___________________ 1.5.3 Analysis and study of reports

1.5.4 Compilation of analysis results with recommendations
___________________
___________________
Development of Survey questionnaire
___________________
___________________
Identifying aspects Preparation of Approval of
for survey questionnaire questionnaire
___________________
___________________
Deciding the sample customer group
___________________
Filter consumer data base Select 200 customers at Collect data of sales in
and select consumers random and develop details different zones and
who purchased of product and customers identify zones with
company’s TV in last 3 dropped sales
Analysis of survey results
Analysis and study Compilation of analysis

Transfer of survey Generation of
of results with
data on computer reports
reports recommendations
Conducting survey
Analysis of results Submission of survey

Pilot survey by and modification Main survey by reports by consultant
consultant in questionnaire consultant after sertiny
Hiring consultant
Develop requirement
Identify document and see Personal meeting Negotiation and
consultants quotations with consultants finalisation
Figure 8.2: LEVEL 2 Tasks
Since all level 2 tasks seem to be clearly defined with respect to

work specifications, further breakup is not necessary. However, if
Unit 8: Work Breakdown Structure
55
need be, the level 2 tasks can be broken into smaller work elements
Notes
at level 3.
___________________
ACTIVITY
___________________
A company manufacturing machine tools is planning to initiate a project for
procurement and installation of a latest CNC machine to enhance capacity ___________________
and quality of its products. Identify various activities involved, and prepare a
work breakdown structure. ___________________
___________________
The detailed activity chart for the above example of Survey project
is as given below: ___________________
___________________
PROJECT LEVEL 1
___________________
Development 1.1.1 Identifying aspects for survey
1.1 of survey 1.1.2 Preparation of questionnaire ___________________
questionnaire 1.1.3 Approval of questionnaire
___________________
1.2.1 Filter consumer database and select
consumers who purchased company’s TV
Deciding the in last 3 years
sample
1.2 1.2.2 Select 200 customers at random and
Survey for assessing consumer needs
customer
develop details of product and customers
group
1.2.3 Collect data of sales in different zones
and identify zones with dropped sales
1.3.1 Identify consultants

Hiring a
1.3.2 Develop requirement document and seek
consultant for
1.3 quotations
conducting
survey 1.3.3 Personal meeting with consultants
1.3.4 Negotiation and finalization

1.4.2 Analysis of results and modification in
Conduction questionnaire
1.4
survey 1.4.3 Main survey by consultant
1.4.4 Submission of survey reports by
consultant after scrutiny
1.5.1 Transfer of survey data on computer

Analysis of 1.5.2 Generation of reports
survey results
1.5 1.5.3 Analysis of and study of reports
and report
preparation 1.5.4 Compilation of analysis results with
recommendations
57
Unit 9 Notes
Developing PProject
roject Network ___________________
___________________
___________________

___________________
\ Develop network schedule for a project and estimate time for completion
___________________
\ Determine activity slack
\ Estimate probability of project completion in a specific time ___________________
\ Determine the extent to which project can be crashed
___________________
\ Develop Gantt chart for the project
___________________
The project time plan as referred to in the previous section provides ___________________
the generic time estimates for different work packages or activities
of a project. It is now required to estimate the completion time of
the project in totality. It is important to note here that the project
completion time is not the sum of the time taken by all work
components individually. It is because some of the activities may be
parallel while others might be sequential. So, the total time taken
by the project shall be less than the sum of the time taken by its
individual activities.
In this section, we shall understand the concepts behind the
scheduling of the activities of a project, i.e., establishing start time
and finish time of the various activities of a project. We shall broadly
understand two techniques of project scheduling viz. Network
analysis and Gantt chart.
Network Analysis
Network analysis is the most widely used technique of project
scheduling. The technique involves identifying the precedence
relation between various activities of the project and drawing a
network of the activities in accordance with their precedence
relationship. An activity A is a predecessor to another activity B if
activity B cannot be started unless A is complete.
Two notations are used for the drawing of the network:
A circle denotes an event.
An arrow denotes an activity.

An event is a specific moment of time when something has been
accomplished. Completion of each activity leads to an event. The
58
project network starts with an event denoting that nothing has
Notes
been accomplished so far. The network ends with a single event
denoting that all activities involved in the project have been finished
___________________
and the project is completed.
___________________
Let us understand the use of circle and arrow for drawing the
___________________ project network.
___________________ However, we need to follow some basic rules for developing the
network.
___________________
1. Network typically flows from left to right.
___________________
2. An activity cannot begin unless all immediately preceding
___________________ activities are completed.
___________________ 3. Looping is not allowed.
___________________ 4. Conditional activities are not allowed.
___________________ 5. An activity is represented by a single arrow.
6. More than one activity cannot connect a pair of events.
7. There must be a single start and single end to the project
network.
8. The length of the arrow is NOT proportional to activity time.
Activity A is predecessor to Activity B
This is a simple event
Activity A is predecessor to Activity B and Activity C
This is a burst event
Activity A and B are predecessor to Activity C
This is a merge event

Unit 9: Developing Project Network
59
Activity A and B are predecessor to Activity C and Activity D Notes
___________________
___________________
___________________
___________________
___________________
This is a merge event
___________________
___________________
Let us look at a specific case now.
___________________
Activity Predecessor
___________________
A -
___________________
B A
C A
D B, C
Activity A has no predecessor, so that it can be started at any time.
Activities B and C can start after activity A is complete.
However, activity D can start only after both activities B and C are
complete. It is not possible to draw an arrow from both the activities
B and C, as one activity can be represented by one arrow only. We
make use of a dummy activity in such cases. A dummy activity is
one which is not real, does not consume time, used only for the
continuation of network and generally represented by a dotted arrow.
60
OR
Notes
___________________
___________________
___________________
___________________
___________________
Consider the following precedence relationship and draw a network.
___________________ Activity Predecessor
___________________ A -
___________________ B A
___________________ C A
___________________ D B
E B, C
F D, E
ACTIVITY
Consider a project for construction of a building. Identify various activities
involved and establish their precedence relationship. Draw a network for the
identified activities. How many burst, merge, hybrid, and simple events are
contained in the network?
Consider another specific case now.
Activity Predecessor
A -
B A
C A
D B
E C
F B, C
Unit 9: Developing Project Network
61
Let us try to draw the network for above situation.
Notes
For the first five steps, we can use the situations discussed above.
___________________
___________________
___________________
___________________
___________________
Since activity F can start only after both activities B and C are ___________________
complete, we will have to use two dummy activities to depict it.
___________________
___________________
___________________
___________________
Example 9.1
Following is the information related to a software
development project.
S. Task Task Predecessors

No. code
1 Specification development A -
2 Process mapping B -
3 Developing software for process C A, B

components
4 Testing of software D C
5 Developing hardware specifications E B
6 Procurement of hardware F E
7 Integration of software components G C
8 Installation of software on hardware H F, G
9 Pilot test I H
10 Training of users J I
Develop a network for the project.

62
Solution
Notes
___________________
___________________
___________________
___________________
___________________
Example 9.2
___________________
Following is the information related to a construction
___________________ project.
___________________
S. Task Task Predecessors
___________________ No. code
___________________
1 Design development A -
2 Design approval B A
3 Vendor identification C A
4 Procurement of construction material D B, C
5 Laying foundation E D
6 Raising pillars F E
7 Structure development G F
8 Finishing H G
9 Electrical work I G
10 Inspection J I
Develop a network for the project.

63
Unit 10 Notes
CPM ___________________
___________________
___________________
Critical Path Method (CPM)
___________________
After the development of the network, the interrelation of the various
activities involved in the project is established. The next process is ___________________
establishing a time for the activities. The time estimation has already ___________________
been discussed in previous sections. The establishment of time taken
by activities becomes the basis of further analysis which involves ___________________
the determination of project completion time and slack of activities. ___________________
Critical path method (CPM) is the technique of analyzing the project ___________________
network and determining the project completion time.
___________________
CPM involves the following steps:
• Draw the project network
• Identify the paths leading from start to finish
• Calculate the total time along each path
• The path with longest total time is the critical path
• The activities on the critical path are critical activities
Example 10.1
Apply CPM to identify the project completion time for following
data:
Activity Predecessor Activity time
A — 3
B — 5
C — 7
D C 3
E A, B 7
F E, D 3
G D 2
H F, G 2
Let us start with the development of a network for this project.

64
Notes
A3
___________________
B5 E7
F3
___________________ H2
C7
___________________
D3 G2
___________________
___________________ Figure 10.1
___________________ Let us try to identify all paths on the network for reaching the
finish from the start. Remember to take care of the direction of
___________________
arrows.
___________________
We can identify four paths along this network.
___________________
A – E – F – H
___________________
B – E – F – H
C – D – G – H
C – D – F – H
Calculate the time taken by each path by adding the activity time
on the path.
A – E – F – H 15
B – E – F – H 17
C – D – G – H 14
C – D – F – H 15
The longest path on the network is the Critical Path.
BEFH with a time requirement of 17 days is the longest path and
is the critical path.
Project completion time is equal to the time required by critical
path and is equal to 17 days for this project.
However, the method requires physically identifying all paths and
calculating time required by each path. If the number of activities
is more, the network gets complicated, and it becomes almost
impractical to identify each path by observation. So, a more scientific
technique is required to identify the critical path on the network.
The technique involves identifying four values for each activity:
Early start: The earliest start time for the activity. It depends
upon earliest completion time of all predecessor activities.
Unit 10: CPM
65
Early finish: The earliest time for the finish of the activity is
Notes
obtained by adding the activity time to the earliest start. For
example, if the earliest start of the activity is 32, and time required
___________________
by the activity is 4, the early finish will be 32 + 4 = 36.
___________________
Late start: The latest time by which an activity must start if the
project is to be completed in time. It is obtained by subtracting the ___________________
activity time from the late finish time of the activity.
___________________
Late finish: The latest time by which an activity must finish. It
___________________
depends on the late start of all succeeding activities. Each activity
must finish latest by the time of late start of the succeeding activities ___________________
to ensure that project is completed in time.
___________________
Let us try to determine early start (ES), early finish (EF), late start
___________________
(LS), and late finish (LF) for the activities in the above network.
___________________
Activities A, B, and C have no predecessor, so that they can start
at time zero. The activity time is 3, 5, and 7 respectively, so the ___________________
early finish for these activities is 3, 5, and 7.
Activity D can start after activity C is completed, so that activity
D cannot start before 7, i.e., ES of activity D is 7 and its activity
time being 3, its early finish is 7 + 3 = 10.
Activity ES EF LS LF
A 0 3
B 0 5
C 0 7
D 7 10
E 5 12
F 12 15
G 10 12
H 15 17
Activity E can start after both activities A and B are completed. So,
activity E can start earliest at 5 and its activity time being 7, its
EF is 5 + 7 = 12.
Activity F can start after the completion of activities D and E, so
it starts at 12 (ES) and finishes at 12 + 3 = 15.
Activity G can start after the completion of activity D, so its ES is
10 and EF is 12.
66
The last activity H can start after activities F and G, i.e., at 15 (ES)
Notes
and finishes at 17.
___________________ Since early finish of the last activity is 17, the project cannot be
completed in less than 17 time periods, so the project completion
___________________
time is 17.
___________________
Let us now determine the late start and late finish for all activities.
___________________
Since we would like to finish the project at the earliest, the late
___________________ finish of the last activity is equal to its early finish. So LF for
activity H is 17. Since activity H has to finish at 17, it must start
___________________
at 17 − 2 = 15 (LS).
___________________
Activities F and G must be completed before activity H starts, so
___________________ both activities F and G must finish at 15. The late start of succeeding
activity is equal to late finish of all preceding activities. The late
___________________
start of activities F and G is therefore 12 and 13 respectively.
___________________
The late finish of activity E is equal to late start of activity F, i.e.,
12, and therefore its late start is 12 − 7 = 5.
Activity ES EF LS LF
A 0 3 2 5
B 0 5 0 5
C 0 7 2 9
D 7 10 9 12
E 5 12 5 12
F 12 15 12 15
G 10 12 13 15
H 15 17 15 17
Now consider activity D. The start of activities F and G depends on

the completion of activity D. Late start of activities F and G is 12
and 13 respectively. To allow both activities F and G to start at
their LS, activity D must finish by 12 and so must start by 9.
The late finish of activities A and B is equal to the late start of
activity E, i.e., 5. So, their late start is 2 and 0 respectively. Similarly,
LF of activity C is 9 (Late finish of activity D) and its late start is
9 – 7 = 2.
Observe the ES and LS of all the activities. The activities B, E, F,
and G have equal late start and early start. They are critical
activities and so BEFH is the critical path. Late start and early
start of activities A, C, D, and G is not equal, so they are non-
Unit 10: CPM
67
critical activities. The non-critical activities can be delayed to some
Notes
extent without affecting the completion time of the project but delay
in any critical activities leads to project delay.
___________________
Example 10.2 ___________________
The time required for completion of activities for example 9.1 is as ___________________
follows:
___________________
S. Task Task Predecessors Time
No. Code (in days) ___________________
1 Specification development A - 20 ___________________
2 Process mapping B - 15 ___________________
3 Developing software for C A, B 90 ___________________

process components
___________________
4 Testing of software D C 5
___________________
5 Developing hardware E B 5
specifications
6 Procurement of hardware F E 25
7 Integration of software G C 30
components
8 Installation of software on H F, G 10
hardware
9 Pilot test I H 10
10 Training of users J I 30
Determine the project completion time.
Solution
Let us start with developing the project network.
C 90
D5
A 20
G 30
J 30
B 15 I 10
H 10
E5 F 25
Let us now determine ES, EF, LS, and LF for all the activities.
68
Notes S.No. Task code ES EF LS LF
1 A 0 20 0 20
___________________
___________________
2 B 0 15 5 20
___________________ 3 C 20 110 20 110
___________________ 4 D 110 115 165 170
___________________ 5 E 15 20 110 115
___________________ 6 F 20 45 115 140
___________________ 7 G 110 140 110 140
___________________ 8 H 140 150 140 150
___________________ 9 I 150 160 150 160
___________________ 10 J 160 170 160 170
So, the critical path is ACGHIJ and project completion time is 170
days.
69
Unit 11 Notes
Case Study ___________________
___________________
___________________
Alpha solutions private limited – Should we really go
___________________
for this project?
___________________
“Sir, I had been discussing this new building project with Anuj. He
has many valid reasons for continuing at the present premises rather ___________________
than constructing a new building” Anil said looking at Mehra.
___________________
“Is it so? I always thought owning our own office building was a great
___________________
idea. Why don’t you call Anuj and we can discuss this issue?” Mehra
said. ___________________
After half an hour, Anil and Anuj were sitting in chairs in Mehra’s ___________________
cabin.
“Yes Anuj, what you have to say? I understand you have some
disagreement with this project.”
“Sir, with due regards to your decision for shifting to a new building,
I have some reservations on this issue.”
“I do not deny the positive aspects of shifting, but we cannot ignore

some factors.”
“Can you tell me about your concerns?” Mehra said.
“I prepared a list of some factors that we cannot ignore, sir.” Anuj

said and kept a paper on the table.
• No public transport for the location.

• It will be really uncomfortable for employees to commute.
• Difficult approach may dissuade local clients from visiting site and
they may offer business to competitors.
• Our work requires late sitting many times, which may not be possible
due to inconvenient location.
• Is the internet connectivity good there?
• Support services may not be nearby
nearby..
• Is it really financially worth? We are paying a rent of just ` 35000/
We
- per month.
• Being on a single floor here, our interpersonal relations are excellent.
We are all working like a team. A large building may lead to
compartmentalization and will impact organization culture.
• Is it really our priority today?
Contd…
70
Notes Mehra looked at the list carefully for some time. “Anil, what you have
to say about it?”
___________________
“I do agree with some issues raised by Anuj. In fact the location will
___________________ be very uncomfortable to the female employees of the company.” Anil
said.
___________________
“Anuj, you give it more thought and list down all the factors that may
___________________ impact our decisions. And Anil I want a complete analysis, so we can
rethink about shifting to a new building” Mehra said looking at both
___________________ of them.
___________________ REVIEW QUESTIONS
___________________ 1. Which tools should Anil use for analysis?
___________________ 2. Identify all factors affecting the decision to relocate.
___________________ 3. Prepare analysis report for presentation at the meeting.
___________________
Block–III
Detailed Contents
UNIT-12: PERT
UNIT-13: SLACK
UNIT-14: PROJECT CRASHING
UNIT-15: DEVELOPING GANTT CHART
UNIT-16: CASE STUDY

73
Unit 12 Notes
PERT
PERT ___________________
___________________
___________________

___________________
\ Understand the significance of probabilistic time estimates
___________________
\ Analyze probability of project completion in specific periods
___________________
___________________
Project Evaluation and Review Technique (PERT)
___________________
The estimate of time used in CPM is deterministic. However, in
real time projects, deterministic time for all activities is least ___________________
expected. There are a number of factors which affect the time taken
by each activity. The time of activities is dependent on a number of
uncertainties, which cannot be ascertained precisely. For example,
a construction project may have uncertainties related to weather,
transport time, manpower availability, etc. A software development
project may need redesigning as a result of unacceptable test results,
leading to increase in time. On the other hand, if the conditions
governing the time of activity are highly favorable, the activity may
even take less time than expected.
So, the time estimates of various activities in a project are in general
probabilistic rather than deterministic. The technique used for
network analysis when activity time is probabilistic is called Project
Evaluation and Review Technique (PERT). Three different time
estimates are determined for each activity of the project viz.
pessimistic time (PT), optimistic time (OT) and most likely time
(MLT).
• Pessimistic time: The time an activity will take under adverse
conditions.
• Optimistic time: The time an activity will take if conditions
are favorable.
• Most likely time: The time an activity will take with the
highest probability.
The expected time and standard deviation of the activities are
calculated, which are then used to derive the expected completion
time of the project and standard deviation of the project. This
information helps in anticipating probability of the project being
completed in a specific time.
PT + 4MLT + OT
Expected Time =
6
74
PT − OT
Notes Standard Deviation =
6
___________________ FG PT − OT IJ 2
___________________
Variance =
H 6 K
___________________ Example 12.1
___________________ The time estimates and precedence requirements of activities

involved in a project are as follows:
___________________
Time estimate (days)
___________________
S. Task Immediate Optimistic Most Pessimistic
___________________ No. Code Predecessors Time likely Time
Time
___________________
1 A - 1 3 5
___________________
2 B - 1 3 11
___________________ 3 C A, B 2 5 8
4 D C 3 4 11
5 E C 4 7 16
6 F D 1 2 3
7 G E 4 6 14
8 H F, G 1 1 1
Determine the expected time, standard deviation, and variance for

all activities.
Solution:
Time estimate (days) ET Standard Variance
S. Task Deviation
No. Code Opti- Most Pessi-
mistic likely mistic
PT + 4MLT + OT
6
PT − OT
6
FH PT −6OTIK 2
time time time
1 A 1 3 5 3 4 = 1 1
6 3 9
10 5 25
2 B 1 3 11 4 =
6 3 9
6
3 C 2 5 8 5 = 1 1
6
8 4 16
4 D 3 4 11 5 =
6 3 9
12
5 E 4 7 16 8 = 2 4
6
6 F 1 2 3 2 2 = 1 1
6 3 9
10 5 25
7 G 4 6 14 7 =
6 3 9
0
8 H 1 1 1 1 = 0 0
6
Unit 12: PERT
75
The expected time estimates can now be used to estimate the
Notes
expected completion time of the project along the same lines as in
case of CPM. The standard deviation of the project completion time
___________________
can also be estimated. The standard deviation of the project
completion will depend upon the standard deviation of critical ___________________
activities.
___________________
To estimate project completion standard deviation:
___________________
• Draw project network.
___________________
• Identify critical activities.
___________________
• Determine variance of all critical activities.
___________________
• Calculate the sum of variances of all critical activities (This is
the variance of project completion time). ___________________
• Calculate the standard deviation of the project completion time ___________________

by taking the square root of the variance.
___________________
Example 12.2
Determine the expected project completion time and project
completion time’s standard deviation for example 12.5.
Solution:
S. Task Immediate ET Standard Variance
No. Code Predecessors Deviation
PT + 4MLT + OT
6
PT − OT
6
FH PT −6 OT IK 2
4 1 1
1 A - 3 =
6 3 9
10 5 25
2 B - 4 =
6 3 9
6
3 C A, B 5 = 1 1
6
8 4 16
4 D C 5 =
6 3 9
12
5 E C 8 = 2 4
6
2 1 1
6 F D 2 =
6 3 9
10 5 25
7 G E 7 =
6 3 9
0
8 H F, G 1 = 0 0
6
Let us draw the network for the project. The time indicated against
each activity is the expected time for the activity.
76
Notes
A3
___________________ F2
D5
___________________ B4 H1
C5
___________________
E8 G7
___________________
___________________ Figure 12.1
___________________ The paths from start to finish in the network and the time required
on each path can be identified as:
___________________
• A – C – D – F – H (3 + 5 + 5 + 2 + 1 = 16)
___________________
• A – C – E – G – H (3 + 5 + 8 + 2 + 1 = 19)
___________________
• B – C – D – F – H (4 + 5 + 5 + 2 + 1 = 17)
___________________
• B – C – E – G – H (4 + 5 + 8 + 2 + 1 = 20)
BCEGH being the longest path is the critical path and activities on
this path are critical activities. The expected time of project
completion is equal to the time required by longest path, i.e., 20
days.
Sum of variances of the critical activities:
25 25
= +1 + 4 + +0
9 9
95
= = 10.56
9
Standard deviation of the project completion time is equal to the
square root of the variance of project completion time
= 10.56 = 3.25
The project completion time determined in above example is
Expected Time and actual time taken by the project may vary.
The extent of variation depends upon the standard deviation. The
larger the standard deviation of the project time, larger can be the
variation in the actual project completion time.
We will now understand how the probability of project completion
in a specific time can be determined. The variation in the project
completion time is expected to follow a normal distribution. For
determining probability of project completion in a specific time T,
calculate standard normal variate Z.
T − Te
Z =
σ
Unit 12: PERT
77
Where T is the time period
Notes
Te is the expected time of project completion
___________________
σ is the standard deviation of the project completion time
___________________
Determine the area under the curve for the relevant part as indicated
in the graph below. ___________________
The area indicates the probability of project completion in a specific ___________________

time period. ___________________
___________________
___________________
Probability of project
___________________
Completion in time T
___________________
___________________
Te T
Figure 12.2
Example 12.3
What is the probability of completing the project in 24 days in the
example 12.5?
Solution:
Te = 20 days
T = 24 days
Standard deviation = 3.25 days
T − Te
Z =
σ
24 − 20
Z = = 1.23
3.25
The value of the area under the curve for Z = 1.23 (From normal
distribution table) is 0.3907. This is the area between Te and T. The
area on the left side of Te is 0.5 (The normal curve being symmetrical
and total area under the curve is 1.0).
So the total shaded area = 0.5 + 0.3907 = 0.8907
The probability of the project being completed in 24 days is thus
0.8907.
78
Example 12.4
Notes
What is the probability of completing the project in 17 days in
___________________ example 5.5?
___________________ Solution:
___________________
___________________ Probability of project

completion in 17 days
___________________
___________________
___________________ Te
T
___________________ Figure 12.3
___________________ Te = 20 days
___________________ T = 17 days
T − Te
Z =
σ
17 − 20
Z = = 0.92
3.25
The value of the area under the curve for Z = 0.92 (From normal
distribution table) is 0.3212. This is the area between Te and T. The
area on the left side of Te is 0.5 (The normal curve being symmetrical
and total area under the curve is 1.0).
So, the total shaded area = 0.5 − 0.3907 = 0.1093
The probability of the project being completed in 17 days is thus
0.1093.
Example 12.5
What is the probability of completing the project in 19 to 22 days
in example 12.5?
Solution:
Probability of project
Completion between
times
T1 and T2
T1 Te T2
Figure 12.4
Unit 12: PERT
79
Te = 20 days
Notes
T1 = 19 days
___________________
T2 = 22 days
___________________
___________________
T − Te
Z =
σ ___________________
22 − 20
Z1 = = 0.62 ___________________
3.25
___________________
19 − 20
Z2 = = 0.31
3.25 ___________________
The value of the area under the curve for Z = 0.62 (From normal ___________________
distribution table) is 0.2324 and for Z = 0.31, the value is 0.1217.
So, the area between 20 and 22 is 0.2324 and area between 19 and ___________________
20 is 0.1217. The total shaded area is 0.2324 + 0.1217 = 0.3541. ___________________
The probability of the project being completed in 19 days to 22 days

is thus 0.3541.
81
Unit 13 Notes
Slack ___________________
___________________
___________________

___________________
\ Understand the difference between critical and non critical activities
___________________
\ Estimate the slack in activities
___________________
Slack ___________________
___________________
We have understood the difference between critical and non-critical
activities. The critical activities are those which if delayed, result ___________________
in the project getting delayed. Non-critical activities can be delayed
to some extent without affecting the project completion time. The
extent by which non-critical activities can be delayed is termed as
“Slack.”
Just consider a project with only two activities A and B, both having
no predecessors. So, both activities A and B can be started at zero
time. If the time required by activity A is 20 days and that by
activity B is 15 days, the project will be completed in 20 days,
because both can start at time zero simultaneously.
0 5 20
Figure 13.1
However, if activity A starts one day late, it would finish on day 21,
leading to one day delay in the project completion. The same is not
applicable to activity B, which can start up to five days late and
still finish on the 20th day. Activity B, in this case, is said to have
slack.
0 15 20
Figure 13.2
82
Each activity of the project has three types of slack as described
Notes
below.
___________________ Total slack: Total slack is the time by which an activity can be
delayed without affecting project completion time, subject to the
___________________
condition that all other activities start and finish as scheduled.
___________________ Total slack is calculated as follows:
___________________ TS = LS − ES
___________________ Activity time
ES ES
ES
___________________
EF EF
EF
___________________ Total slack
LS LS
LS
___________________
LF LF
LF
___________________
___________________ Figure 13.3
Consider a project with three activities A, B, and C with the following

relation:
Activity Predecessor Time
A - 6
B A 3
C - 10
The network for above is as below:

C 10
A6 B3
Figure 13.4
Activity Predecessor Time ES EF LS LF Total Slack

TS = LS − ES
A - 6 0 6 1 7 1
B - 3 6 9 7 10 1
C B 10 0 10 0 10 0
So, both activities A and B have a slack of one day. However, note
that if slack of one day is consumed by activity A, then activity A
finishes in 7 days. To finish in 10 days, activity B has to start
immediately without an opportunity to utilize its total slack.
However, if slack was not consumed by activity A, it was possible
Unit 13: Slack
83
for activity B to start one day late. So, if total slack is consumed by
Notes
an activity, it impacts the slack available to the subsequent activities.
Example 13.1 ___________________
Calculate total slack for each of the activities for following data of ___________________
a project. ___________________
Activity Predecessor Activity Time ___________________

A — 3 ___________________
B — 5
___________________
C — 7
___________________
D C 3
___________________
E A, B 7
___________________
F E, D 3
G D 2 ___________________
H F, G 2
Solution:
Let us start with the development of a network for this project and
determine ES, EF, LS, and LF for all activities.
A3
B5 E7
F3
H2
C7
D3 G2
Figure 13.5
Activity ES EF LS LF Total Slack

TS = LS − ES
A 0 3 2 5 2 – 0 = 2
B 0 5 0 5 0 – 0 = 0
C 0 7 2 9 2 – 0 = 2
D 7 10 9 12 9 – 7 = 2
E 5 12 5 12 5 – 5 = 0
F 12 15 12 15 12 – 12 = 0
G 10 12 13 15 13 – 10 = 3
H 15 17 15 17 15 – 15 = 0
84
Note that the total slack for critical activities is zero, indicating
Notes
that critical activities cannot be delayed without delaying the project
completion.
___________________
Free slack: Free slack refers to the time by which an activity can
___________________
be delayed without affecting the early start of its succeeding
___________________ activities.
___________________ Free slack is determined as:
___________________ FS = ESs − EF
___________________ Where FS is free slack, ESs is early start of succeeding activity, and
EF is early finish of activity for which slack is being determined.
___________________
___________________ ES ES
ES
___________________ EF EF
EF
___________________ LS LS
LS
LF LF
LF
Figure 13.6
Example 13.2
Calculate free slack for each of the activities for the data from
example 9.1.
Activity Predecessor Activity Time
A — 3
B — 5
C — 7
D C 3
E A, B 7
F E, D 3
G D 2
H F, G 2
Solution:
Unit 13: Slack
85
Notes
A3
E7
___________________
B5
F3
H2
___________________
C7
___________________
D3 G2
___________________
Figure 13.7 ___________________
Activity ES EF LS LF Total Slack ___________________

TS = LS − ES
___________________
A 0 3 2 5 5 – 3 = 2
___________________
B 0 5 0 5 5 – 5 = 0
C 0 7 2 9 7 – 7 = 0 ___________________
D 7 10 9 12 10 – 10 = 0 ___________________
E 5 12 5 12 12 – 12 = 0
F 12 15 12 15 15 – 15 = 0
G 10 12 13 15 15 – 12 = 3
H 15 17 15 17 17 – 17 = 0
Free slack for A = ESE – EFA or 5 – 3 = 2

Free slack for B = ESE – EFB or 5 – 5 = 0
Free slack for C = ESD – EFC or 7 – 7 = 0
Free slack for D = ESG – EFD or 10 – 10 = 0
(Both activities G and F are succeeding activities for activity D
with ES as 10 and 12 respectively. To allow both activities to start
at their ES, the activity with lower ES is considered as ESs.)
Free slack for E = ESF – EFE or 12 – 12 = 0
Free slack for F = ESH – EFF or 15 – 15 = 0
Free slack for G = ESH – EFG or 15 – 12 = 3
Free slack for H = ES(next hypothetical activity) – EFH or 17 – 17 = 0
(Since there is no succeeding activity to activity H, the early finish
of activity H is considered as early start of next hypothetical activity)
Independent slack: Independent slack refers to the time by which
an activity can be delayed if the preceding activity finishes late and
succeeding activity starts early. This slack is independent because
its consumption by the activity does not impact the slack of other
86
succeeding activities. The slack if not consumed is lost and is not
Notes
transferred to succeeding activities, in contrast to total slack.
___________________ Independent slack can be calculated as:
___________________ IS = ESs – LFp – t
___________________ Where IS is independent slack, ESs is early start of succeeding
___________________
activity, LFP is late finish of preceding activity, and t is time of
activity for which slack is being determined.
___________________
ES ES
ES
___________________
EF
EF
___________________ EF
LS
LS
LS
___________________
LF Slack LF
___________________ LF
Activity time
___________________ Figure 13.8
Example 13.3
Calculate free slack for each of the activities for the data from
example 13.1.
Activity Predecessor Activity Time

A — 3
B — 5
C — 7
D C 3
E A, B 7
F E, D 3
G D 2
H F, G 2
Solution:
A3
B5 E7
F3
H2
C7
D3 G2
Figure 13.9
Unit 13: Slack
87
Activity ES EF LS LF Independent Slack Notes
IS = ESs – LFP – t
A 0 3 2 5 5 – 0 – 3 = 2 ___________________
B 0 5 0 5 5 – 0 – 5 = 0 ___________________
C 0 7 2 9 7 – 0 – 7 = 0 ___________________
D 7 10 9 12 10 – 9 – 3 = –2 ___________________
E 5 12 5 12 12 – 5 – 7 = 0
___________________
F 12 15 12 15 15 – 12 – 3 = 0
___________________
G 10 12 13 15 15 – 12 – 2 = 1
___________________
H 15 17 15 17 17 – 15 – 2 = 0
___________________
Independent slack for A = ESE – LF(preceding hypothetical activity) – tA ___________________
or 5 – 0 – 3 = 2
___________________
Independent slack for B = ESE – LF(preceding hypothetical activity) – tB
or 5 – 0 – 5 = 0
Independent slack for C = ESD – LF(preceding hypothetical activity) – tC
or 7 – 0 – 7 = 0
Independent slack for D = ES(F or G whichever is lower) – LFC – tD
or 10 – 9 – 3 = –2
(Both activities G and F are succeeding activities for activity D
with ES as 10 and 12 respectively. To allow both the activities to
start at their ES, the activity with lower ES is considered as ESs.)
Independent slack for E = ESF – LF(A or B whichever is higher) – tE
or 12 – 5 – 7 = 0
(Both activities A and B are succeeding activities for activity E with
LF as 5 and 5 respectively. To allow both the activities to finish
late, the activity with higher LF is considered as LFP.)
Independent slack for F = ESH – LFE – tF or 15 – 12 – 3 = 0
Independent slack for G = ESH – LFD – tG or 15 – 12 – 2 = 1
Independent slack for H = ES(next hypothetical activity) – LF(F & G) – tH
or 17 – 15– 2 = 0
(Since there is no succeeding activity to activity H, the early finish
of activity H is considered as early start of next hypothetical activity)
Note that the independent slack of D is –2, which indicates
that if preceding activities of activity D finish late, the
succeeding activities cannot start early.
88
Example 13.4
Notes
The time required for completion of activities in example 5.1 is as
___________________ follows:
___________________
S. Task Task Predecessors Time
___________________ No. Code (in days)
___________________
1 Specification development A - 20
2 Process mapping B - 15
___________________
3 Developing software for C A, B 90
___________________
process components
___________________
___________________
___________________ specifications
___________________ 6 Procurement of hardware F E 25
components
8 Installation of software on H F, G 10
hardware
9 Pilot test I H 10
Determine total slack, free slack, and independent slack for all
activities.
Solution:
Let us start with developing the project network.
C 90
D5
A 20
G 30
J 30
B 15 I 10
H 10
E5 F 25
Figure 13.10
Unit 13: Slack
89
S. Task ES EF LS LF Total Slack Free Slack Independent Notes
No. Code TS = LS – ES FS = Slack
ESS – EF IS =
ESS – LFp – t ___________________
1 A 0 20 0 20 0–0=0 20 – 20 = 0 20 – 0 – 20 = 0 ___________________
___________________
2 B 0 15 5 20 5–0=5 15 – 15 = 0 15 – 0 – 15 = 0
___________________
3 C 20 110 20 110 20 – 20 110 – 110 110 – 20 – 90
=0 =0 =0
___________________
4 D 110 115 165 170 165 – 110 170 – 115 170 – 110 – 5
___________________
= 55 = 55 = 55
___________________
5 E 15 20 110 115 110 – 15 = 95 20 – 20 = 0 20 – 20 – 5 = –5
___________________
6 F 20 45 115 140 115 – 20 = 95 140 – 45 = 95 140 – 115 – 25
=0 ___________________
7 G 110 140 110 140 110 – 110 140 – 140 140 – 110 – 30 ___________________
= 0 = 0 = 0
8 H 140 150 140 150 140 – 140 150 – 150 150 – 140 – 10
= 0 = 0 = 0
9 I 150 160 150 160 150 – 150 160 – 160 160 – 150 – 10
= 0 = 0 = 0
10 J 160 170 160 170 160 – 160 170 – 170 170 – 160 – 30
= 0 = 0 = –20
Knowledge of activity slack is important for project managers. Slack

provides an understanding of the time by which activities can be
delayed and as such help in focusing attention on activities with
lower slack to ensure project completion in time. Slack also helps
in resource planning. If the requirement of resources varies widely
over different periods, slack is used to shift the start time of activities
in a manner that resource requirement over different periods
becomes uniform without affecting project completion time. In case
of limited resources, slack provides the basis for deciding priorities
for resource allocation to competing activities.
91
Unit 14 Notes
Project Crashing ___________________
___________________
___________________

___________________
\ Understand the concept of schedule compression of projects
___________________
\ Evaluate the time by which project duration can be reduced
\ Understand the time cost relationship in projects ___________________
___________________
Project Crashing ___________________
We have been discussing determination of the project completion ___________________

time on the basis of the time required by activities of the project,
specifically time required by critical activities. However, sometimes
a manager is under pressure to complete the project at an early
date. The pressures for early completion could initiate from the
customer or the parent organization’s management. The reduction
in project completion time requires slashing the time requirements
of various activities. There are three aspects of slashing the time
requirement of activities:
• The activity time cannot be reduced beyond a certain limit. In
fact, some of the activities can’t be slashed at all.
• If the time period of an activity needs to be reduced, additional
resources may be required which impacts the activity cost and
project cost eventually.
• Reduction in time requirement of every activity of the project
may not actually result in the reduction of project completion
time, even though the additional resources employed cause
cost escalation.
The process of reducing project completion time by slashing time
requirement of its activities by providing additional resources is
called project crashing.
Project crashing involves
• Identifying activities which can be slashed in time resulting
in reduction of project completion time.
• Identifying the cost impact of such time reduction.
• Identifying the methods of project time reduction with least
cost.
92
• Deciding the time by which project will be crashed considering
Notes
time cost relationship.
___________________ Let us try to understand the relation between time and cost of
activities with the help of a graph.
___________________
TIME COST RELATIONSHIP
___________________
Crash cost
___________________
___________________
cost
___________________
Normal cost
___________________
___________________ Crash Normal

time time
___________________ Time
Figure 14.1
___________________
• Normal time: The time required to complete an activity under
normal circumstances with planned resources.
• Crash time: The minimum time required for completion of an
activity.
• Normal cost: The cost of completing an activity under normal
circumstances with planned resources.
• Crash cost: The cost required to complete an activity in
minimum possible time.
As can be observed from the graph, as we move from normal time
toward crash time, the cost increases, i.e., the crash cost is higher
than the normal cost of the activity. This additional cost is due to
additional resources employed for completing the activity in shorter
period.
Let us understand the project crashing further with the help of an
example.
Example 14.1
Consider the following project.
Activity Predecessor Normal Crash Normal Crash

time time cost cost
A - 8 6 2000 3000
B - 4 2 1500 3000
C - 12 7 1500 4000
D A 6 5 2500 3250
E B 7 4 1800 3600
Unit 14: Project Crashing
93
Determine the project completion time, period by which project can
Notes
be crashed and cost of crashing the project.
Solution: ___________________
Let us first draw the network of the project and identify the project ___________________
completion time. ___________________
___________________
D6
A8 ___________________
C 12 ___________________
___________________
B4 ___________________
E7
___________________
Figure 14.2
___________________
Find the paths leading to finish from the start of the network and
their time requirement.
• C 12
• A – D 14
• B – E 11
A – D is the critical path, being the longest route, and A and D are
critical activities.
Note that if we want to reduce project completion time, activity on
the critical path has to be slashed. Reduction in time of a non-
critical activity will not result in project time reduction. Let us now
find out the crash cost per day for each activity.
Crash cost − Normal cost
Creash cost per day =
Normal time − Crash time
Activity Normal Crash Normal Crash Crash Cost

Time Time Cost Cost per Day
1000
A 8 6 2000 3000 = 500
2
1500
B 4 2 1500 3000 = 750
2
2500
C 12 7 1500 4000 = 500
5
750
D 6 5 2500 3250 = 750
1
1800
E 7 4 1800 3600 = 600
3
94
Let us now try to crash the project and determine the cost of
Notes
crashing.
___________________ Project Paths Critical Activities Activity Cost of Crashed
completion Path that can crashed crashing project
___________________ time be completion
crashed time
___________________
C 12
___________________ 14 AD 14 A – D A, D A 500 13
BE 11
___________________
C 12
___________________
13 AD 13 A – D A, D A 500 12
___________________ BE 11
___________________ 12 C 12 A – D D D 750 11
AD 12 C C C 500
___________________ BE 11
___________________ 11 C 11 A – D None Further crashing is not possible

AD 11 C C because on one of the critical path,
BE 11 B – E B, E no activity can be further crashed.
So the project can be crashed by three days, completing it in eleven

periods in the place of fourteen and cost of crashing is as below:
• Cost of crashing by 1 day 500
• Cost of crashing by 2 days 500 + 500 = 1000
• Cost of crashing by 3 days 500 + 500 + 750 + 500 = 2250
Example 14.2
Consider the following project.
Activity Predecessor Normal Crash Normal Crash

time time cost cost
A - 12 8 4000 5600
B A 6 4 2500 3500
C A 3 2 600 900
D A 5 4 1600 1950
E C, D 4 2 3400 3800
F B, E 8 5 1000 2800
G D 4 2 1200 2800
H F, G 7 5 1800 4000
Determine the project completion time, period by which project can

be crashed and cost of crashing the project.
Unit 14: Project Crashing
95
Solution:
Notes
___________________
F8
B6
E4 ___________________
A 12 C3 H7
___________________
D5
G4 ___________________
___________________
Figure 14.3 ___________________
The paths from start to finish and their time requirement are as ___________________
follows:
___________________
A – B – F – H 33 Days
___________________
A – C – E – F – H 34 Days
___________________
A – D – E – F – H 36 Days
A – D – G – H 28 Days
The project completion time is 36 days.
Critical path is A – D – E – F – H.
Activity Normal Crash Normal Crash Crash Cost

Time Time Cost Cost per Day
A 12 11 4000 4400 400
B 6 4 2500 3500 500
C 3 2 600 900 300
D 5 4 1600 1950 350
E 4 2 3400 3800 200
F 8 7 1000 1600 600
G 4 2 1200 2800 800
H 7 5 1800 4000 1100

96
Project Paths Critical Activities Activity Cost of Crashed
Notes completion Path that can crashed crashing project
time be completion
___________________ crashed time
___________________ ABFH 33
ACEFH 34
36 ADEFH A, D, E, F, H E 200 35
___________________ ADEFH 36
ADGH 28
___________________
ABFH 33
___________________ ACEFH 33
35 ADEFH A, D, E, F, H E 200 34
ADEFH 35
___________________ ADGH 28
___________________ ABFH 33
ACEFH 32
34 ADEFH A, D,F, H D 350 33
___________________ ADEFH 34
ADGH 28
___________________
ABFH 33
___________________ ACEFH 32 ADEFH A, F, H
33 A 400 32
ADEFH 33 ABFH A, B, F, H
ADGH 27
ABFH 32
ACEFH 31 ADEFH F, H
32 F 600 31
ADEFH 32 ABFH B, F, H
ADGH 26
ABFH 31
ACEFH 30 ADEFH H
31 H 1100 30
ADEFH 31 ABFH B, H
ADGH 26
ABFH 30
ACEFH 29 ADEFH H
30 H 1100 29
ADEFH 30 ABFH B, H
ADGH 25
ABFH 29
ACEFH 28 ADEFH None Further crashing is not possible
29
ADEFH 29 ABFH B because on one of the critical path,
ADGH 24 no activity can be further crashed.
97
Unit 15 Notes
Developing Gantt Chart ___________________
___________________
___________________

___________________
\ Create a Gantt chart for the project
___________________
___________________
Gantt Chart
___________________
One of the basic limitations of network analysis is that it does not
___________________
have provision to indicate the start of an activity after partial
completion of preceding activity. However, in practice, often an ___________________
activity can start after a preceding activity has been completed
partially.
Gantt chart is a graphical technique which can be used for simply
depicting the sequence of activities. It was developed by H L Gantt
in 1917. The x-axis of the graph is the time scale and the y-axis
indicates various activities involved in the project. Horizontal bars
are drawn along the x-axis for individual activities. The length of
the bars is proportional to the time required by activities. However,
Gantt chart fails to establish the interdependence of activities clearly.
Still, it is one of the most commonly used techniques because of its
simple approach.
The Gantt chart can be used during various phases of the project.
Scheduling: Gantt chart is a simple tool to depict the sequence of
activities in a project and can be used to estimate the scheduled
finish of the project. The Gantt chart created to show the planned
start and finish of activities is called the Baseline Gantt chart.
Resource allocation: Often the projects deal with limited resources,
and it becomes important to allocate resources to the activities in
a manner that has least impact on project completion schedule.
Also, a project manager is always interested in the allocation of
resources in such a manner that the demand for resources is uniform
to the extent possible during the project life. Gantt chart forms the
basis for identifying resource requirements at different periods
during the project and helps the manager to allocate resources in
most efficient manner.
Controlling: The baseline Gantt chart becomes the basis of control.
Apart from the scheduled activities, the current state of the project
98
can also be depicted on the Gantt chart which provides basis for
Notes
comparing planned versus actual progress and taking actions as
necessary.
___________________
___________________ Structure of Gantt Chart

___________________ As discussed earlier, Gantt chart is a graph with x-axis indicating
time scale and Y-axis shows various activities involved in the project.
___________________
Horizontal bars along x-axis indicate the activities, their length
___________________ being proportional to the time required by the activities. Colors,
shades or outlines can be used in the bars for differentiating between
___________________
planned progress and actual progress.
___________________
The structure of the Gantt chart looks as below, ABCD and E being
___________________ the activities involved in the project.
___________________
A
___________________
B
Time scale
Time scale
Figure 15.1
Example 15.1
Develop a Gantt chart for a project with following data
Activity Predecessor Time
A — 3
B — 5
C — 7
D C 3
E A, B 7
F E, D 3
G D 2
H F, G 2
Unit 15: Developing Gantt Chart
99
Solution:
Notes
A
___________________
B
___________________
C
___________________
D
___________________
E
___________________
F
___________________
G
___________________
H
___________________
12
34
36
78
10
11
12
13
14
15
16
17
18
9
___________________
Figure 15.2
___________________
Example 15.2
Create a baseline Gantt chart for the following project.
Activity A B C D E F G H
Predecessor – A A A C,D B,E D F,G
Time 12 6 3 5 4 8 4 3
Solution:
B
C
D
G
H
12
34
56
78
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
9
Figure 15.3
Example 15.3
Following is the data pertaining to plan and actual progress on day
17 for the project in example 15.2. Show the plan and progress on
a Gantt chart.
100
Notes
Predecessor – A A A C,D B,E D F,G
___________________ Time 12 6 3 5 4 8 4 3
___________________ Progress on 100% 75% 100% 60% - - - -
day 17
___________________
___________________ Solution:
A
___________________
B
___________________ C
___________________ D
E
___________________
F
___________________
G
H
___________________
12
34
56
78
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
9
Figure 15.4
Example 15.4
Develop the Gantt chart for the following network.
A3
F2
D5
B4 H1
C5
E8 G7
Figure 15.5
Solution:
B
C
D
F
G
H
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
9
Figure 15.6
101
Unit 16 Notes
Case Study ___________________
___________________
___________________
Alpha solutions private limited was established in 2012. The company
___________________
started undertaking projects for developing internet security software
from corporates. By the year 2016, the company was already doing ___________________
business with more than 30 corporates and had developed the
reputation of its expertise in the field. The company was headed by ___________________
Mr. Mehra as the Managing Director, and Anil assisted him as chief
___________________
project manager. Anil was responsible for allotting the new projects
to one of eight project managers working for the company. ___________________
Anuj was the project manager for a project with Mohit Industries, ___________________
one of the most important clients of Alpha Solutions. The project
started on January 1, 2016 and was scheduled to be handed over to ___________________
the client in 60 days.
The schedule of the project was as follows:
A 10 B 12 D 30 F5
C 15
E 10
Figure 16.1
Anil received a call from CEO of Mohit industries before the start of
the project, requesting him to see if the project instead could be
delivered five days earlier. Anil promised to reply by the end of the
day. Anil had a discussion with Anuj and Mr. Mehra. While Anuj was
reluctant to accept the change, Mr. Mehra did not want to antagonize
an important client. He asked Anil to handle the situation. While Anil
talked to the client again, telling him that completing the project
earlier would involve additional resources and will not remain viable
for the organization, the client offered to cover additional expenses up
to Rs. one lakh. Anil again had a meeting with Mr. Mehra and
appraised him of the discussion with client. Mr. Mehra asked Anil to
analyze the cost involved and also whether the project can be shortened
by five days at all.
On directions of Anil, Anuj immediately started collecting relevant

data for the analysis.
Contd…
102
Notes The summarized data is as below.
___________________ Activity Normal time Crash time Crash Cost per day
(Days) (Days) (`
`)
___________________
A 10 8 12000
___________________
B 12 12 –
___________________
C 15 12 20000
___________________
D 30 25 18000
___________________
___________________ E 10 10 –
___________________ F 5 5 –
___________________ Mr. Mehra was presented with the data, and he asked Anil “Should
we accept the change?”
___________________
Questions
1. Should the change be accepted? Justify your answer.
2. What is the minimum cost of crashing the project by five days?

Block–III
Detailed Contents
UNIT-17: DEVELOPING BASELINE COST CURVE
UNIT-18: PROJECT BUDGETING AND ACTIVITY COSTING
UNIT-19: PROJECT MONITORING WITH GANTT CHART
UNIT-20: PROJECT MONITORING (EARNED VALUE ANALYSIS)
UNIT-21: CASE STUDY

105
Unit 17 Notes
Developing Baseline Cost Curve ___________________
___________________
___________________

___________________
\ Estimate the cost required during various project phases
___________________
\ Create a base line curve as a means of project monitoring
___________________
___________________
Creating Baseline Cost Curve
___________________
Project X ___________________
A B C D
Activity Time Predecessors

A
A 5 -
B 2 - C
B
C 4 B
D 6 B
D
0 1 2 3 4 5 6 7 8 9 10
Cost
A 100
B 70
C 200
D 150
Activity Budgted cost 1 2 3 4 5 6 7 8

A 100 30 20 20 20 10
B 70 20 50
200
C 70 30 40 60
150
D 40 20 30 30 20 10
Period Total 50 70 130 70 80 90 20 10
Cumulative 50 120 250 320 400 490 510 520
106
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
1 2 3 4 5 6 7 8
___________________
Figure 17.1
___________________
Mr. and Mrs. Tolstoy are building a house on a hill. It is a wooden
house with a slanted tiled roof. The size of the house is 3000 sq. feet
and will cost ` 1000 per sq. foot (including the plot and the
construction).
The activities in building the house, the precedence, the duration
and the percentage of total cost are given below.
Activity Description Precedence Duration %age of

ID (Weeks) Total
Cost
A Excavation and framing - 4 24

B Roof and Fireplace A 3 8
C Wiring roughed in A 1 3
D Plumbing roughed in B,C 2 6

E Siding on D 2 5
F Windows, insulation, walks, E 8 17
plaster and garage
G Furnace B 1 9
H Plumbing fixtures installed D 2 4
J Exterior paint, light F,G,H 6 10
fixtures, hardware
installed
K Floors laid and finished H 4 6

L Carpet and trim installed K 1 4
M Interior decoration J,L 2 4
Unit 17: Developing Baseline Cost Curve
107
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
108
Notes 35
___________________ 30
25
___________________
20
___________________
15
___________________ 10
___________________ 5
___________________ 0
1 4 7 10 13 16 19 22 25
___________________
___________________ Figure 17.2
___________________
___________________
109
Unit 18 Notes
Project Budgeting and Activity Costing ___________________
___________________
___________________

___________________
\ Understand the process involved in project budgeting
___________________
\ Estimate cost of project activities
\ Understand methods of budgeting ___________________
___________________
A budget is a plan for resource allocation. ___________________

• Also, it acts as a control mechanism. ___________________
• Allocation on the basis of forecast of resources, quantities
needed, and when it is needed.
• Uncertainties are involved.
• No past budget is available for use as a base.
Expert Judgment Expert judgment uses the experience and

knowledge of experts to estimate the cost of
the project. This technique can take into
account unique factors specific to the project.
However, it can also be biased.
Analogous Estimating Analogous estimating uses historical data from

similar projects as a basis for the cost estimate.
The estimate can be adjusted for known
differences between the projects. This type of
estimate is usually used in the early phases
of a project and is less accurate than other
methods.
Parametric Estimating Parametric estimating uses statistical

modeling to develop a cost estimate. It uses
historical data of key cost drivers to calculate
an estimate for different parameters such as
cost and duration. For example, square footage
is used in some construction projects.
Bottom-Up Estimating Bottom-up estimating uses the estimates of

individual work packages which are then
summarized or “rolled up” to determine an
overall cost estimate for the project. This type
of estimate is generally more accurate than
other methods since it is looking at costs from
a more granular perspective.
110
Notes Reserve Analysis Reserve analysis is used to determine how
much contingency reserve, if any, should be
___________________ allocated to the project. This funding is used
to account for cost uncertainty.
___________________
Cost of Quality Cost of Quality (COQ) includes money spent
___________________ during the project to avoid failures and money
spent during and after the project due to
___________________ failures. During cost estimation, assumptions
about the COQ can be included in the project
___________________
cost estimate.
___________________ Vendor Bid Analysis Vendor analysis can be used to estimate what
___________________
the project should cost by comparing the bids
submitted by multiple vendors.
___________________
___________________ Top Down Budgeting
___________________
• Collecting the judgment and experience of top managers.
• Collecting available past data in similar activities.
• Estimation of overall project cost and cost of major components
by senior managers.
• Cost estimates given to lower level managers.
• Budget is broken into estimates for specific tasks and work
activities.
Bottom Up Budgeting
• Elemental tasks, their schedules, and budgets are constructed.
• People doing the work are consulted.
• Difference of opinion resolved by discussion between junior
and senior managers.
• Advocate participative management.
Work Element Costing

• Each work element is evaluated for its resource requirement.
• Cost of each resource is estimated.
Considers
• Overheads
• Allowances
• General and administrative costs
111
Unit 19 Notes
Project Monitoring with Gantt Chart ___________________
___________________
___________________

___________________
\ Understand the basic process of project monitoring and control
___________________
\ Use tracking Gantt chart for monitoring of projects
___________________
Project Monitoring and Control ___________________
___________________
While it is important to plan a project adequately, it is equally
important to ensure that the plans are implemented in a manner ___________________
that project objectives are achieved. It involves two aspects:
• Continual and periodic verification of the project progress.
• Identifying deviation from plans and taking actions if required.
Project monitoring is the process of verifying the project performance

on the basis of data collected from the project and project control
refers to comparing the actual performance with targets or plans,
identifying deviations if any and taking the required actions.
Deviation can be defined as the differences between “What is and
what should be.” The various aspects of the project that need to be
controlled are:
• Schedules
• Cost
• Specifications or quality
Process of Project Monitoring and Control

The process of monitoring and control is depicted in the below flow
chart.
112
Notes Define project
objectives
___________________ Develop monitoring

Develop base plan
plan
___________________
___________________
Collect data as per Compare performance
monitoring plan with plan
___________________
___________________ Identify deviation

Establish need for
action
___________________
___________________ Apply action

Verify effectiveness of
___________________ action taken
___________________ Figure 19.1
___________________ Define project objectives: The project objectives include the

information about the desired time of project completion, the budget
for completion of the project and the quality specification of the
project output.
Develop base plan: Control requires comparison of the actual
with plan. So, the first requirement for monitoring and control
process is to have a base plan which forms the basis of comparison.
The plans are required for various performance criteria of the project
viz. cost, schedules, and quality. Cost plans are in the form of budgets
and activity costing while schedule plans can be in the form of
Gantt charts, milestones, and project networks.
Develop monitoring plan: The monitoring plan involves a decision
about:
• The monitoring tools to be used.
• Stages of the project where the controls shall be applied.
• Responsibility allocation for monitoring and control.
• Development of tools for collecting and reporting data.
Collect data as per monitoring plan: It involves implementing
the monitoring and control plans. It is always preferable to develop
suitable tools for data collection to ensure ease in the analysis. The
tools can include various graphs and formats. Care must be taken
to ensure that data is reliable so that appropriate decisions can be
made.
Compare performance with plans: The collected data highlights
the actual performance of the project, and it needs to be compared
with desired progress with the project.
Unit 19: Project Monitoring with Gantt Chart
113
Identify deviation: The difference between the actual progress
Notes
and desired progress indicates a deviation.
Various tools used for the monitoring and control of the projects are ___________________
• Gantt chart ___________________
• Milestone analysis ___________________
• Earned value analysis ___________________

• S curve analysis ___________________
Gantt Chart as a monitoring tool ___________________
Gantt chart and its use we have discussed in the previous sections. ___________________
It is one of the most commonly used techniques for project monitoring ___________________
due to several advantages offered by it.
___________________
• Easy to understand, being a pictorial representation.
___________________
• Easy to construct and maintain.
• Shows progress against the plan on the same graph.
• Can be used for resource planning also.
A baseline Gantt chart indicates the start and finish of various
activities of the project and their interrelationship. As the project
progresses, the progress of various activities can also be plotted on
the same chart enabling the project manager to compare the plan
with performance and take corrective measures if required.
Example 19.1
Develop the Gantt chart for the following network.
A3
F2
D5
B4 H1
C5
E8 G7
Figure 19.2
The status of completion of various activities is as follows:
% complete 100% 100% 100% 80% 60% 0
on day 14
114
Solution:
Notes
A
___________________
B
___________________
C
___________________ D
E
___________________
F
___________________
G
___________________
H
___________________
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
9
___________________ Figure 19.3
___________________ Following is the tracking Gantt chart:

___________________
A
B
C
D
F
G
H
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
9
Figure 19.4
The chart indicates that activity D is lagging behind on day 14. As

a result, activity F has not yet started, where it should have started
by this time. The indication is that project will get delayed unless
activity D is controlled at this point and is completed in another
one day. However, activity E seems to be faster than scheduled.
115
Unit 20 Notes
Project Monitoring ___________________
___________________
(Earned Value Analysis)
Value ___________________
___________________
After studying this unit, the student will be able to: ___________________
\ Understand the process of project control
___________________
\ Use earned value analysis to track the progress of projects
___________________
___________________
Earned Value Analysis
___________________
Earned value analysis is a technique for monitoring of both cost
and schedule. The monitoring for both cost and schedule is in
financial terms. It compares the budgeted cost of work performed
with the actual cost of work performed and budgeted cost of work
scheduled. The comparisons provide a measure to assess the project
performance in terms of cost and schedule.
The terms and notations used are as follows:
Budgeted cost of work performed (BCWP)

It indicates the budgeted cost of work performed. It is determined
by identifying the work completion status in terms of percentage
and calculating the value of work done with respect to the budget.
Example
If the budgeted cost of an activity is ` 2000, and on a specific day,
70% of activity has been completed, determine the BCWP.
Work completed = 70%
Total activity cost = ` 2000
Value of work completed = 70% of 2000 = 1400
So, BCWP = 1400
Example
Consider the following information about a project during its
implementation.
116
Notes Activity % Completion Budgeted cost
A 100 2000
___________________
___________________ B 90 3500
___________________ C 90 1500
___________________ D 35 3000
___________________ E 0 1000
___________________
Determine BCWP for each activity and the project in totality.
___________________
Activity % Completion Budgeted cost BCWP
___________________
A 100 2000 100% of 2000 = 2000
___________________
B 90 3500 90% of 3500 = 3150
___________________
C 90 1500 90% of 1500 = 1350
D 35 3000 35% of 3000 = 1050
E 0 1000 0% of 1000 = 0
Total project cost = 2000 + 3500 + 1500 + 3000 + 1000 = 11000

BCWP = 2000 + 3150 + 1350 + 1050 + 0 = 7550
Actual Cost of Work Performed (ACWP)

This is the cost incurred on an activity or project for the completed
part. The comparison of ACWP with BCWP provides information
about the cost performance of the project and level of utilization of
budget. It also forms the basis for identifying the budget needs for
completion of the project.
Budgeted Cost of Work Scheduled (BCWS)

BCWP determines the cost of planned work. The cost of planned
work may be more than or less than the actual cost incurred so far.
BCWP is determined by identifying the percent work, scheduled to
be completed and calculating its cost with reference to budgeted
cost. It indicates the value of scheduled work which was expected
to be completed by this time. The comparison of BCWP and BCWS
provides information about schedule performance of the project.
Example:
Consider the following information about a project during its
implementation.
Unit 20: Project Monitoring (Earned Value Analysis)
117
Activity Scheduled Budgeted cost Notes
Completion (%)
___________________
A 100 2000
___________________
B 100 3500
___________________
C 100 1500
___________________
D 60 3000
___________________
E 40 1000
___________________
Determine BCWS for each activity and the project in totality. ___________________
Activity % Scheduled Budgeted cost BCWP ___________________

completion
___________________
A 100 2000 100% of 2000 = 2000
___________________
B 100 3500 100% of 3500 = 3500
C 100 1500 100% of 1500 = 1500
D 60 3000 60% of 3000 = 1800
E 40 1000 40% of 1000 = 400
Total project cost = 2000 + 3500 + 1500 + 3000 + 1000 = 11000

BCWS = 2000 + 3500 + 1500 + 1050 + 400 = 8450
Project Performance Indices

The parameters of BCWS, BCWP, and ACWP provide the basis for
evaluating the performance of the project. The various indices used
for this purpose are:
• Cost performance index (CPI)
• Cost Variance (CV)
• Schedule performance index (SPI)
• Schedule variance (SV)
• Critical ratio (CV)
Cost Performance Index (CPI)

CPI is the ratio of BCWP to ACWP. This index compares the planned
cost with actual cost incurred.
BCWP
CPI =
ACWP
118
CPI value of greater than 1 indicates that the actual cost spent was
Notes
less than the budgeted cost, and hence the project is over performing
on this front. However, a very high value indicates a need for review.
___________________
A very high value of CPI may indicate
___________________
• Over budgeting in planning
___________________ • Quality compromise in project
___________________
In fact, if the reason was over budgeting, an underperformance is
___________________ also disguised as over performance.
___________________ CPI value of less than 1 indicates underperformance, i.e., actual

expenditure exceeding the budgeted expenditure. However, the low
___________________ value of CPI may also be the result of project crashing.
___________________
Cost Variance (CV)
Variance
___________________
Cost variance determines the actual difference in BCWP and ACWP
___________________ and is calculated as:
CV = BCWP − ACWP
A positive value of CV indicates budgeted cost to be more than
actual cost whereas a negative value of CV indicates over
expenditure.
Example:
Determine CPI and CV for all activities and the project in totality.
Activity % Completion Budgeted cost ACWP
A 100 2000 2200
B 100 3500 4000
C 100 1500 1500
D 60 3000 1500
E 40 1000 500
Activity % Budgeted ACWP BCWP CPI = CV =

Comple- Cost BCWP BCWP – ACWP
tion ACWP
A 100 2000 2200 100% of 2000 2000/2200 -200

= 2000 = 0.909
B 100 3500 4000 100% of 3500 3500/4000 -500

= 3500 = 0.875
C 100 1500 1500 100% of 1500 1500/1500 0

= 1500 = 1.0
D 60 3000 1500 60% of 3000 1800/1500 300

= 1800 = 1.2
E 40 1000 500 40% of 1000 400/500 -100

= 400 = 0.8
119
Total BCWP = 7550 Notes
Total ACWP = 9700

___________________
7550
CPI = = 0.778 ___________________
9700
___________________
CV = 7550 – 9700 = –2150
___________________
Schedule Performance Index (SPI)
___________________
SPI is the ratio of BCWP to BCWS. This index compares the value
of planned work with value of completed work. ___________________
BCWP ___________________
SPI =
BCWS
___________________
If the value of planned work (BCWS) is more than the value of
completed work, it indicates a delay in schedule while the vice ___________________
versa indicates work completion before schedule. A value of SPI = ___________________

1 indicates work completion on schedule. Too high or too low value
of SPI needs review for following possibilities:
Very high value of SPI:
• Whether there was any activity crashing
• Whether there was any compromise on quality
Very low value of SPI:
• Reasons for delay
• Whether the planned duration of activity was over-optimistic
Schedule variance (SV):
Schedule variance determines the actual difference in BCWP and
BCWP and is calculated as
SV = BCWP – BSWS
Example:
Activity % Scheduled Budgeted cost % Actual

Completion Completion
A 100 2000 100
B 100 3500 90
C 100 1500 90
D 60 3000 35
E 40 1000 0
120
For the above data, calculate SPI and cost variance of all activities
Notes
and for the project in totality.
___________________ Activity % Budgeted % BCWP BCWS SPI = SV =
Scheduled Cost Actual BCWP BCWP –
___________________ Completion Comple- BCWS ACWP
tion
___________________
A 100 2000 100 100% 100% 2000/2000 2000 – 2000
___________________ of 2000 of 2000 = 1.0 = 0
= 2000 = 2000
___________________ B 100 3500 90 90% 100% 3150/3500 3150 – 3500
of 3500 of 3500 = 0.9 = –350
___________________ = 3150 = 3500
C 100 1500 90 90% 100% 1350/1500 1350 – 1500

___________________
of 1500 of 1500 = 0.9 = –150
= 1350 = 1500
___________________
D 60 3000 35 35% 60% 1050/1800 1050 – 1800
___________________ of 3000 of 3000 = 0.58 = –750
= 1050 = 1800
___________________ E 40 1000 0 0% 40% 0/400 0 – 400
of 1000 of 1000 = 0 = –400
= 0 = 400
Total BCWP = 7550

Total BCWS = 9200
7550
SPI =
9200
Cost variance = 7550 – 9200 = –1650
The work done is lagging behind the schedule by work worth 1650.
Critical Ratio (CR)

SPI and CPI individually evaluate the performance of the project
with respect to schedule and cost respectively. However, as we have
seen, these two aspects are not independent. Impact of the variance
in one parameter affects the performance of another parameter.
A high SPI may lead to high CPI also because of use of resources
for a longer period. An effort for crashing the project duration results
in higher cost and shorter schedule for some activities.
Project managers investigate when it becomes necessary on the
basis of SPI and CPI. However, a tool is required to monitor the
project with respect to both schedule and cost, which provides an
estimate of the relation between the two.
Critical ratio provides a tool for monitoring the project performance
with respect to both schedule and cost and their interrelationship.
Critical ratio is defined as the product of CPI and SPI
CR = CPI × SPI
121
The ideal value of CR is 1 (If both SPI and CPI are equal to one).
Notes
However, the value of CPI does not indicate CPI or SPI with certainty
because a high value of one parameter influences the value of CR.
___________________
The value of CR is considered acceptable in the range of 1.05 to 0.9.
___________________
It is a general practice by project managers to plot the value of CR
on a control chart and take action when it crosses the acceptable ___________________
limits.
___________________
___________________
1.05
Critical ratio
1.0 ___________________
___________________
0.9
___________________
Figure 20.1 ___________________
___________________
Activity % Budgeted % Actual
Scheduled Cost Actual Cost
Completion Completion Incurred
A 100 2000 100 2200
B 100 3500 90 4000
C 100 1500 90 1500
D 60 3000 35 1500
E 40 1000 0 500
Example:
For the above data collected during a milestone of the project,
calculate the critical ratio.
Solution:
Activity % Budgeted % Actual BCWP BCWS
Scheduled Cost Actual Cost
Completion Completion Incurred
A 100 2000 100 100% 100% of 100% of

2000 = 2000 2000 = 2000
B 100 3500 90 4000 90% of 100% of

3500 = 3150 3500 = 3500
C 100 1500 90 1500 90% of 100% of

1500 = 1350 1500 = 1500
D 60 3000 35 1500 35% of 60% of

3000 = 1050 3000 = 1800
E 40 1000 0 500 0% of 40% of

1000 = 0 1000 = 400
122
Total ACWP = 9700
Notes
BCWP = 7550
___________________
BCWS = 9200
___________________
7550
CPI = = 0.78
___________________ 9700
___________________ 7550
SPI = = 0.82
9200
___________________
CR = CPI × SPI
___________________
0.78 × 0.82 = 0.64
___________________
Example:
___________________
A project was evaluated at different milestones for performance.
___________________
The data collected at different milestones is as under.
___________________
Milestone 1 2 3 4 5
Actual cost 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000

incurred
Work completed 20% 35% 54% 60% 75%
Work scheduled 24% 39% 52% 64% 73%
If the total budgeted cost for the project was Rs.5,00,000, comment
on the performance of the project.
Solution:
Milestone 1 2 3 4 5
Actual cost 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000

incurred
Work completed 20% 35% 54% 60% 75%
Work scheduled 24% 39% 52% 64% 73%
ACWP 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000
BCWP 1,00,000 1,75,000 2,70,000 3,00,000 3,75,000
BCWS 1,20,000 1,95,000 2,60,000 3,20,000 3,65,000
CPI 0.98 1.06 0.98 1.01 0.99
SPI 0.83 0.90 1.03 0.94 1.03
CR 0.81 0.95 1.01 0.95 1.02

123
Notes
1.05
Critical ratio ___________________
1.0
___________________
0.9
___________________
___________________
1 2 3 4 5
Figure 20.2 ___________________
The graph indicates that at milestone one, the critical ratio was ___________________
below 0.9, that was due to low value of SPI indicating schedule ___________________
delay also resulting in higher cost and as a result, CR is low.
However, during milestone 2, SPI is greater than 1 and CPI is less ___________________
than 1, which could be a result of crashing to compensate for previous
___________________
period schedule delay. The CR since second milestone has been
maintained in the control limits indicating a satisfactory project ___________________
performance.
125
Unit 21 Notes
Case Study ___________________
___________________
___________________
Alpha Solutions Private Limited – Planning for a
___________________
New Office Building
___________________
“Anil, you can consider the budget as approved. Schedule a meeting
with Mr. Arya and prepare the complete plan for construction” Mehra ___________________
told Anil while crossing his cabin. “You can involve Anuj with you if
___________________
you want.”
___________________
“Yes sir, I would like Anuj with me. Recently he has been showing his
analytical capabilities. I plan to raise him to senior project assistant ___________________
shortly.” Anil said.
___________________
“Please plan for the requirement of cash also with the timeline so we
can arrange it when required.”
“I will do that sir” Anil responded.
In a detailed meeting with Mr. Arya, three days later, Anil and Anuj
arrived at the time estimates of the project activities. They also
established the interrelationship of the activities.
The details were presented to Mehra in a meeting a few days later.
Activity Activity Code Budgeted Time estimate (in weeks)

number Cost
(in lakhs) Optimis- Most Pessim-
tic likely istic
A Advertisement P11A 1.75 3 3 3

for architect
B Selection of P11B 0.75 2 4 7

architect
C Design by P12A 2.25 5 9 15

architect
D Design approval P12B 2.00 6 12 22

from regulatory
body
E Advertisement P22A 1.50 3 3 3

for contractor
F Selection of P22B 0.50 2 5 8

Contractor
G Specification P23A 1.25 4 9 14

development
Contd…
126
Notes H Order placement P23B 0.55 2 3 6
I Building P23C1 65.45 30 42 48

___________________ construction
___________________ J Wood work P23C2-1 32.50 6 9 14
___________________ K Furnishing P23C2-2 20.50 3 7 12
___________________ L Upholstery P23C2-2 5.50 3 5 9
___________________
Activity Activity Code Predecessor
___________________ number activities
___________________ A Advertisement for architect P11A _
___________________ B Selection of architect P11B A
___________________ C Design by architect P12A B
___________________ D Design approval from regulatory P12B C

body
E Advertisement for contractor P22A _
F Selection of Contractor P22B E, G
G Specification development P23A D
H Order placement P23B F
I Building construction P23C1 D, F
J Wood work P23C2-1 I
K Furnishing P23C2-2 I
L Upholstery P23C2-2 J, K
“Can we complete everything in 42 weeks? And where is the plan for

resource requirement?” Mehra asked.
“We are developing resource plan and responsibility plan sir, it will
be ready by day after tomorrow” Anil said.
QUESTIONS
1. Prepare a weekly cash requirement for the project. (Consider that
the cost of activities is uniformly spread over its duration)
2. What is the probability of completing the project in 42 weeks?
3. What is the expected time of project completion?
4. Develop a PERT network for the project.
5. Prepare an S curve for the project.

Block–V
Detailed Contents
UNIT-22: PROJECT MONITORING WITH S CURVE
UNIT-23: RESOURCE PLANNING
UNIT-24: RESOURCE LOADING AND LEVELING
UNIT-25: PROJECT TERMINATION
UNIT-26: CASE STUDY

129
Unit 22 Notes
Project Monitoring with S Curve ___________________
___________________
___________________

___________________
\ Understand the process of project control
___________________
\ Use S curves to track the progress of projects
___________________
S Curve Analysis ___________________
___________________
We have just understood the concept of earned value analysis. The
three parameters that we came across are BCWP, ACWP, and ___________________
BCWS.
The relation between these three parameters can be understood
graphically if all three are plotted on the same graph. Just like the
project life cycle, these curves also assume a shape similar to
alphabet S and are known by the name S curve. S curve provides
vital information about the project performance at a glance. The x-
axis of the curve indicates time scale and the y-axis is for the total
cost. The three cost parameters ACWP, BCWP, and BCWS result in
three different cost curves.
Following is the shape of a typical S curve. The curve represents
the baseline plan of the project. The blocks in the curve represent
the activities of the project, undertaken at a different time during
the life of the project. These activities are the cost elements of the
project and the cumulative cost of various activities at different
points of time define the shape of S Curve.
Cost
Time
Figure 22.1
130
However, the cost curves for ACWP and BCWP may not follow the
Notes
same pattern. The variation in patterns of ACWP and BCWP as
compared with the BCWS curve provides vital information about
___________________
project performance.
___________________
Let us understand the construction of curves.
___________________
S. Task Task Prede- Time Budgeted
___________________ No. Code cessors (in days) Cost
___________________ 1 Specification development A - 20
___________________ 2 Process mapping B - 15
___________________ 3 Developing software for C A, B 90

process components
___________________
___________________
___________________ specifications
6 Procurement of hardware F E 25
components
8 Installation of software H F, G 10
on hardware
9 Pilot test I H 10
C
D
A
G
J
B I
H
E F
15 20 45 110115 140 150 160 190
Figure 22.2
Unit 22: Project Monitoring with S Curve
131
Mile Days Activities Percent Cost Total Cumulative
Notes
stone elapsed complete mile- cost
stone
cost ___________________
1 20 A 100 200 1000 1000 ___________________

B 100 500
___________________
E 100 300
___________________
2 45 C 50 3000 4000 5000
F 100 1000 ___________________
3 110 C 50 3000 3000 8000 ___________________
4 140 D 100 500 2000 10000 ___________________

G 100 1500
___________________
5 150 H 100 2000 2000 12000
___________________
6 160 I 100 1000 1000 13000
___________________
7 175 J 50 500 500 14500
8 190 J 50 500 500 15000
Figure 22.3
Let us now understand the interpretation of curves to assess the

performance of the project.
Actual cost at completion

Cost over run
Budgeted cost at
completion
BCWS
Schedule
variance
Cost
Variance
BCWP
Schedule
slipage
Figure 22.4
132
The above graph shows three curves namely ACWP, BCWP, and
Notes
BCWS. You can observe that the ACWP curve finishes after the
BCWS curve on x-axis and higher on y-axis. The difference between
___________________
planned finish time and actual finish time is termed as schedule
___________________ slip. Observe that BCWP curve finishes after BCWS on time scale
but finishes at the same point as BCWS on cost scale. It is due to
___________________
the fact that at completion, 100% of work has been completed and
___________________ so BCWP is 100%, same as BCWS. The SPI, therefore, will be 1. So,
at project finish, SPI will be equal to 1. Note that SPI and schedule
___________________
slip are not same. Schedule slip refers to the period by which project
___________________ has been delayed whereas SPI is the ratio of BCWP to BCWS.
___________________ The following can be interpreted from the graph:
___________________ Schedule slip: Difference between the actual finish and planned
finish
___________________
Schedule variance: Difference along cost curve between BCWP
___________________ and BCWS
Cost variance: Difference along cost curve between BCWP and
ACWP
SPI: Ratio of the value of BCWP to BCWS along cost axis
CPI: Ratio of the value of BCWP to ACWP along cost axis
Cost overrun: Difference between BCWP and ACWP along cost
axis at project finish
Example:
Interpret the following graph.
52000
50000
ACWP BCWS
BCWP
200 210
Figure 22.5
Observations from graph

BCWS at project finish = 50000
BCWP at project finish = 50000
Unit 22: Project Monitoring with S Curve
133
ACWP at project finish = 52000
Notes
Scheduled finish = 200 days
___________________
Actual finish = 210 days
___________________
Example:
___________________
Consider the following curves developed during the project. Prepare
___________________
a project performance report based on weeks 20, 35, 60, and 75.
___________________
90
___________________
80
___________________
60 ___________________
70 ___________________
___________________
50
BCWS
ACWP
40
BCWP
30
20
10
10 15 20 25 30 35 40 45 50 55 60 65 70 75
Figure 22.6
Week 20 35 60 75
BCWP 11 28 65 71
BCWS 16 40 68 71
ACWP 30 56 72 77
CPI 0.36 0.50 0.90 0.92
SPI 0.69 0.70 0.95 1.00
CV –19 –28 –7 –6
SV –5 –12 –3 0
CR 0.25 0.35 0.86 0.92

135
Unit 23 Notes
Resource Planning ___________________
___________________
___________________

___________________
\ Identify the resources required for the project
___________________
\ Estimate the requirement of resources
\ Apply resource levelling to smoothen the resource requirements ___________________
___________________
Resource Planning and Allocation ___________________
Cost and schedule are two major objectives of projects. However, ___________________
both these objectives are influenced by the availability of resources
at the right time and right place. One of the concerns of the project
manager is to ensure effective utilization of the resources in order
to achieve the project objectives.
The project manager is faced with questions like
• What resources are required?
• When are the resources required?
• Do we have enough resources?
• Is the load on resources uniform?
• Whether the project can be completed in scheduled time with
these resources?
In this unit, we will try to answer the above questions faced by
project managers.
The resources can be
• Human resource
• Machinery
• Equipment
• Materials
• Skills
Resources maybe available in-house or maybe outsourced. The
uncertainty about resource availability is higher if it is outsourced.
136
Notes
What resources would be required?
Availability of right resources at the right time is crucial to the
___________________
success of the projects. Planning for resources starts with the
___________________ development of work breakdown structure. Resources are identified
for each work package separately. In fact, it becomes the basis of
___________________
development of budget also by identifying the cost implications of
___________________ resources required for various work packages.
___________________ The outcome of resource planning is a resource matrix which defines

the resources required for the project.
___________________
Let us consider a product development project undertaken by the
___________________
R&D department of a manufacturing company involved in
___________________ manufacturing engineering assembly.
___________________ The project breakdown structure is as below.
___________________
Developing a new joint
assembly for hydraulic
cranes
Specification Prototype
development development
(A) (B)
Development of Designing the

engineering drawing Casting Moulding
assembly (A2) (B1) (B2)
(A1)
Computer simulation Heat Treatment Finishing

of design (A3) (B3) (B4)
Inspection
(B5)
Prototype testing
(A)
Trial of prototype Trial result analysis

(C1) (C2)
Figure 23.1
The resource requirements are identified for individual work package

by the managers responsible for the work packages. The resource
matrix may be in the below shape.
Unit 23: Resource Planning
137
Code Work package Resource Requirement for work packages
Notes
Manpower Machinery Equipment Material
___________________
A1 Development of Draughtsman CAD-1
engineering -2 Digitizer-1 ___________________
drawing
___________________
A2 Designing Design Hydraulic CAD-1
assembly engineer-1 crane Digitizer-1 ___________________
Civil
engineer-1 ___________________
Draughts-
man-1 ___________________
A3 Simulation Systems Simulation ___________________

engineer-1 software
Design ___________________
engineer-1
___________________
B1 Casting Mechanical Casting Cast iron
engineer-1 machine -3 KG ___________________
Casting
operator-2
B2 Moulding Mechanical Moulding

engineer-1 machine
Moulding
operator-2
B3 Heat treatment Mechanical Heat

engineer-1 treatment
Heat chamber
treatment
operator-1
B4 Finishing Cast die Finishing

mechanic equipment
B5 Inspection Inspection Mould test

engineer equipment
C1 Prototype trial Design Hydraulic

engineer crane
Hydraulic
crane
operator
C2 Trial analysis Design Analysis

engineer software
Mechanical with
engineer necessary
hardware
The resource requirements for various work packages can be

converted to the resource requirement for level 1 activity.
Similarly, the addition of requirements for level 1 activity provides
the resource requirements for the project.
138
Code Activity Resource Requirement for Level 1 Activities
Notes
___________________
A Specification Draughts- Hydraulic CAD-1
___________________ development man-2 crane Digitizer-1
Design Simulation
___________________ engineer-1 software
Civil
___________________ engineer-1
Systems
___________________ engineer-1
___________________ B Prototype Mechanical Casting Finishing Cast iron

development engineer-1 machine equipment -3 KG
___________________ Casting Moulding Mould test
operator-2 machine equipment
___________________ Moulding Heat
operator-2 treatment
___________________ Heat chamber
treatment
___________________ operator-1
Cast die
mechanic
Inspection
engineer
C Prototype Design Hydraulic Analysis

testing engineer crane software
Mechanical with
engineer necessary
Hydraulic hardware
crane operator
Project Resource Requirement for Project

Development Draughtsman-2 Hydraulic CAD-1 Cast iron

of a new joint Design engineer-1 crane Digitizer-1 -3 KG
assembly for Civil engineer-1 Casting Simulation
hydraulic Systems engineer-1 machine software
crane Mechanical engineer-1 Moulding Finishing
Casting operator-2 machine equipment
Moulding operator-2 Heat Mould test
Heat treatment treatment equipment
operator-1 chamber Analysis
Cast die mechanic software
Inspection engineer with
Hydraulic crane necessary
operator hardware
When are the Resources R

Resources equired?
Required?
However, the above table does not show the duration for which the
resources are required or the period when they are required. To
Unit 23: Resource Planning
139
assess it, information needs to be compiled for the time taken by
Notes
activities and the start and finish of the activities.
Code Activity Time Estimate Precedence ___________________

(Days) Requirements
___________________
A1 Development of 15 - ___________________
engineering
drawing ___________________
A2 Designing assembly 25 - ___________________
A3 Simulation 3 A1, A2 ___________________
___________________
B1 Casting 2 A2
___________________
B2 Moulding 4 B1
___________________
B3 Heat treatment 2 B2
___________________
141
Unit 24 Notes
Resource LLoading
oading and LLeveling
eveling ___________________
___________________
___________________

___________________
\ Identify the resources required for the project
___________________
\ Estimate the requirement of resources
\ Apply resource levelling to smoothen the resource requirements ___________________
___________________
Types of Resource Constraints ___________________
• People ___________________
• Materials
• Equipment
• Working Capital
Projects may be
• Time-constrained project must be finished by a certain time.
• Resource-constrained project must be finished without
exceeding some specific level of resource usage.
Time-constrained projects
• Focusses on resource utilization.
• Demand for resources may be erratic.
• Demand for resources is balanced by resource loading and
resource leveling techniques.
Resource Loading
• The amount of individual resources an existing schedule
requires during specific time periods.
• Gives general understanding of demands a project makes.
Activity Time Precedence Resource requirement
A 2 - 2
B 3 - 2
C 5 - 4
142
Notes
A (2)
___________________ C (5)
___________________ Project network

B (3)
___________________
___________________
___________________
___________________ A
___________________ B
Gantt Chart
C
___________________
___________________
___________________ Figure 24.1
Day 1 2 3 4
A 2 2 - -
B 2 2 2 -
C 4 4 4 4
Resource requirement 8 8 6 4
5 C
4 B
A
3
Day 1 Day 2 Day 3 Day 4 Day 5
Figure 24.2
Resource Leveling
Resource leveling aims to minimize the period by period variations
in resource loading by shifting tasks within their slack allowances.
Unit 24: Resource Loading and Leveling
143
Day 1 2 3 4 Notes
A 2 2 - - -
___________________
B 2 2 2 - -
___________________
C 4 4 4 4 4
___________________
Resource requirement 8 8 6 4 4
___________________
10
___________________
___________________
8
___________________
___________________
6
C ___________________
4 B ___________________
A
A (2)
C (5)
Project network
B (3)
C Gantt Chart
Figure 24.3
144
Notes Day 1 2 3 4 5
A 2 2 - - -
___________________
B 2 2 2 2 2
___________________
C 4 4 4 4 4
___________________
Resource requirement 8 8 6 6 6
___________________
___________________
7
___________________ 6
C
___________________ 5
B
___________________ 4
A
3
___________________
2
___________________
1
Figure 24.4
145
Unit 25 Notes
Project TTermination
ermination ___________________
___________________
___________________

___________________
\ Understand the types of project termination
___________________
\ Understand the project termination methods
\ Identify issues in project termination ___________________
___________________
A project is said to be terminated when: ___________________

• Work on the substance of the project has ceased (Normal or ___________________
failed project).
• Work has slowed down to the point that further progress is
not possible (premature).
• The project has been indefinitely delayed (Perpetual).
• Resources have been deployed to other projects (Changed
priority).
Ways to close a project:
• Extinction • Addition
• Integration • Starvation
Termination by extinction:
• The project is stopped because it has been successful and
achieved its objectives.
• Output handed over to client.
OR
• The project has been stopped because it has been unsuccessful
and has been superseded.
o All activity on the project substance ceases.
o Property, equipment, and materials of the project are
disbursed.
o Project final report is prepared.
Termination by addition:
• In case of projects for use in the parent organization.
• Institutionalizing the project as a formal part of the parent
organization.
146
• For some time lives in protected status.
Notes
• Project assets are transferred from project to the newly created
___________________ division.
___________________ Termination by integration:

• The property of the project and personnel are distributed among
___________________
the existing elements of the organization.
___________________
• The output becomes a standard part of the operating system.
___________________ Termination by starvation
___________________ • Slow starvation by a budget decrement.
___________________ • Sometimes budget decrements are used to mask project
termination.
___________________
___________________ The Termination Process

___________________
Step 1: Decision
• Based on the degree to which the project meets goals and
objectives set for it.
• Factor scoring or weighted factor scoring or Delphi or a
combination may be used for making a decision.
Information Information Information

system system system
finance marketing production
Information Information Information

system system system
project internal external
environment environment
Criteria
database
Global database
Delphi
database Scoring
model
Termination
rule set
Continue No Termination Uncertain Sensitivity

project decision analysis
Yes
Terminate
project
Figure 25.2
Unit 25: Project Termination
147
The Termination Process Notes
Step 2: Implementation
___________________
• Ensure completion of work including tasks performed by sub-
contractors. ___________________
• Notify the client of project completion; Client must acknowledge ___________________

acceptance of the project.
___________________
• Ensure that documentation is complete.
___________________
• Including the final project report.
___________________
• Clear for final billings and invoices.
___________________
• Redistribute resources including personnel.
___________________
• Ascertain product support requirements.
• Oversee the closing of the project book. ___________________
___________________
149
Unit 26 Notes
Case Study ___________________
___________________
___________________
Alpha Solutions Private Limited – Planning Under
___________________
Time and Resource Constraint
___________________
The managing director of Alpha solutions, Mr. Mehra, was pacing in
___________________
his cabin with a grim face and Anil was sitting uncomfortably in a
chair. Anuj was standing near the door in deep thoughts. ___________________
“Why didn’t you anticipate it before accepting the contract?” Mehra
___________________
blurted out.
___________________
It was only a month back when an order was received from a reputed
new client for software development. It was an opportunity for long- ___________________
term association. Anil had prepared the list of activities and the Gantt
chart for the project. The Gantt chart indicated that the project would
take 15 weeks, as specifically desired by the customer.
Activity Time (In weeks) Predecessors
A 2 -
B 4 A
C 3 A
D 3 -
E 6 B
F 8 C
G 2 D, E, F
D G
E
A
B
F
C
Figure 26.1
“The only resource we require is only one specialist for this type of
software, and that should pose no problem.” Anil had said.
Contd…
150
Notes When the project was being planned, Anil came through the problem.
All the activities required the same specialist, and he could work on
___________________ only two activities at a time. There are periods when three activities
are working together, and that means some activities will have to
___________________ wait. The project will take 17 weeks in place of 15, and the customer
will be lost forever.
___________________
Anil had gone to Mehra with this new discovery to find the possibility
___________________
of requesting customer for extending the time limit.
___________________ “Can we hire an additional specialist?” Mehra asked. In a dim voice,
Anil said, “I am afraid, we cannot find one at this moment.”
___________________
“I really don’t know how to face the customer,” Mehra said with a
___________________
tense face.
___________________
At this point, Anuj said “Sir, I think we can deliver the project within
___________________ schedule even with one specialist.”
___________________
“HOW,” Mehra and Anil both said simultaneously turning their faces
toward the door where Anuj was standing.
Anuj took a piece of paper from the table and explained his plan. Anil
looked unbelievingly at the plan, and Mehra suddenly relaxed. “Anuj
you really deserve a pat on the shoulder, “Mehra said smilingly patting
his shoulder.
QUESTIONS
1. Prepare a resource load table of the project on the basis of given
information.
2. Can the project really be done in 15 days with one specialist?
3. Prepare a plan for allocation of specialist to different activities to
complete the project in 15 days and plot your plan on a Gantt
chart. (Assume that activities can be split).
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Project Management & Contract Administration - Semester 2

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Project Management & Contract Administration - Semester 2

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UPES

CENTRE FOR CONTINUING EDUCATION

Dr. Kamal Bansal Mr. Ashok Sahu

SLM Development Team

Mr. Tarun Batra Mr. Rahul Sharma Mr. Shantanu Trivedi

Dr. Rajesh Gupta

Course Code: MBCQ724D

Version: July 2018

UNIT-1: INTRODUCTION TO PROJECTS

UNIT-2: OVERVIEW OF PROJECT MANAGEMENT

UNIT-3: PROJECT SELECTION NON-NUMERIC MODELS

UNIT-4: PROJECT SELECTION NUMERIC MODELS

UNIT-5: CASE STUDY

Learning Objectives: ___________________

___________________ Hence, project method comprises three major entities.

___________________ Parent Organisation Project Team Customer

Planning Scheduling Evaluation and

Figure 1.2: Stages in the life cycle of a project

Conception: During this stage, the management of the parent

Slow Beginning: The projects typically begin slowly. The ___________________

Slow beginning Quick Momentum Slow finish

Figure 1.3: Project life cycle

Slow Finish: As the project approaches the finish, the various

___________________ Project Objectives

___________________ Performance: The product of a project must perform what it was

Figure 1.4: Project success criteria

Cost: No project can be provided with unlimited resources. Each

A project is successful if it can achieve its performance objectives ___________________

Review Questions ___________________

1. Define a project. How is a project different from conventional ___________________

3. “The tasks involved in a project are independent entities but ___________________

Learning Objectives: ___________________

Aspects of Project Management

Figure 2.1: Aspects of project management

Risk Management: Risk is involved in the project at every stage

Tools and Techniques of Project Management ___________________

Human resource management Procurement management

Conception selection Planning Scheduling Monitoring Control Evaluation Termination

• Idea generation • Project crashing

Figure 2.2: Tools and techniques of project management

Monitoring and control

Project Selection Non-numeric Models ___________________

Learning Objectives: ___________________

Process of Project Selection

Compare projects Meets

Figure 3.1: Project selection process

Evaluation of project ideas: The available screened project ideas

Types of Project Selection Models

___________________ Scoring based: These models compare the projects on a scale, on

Profitability Scoring based Competitive

Playback Present Unweighted Factor Operative Product line

Figure 3.2: Project selection models

Like operating necessity, the model of competitive necessity also

However, note that operating necessity dominates the competitive

Product Line Extension

An FMCG company may initiate a project for installation of the

A manufacturing company initiates a project for establishing a

Comparative benefit model compares many projects in consideration

The technique used for comparative benefit model is Q-Sort.

Q-Sort adopts the following process:

Figure 3.3: Q-Sort Techniques

Project Selection Numeric Models ___________________

Learning Objectives: ___________________