BA-7053 PROJECT MANAGEMENT

UNIT I: INTRODUCTION TO PROJECT MANAGEMENT

Project Management – Definition – Goal - Lifecycles. Project Selection Methods. Project

Portfolio Process – Project Formulation. Project Manager – Roles - Responsibilities and
Selection – Project Teams.

THE DEFINITION OF A “PROJECT”:

The Project Management Institute (PMI) has defined a project as “A temporary endeavor
undertaken to create a unique product or service.”
A Project is a complex, non-routine, one-time effort limited by time, budget, resources and
performance specifications designed to meet customer needs.

Examples:
Construction- Pyramids
Development- Transportation and Information Technology
Combination of both- Space station
Characteristics of Project:
1. A project involves a single, definable purpose, end-item or result, usually specified in
terms of cost, schedule and performance requirements.

2. Every project is unique in that it requires doing something different that was done
previously. A project is a one-time activity, never to be exactly repeated again.
3. Projects are temporary activities. An adhoc organization of personnel, material and
facilities is assembled to accomplish a goal, usually within a scheduled time frame; once
the goal is achieved, the organization is disbanded or reconfigured to begin work on a
new goal.
4. Projects cut across organizational lines because they need the skills and talents from
multiple professions and organizations.
5. Given that a project differs from what was previously done, it also involves unfamiliarity.
It may encompass new technology and for the organization undertaking the project,
possess significant elements of uncertainty and risk.
6. The organization usually has something at stake when doing a project. The activity may
call for special scrutiny or effort because failure would jeopardize the organization or its
goals.
7. A project is the process of working to achieve a goal; during the process, projects pass
through several distinct phases, called the project life cycle.

PROJECT MANAGEMENT:

Definition:
Project management is the aggregation of skills, tools, technology and techniques to the
project activities to achieve specific objective of project.

“Project management is the application of knowledge, skills, tools and techniques to

project activities in order to meet or exceed stakeholder needs and expectations”. ----PMI

Four Phases of Project Management:

 The 4-D can be described as follows:
• Define the project - this is the time when it is determined what the project is about, its reasons
for existence and the intentions that it intends to progress. It is a time to explore the
possibilities, find alternatives to the problems presented;
• Design the process - construct models to show how the needs will be developed, evaluate
these to determine the optimum process for the task and minimize risk;
• Do It? or Deliver the project - carry out the project in line with the models or plans generated
above;
• Develop the project process - improve the products and processes in the light of the
experience gained from the project.

The level of activity is relatively low during the early phases, increases through the doing phase
when the major volume of work is done, and decreases through the development phase.
Outgoings are generally low in the early stages but grow rapidly during the execution phase.
The graph also demonstrates why the develop it phase is so vital - by the time the majority of
the doing phase is completed, the probability is that in excess of 98 per cent of the total project
expenditure will have been incurred.

Hedgehog syndrome:
It refers to organizations failing to get feedback on past projects and what went well or went
wrong with them. Consequently, this results in making the same mistakes again and again
because no learning on past experiences has taken place.
Organizations such as Hewlett-Packard, on the other hand, use previous projects and their
reviews as the starting point for new projects. Their focus on the lessons from both good and
bad experiences means that there is some path for continuous improvement in projects.

The 7-S of Project Management (McKinsey and Co):

Goals of Project Management:

A project is considered successful only if the project goals set are achieved. The project
progress has to be measured against the goals set at the beginning of the project. SMART is an
acronym that stands for Specific, Measurable, Agreed Upon, Realistic and Time bound.

Specific – Project goals need to be well-defined and clear. The project goals must be such that
one can answer questions like 'What is the project objective?”, “Why are we doing the project?”
and “What benefits will the end user get by implementing the project?” clearly. Being specific
means being aware of the goal, requirements for the goal and the steps needed to achieve it.
Measurable – The project goals need to be tangible which means the goals should be
answerable to questions related to quantity or time etc. Any project needs to be monitored on
the basis of certain measurable parameters to determine its progress.
Agreed Upon – The project success criteria and objectives should be defined clearly and agreed
upon by the various stakeholders and key team members.
Realistic – The project goals have to be realistic. They need to be doable. They have to consider
the constraints of time, cost and resources.
Time Bound - The project goals need to have a timeline. It is important to state that a goal will
be achieved within a time limit. This will ensure that tasks and resources are planned such that
the project timeline is not breached. All tasks need to have a deadline which adds an element of
urgency and importance to the task and team members will take up the task with the attitude and
ability required to reach the goal within the deadline.

THE PROJECT LIFE CYCLE:

The project life cycle recognizes that projects have a limited life span and that there are
predictable changes in level of effort and focus over the life of the project. The project life cycle
typically passes sequentially through four stages: Initiation, Planning, Execution,
Monitoring/Control and Closure. The starting point begins the moment the project is given the
go-ahead. Project effort starts slowly, builds to a peak and then declines to delivery of the
project to the customer.

Project Initiation: The first phase in the Project Life Cycle and essentially involves starting up
the project. A project is initiated by defining its purpose and scope, the justification for initiating
it and the solution to be implemented. Recruit a suitably skilled project team, set up a Project
Office and performing an end of Phase Review is needed. The Project Initiation phase involves
the following six key steps:
Project Planning: After defining the project and appointing the project team, it is ready to enter
the detailed Project Planning phase. This involves creating a suite of planning documents to help
guide the team throughout the project delivery. The Planning Phase involves completing the
following 10 key steps:

Project Execution: This is the phase in which the deliverables are physically built and presented
to the customer for acceptance. While each deliverable is being constructed, a suite of
management processes are undertaken to monitor and control the deliverables being output by
the project. These processes include managing time, cost, quality, change, risks, issues, suppliers,
customers and communication. Once all the deliverables have been produced and the customer
has accepted the final solution, the project is ready for closure.
Project Closure:

Project Closure involves releasing the final deliverables to

the customer, handing over project documentation to the
business, terminating supplier contracts, releasing project
resources and communicating project closure to all
stakeholders. The last remaining step is to undertake a
Post Implementation Review to identify the level of project success and note any lessons learned
for future projects.

The Project Life Cycle

Another way of illustrating the unique nature of project work is in terms of the project life cycle.
Some project managers find it useful to use the project life cycle as the cornerstone for managing
projects. The life cycle recognizes that projects have a limited life span and that there are
predictable changes in level of effort and focus over the life of the project. There are a number of
different life-cycle models in project management literature. Many are unique to a specific
industry or type of project. For example, a new software development project may consist of five
phases: definition, design, code, integration/test, and maintenance. A generic cycle is depicted in
Figure 1.1.
The project life cycle typically passes sequentially through four stages: defining, planning,
executing, and delivering. The starting point begins the moment the project is given the go-
ahead. Project effort starts slowly, builds to a peak, and then declines to delivery of the project to
the customer.
1. Defining stage: Specifications of the project are defined; project objectives are established;
teams are formed; major responsibilities are assigned.
2. Planning stage: The level of effort increases, and plans are developed to determine what the
project will entail, when it will be scheduled, whom it will benefit, what quality level should be
maintained, and what the budget will be.

3. Executing stage: A major portion of the project work takes place—both physical and mental.
The physical product is produced (a bridge, a report, a software program). Time, cost, and
specification measures are used for control. Is the project on schedule, on budget, and meeting
specifications? What are the forecasts of each of these measures? What revisions/changes are
necessary?

4. Closing stage: Closing includes three activities: delivering the project product to the
customer, redeploying project resources, and post-project review. Delivery of the project might
include customer training and transferring documents. Redeployment usually involves releasing
project equipment/materials to other projects and finding new assignments for team members.
Post-project reviews include not only assessing performance but also capturing lessons learned.
In practice, the project life cycle is used by some project groups to depict the timing of major
tasks over the life of the project. For example, the design team might plan a major commitment
of resources in the defining stage, while the quality team would expect their major effort to
increase in the latter stages of the project life cycle. Because most organizations have a portfolio
of projects going on concurrently, each at a different stage of each project’s life cycle, careful
planning and management at the organization and project levels are imperative.

The Project Life Cycle

Most projects go through similar stages on the path from origin to completion. We define these
stages, shown in Figure 1-3, as the project’s life cycle. The project is born (its start-up phase) and
a manager is selected, the project team and initial resources are assembled, and the work
program is organized. Then work gets under way and momentum quickly builds. Progress is
made. This continues until the end is in sight. But completing the final tasks seems to take an
inordinate amount of time, partly because there are often a number of parts that must come
together and partly because team members “drag their feet” for various reasons and avoid the
final steps. The pattern of slow-rapid-slow progress toward the project goal is common.

Figure 1-4 shows project effort, usually in terms of person-hours or resources expended per unit
of time (or number of people working on the project) plotted against time, where time is broken
up into the several phases of project life. Minimal effort is required at the beginning, when the
project concept is being developed and subjected to project selection processes. Normally there
is a strong correlation between the life-cycle progress curve of Figure 1-3 and the effort curve of
Figure 1-4 because effort usually results in corresponding progress (although not always).
Activity increases as planning is completed and the real work of the project gets underway. This
rises to a peak and then begins to taper off as the project nears completion, finally ceasing when
evaluation is complete and the project is terminated. While this rise and fall of effort always
occurs, there is no particular pattern that seems to typify all projects, nor any reason for the
slowdown at the end of the project to resemble the build up at its beginning.

PROJECT SELECTION:

Project selection is the process of evaluating proposed projects or groups of projects, and then
choosing to implement some set of them so that the objectives of the parent organization will be
achieved.
Project selection involves evaluating various needs or opportunities and then deciding which of
these should move forward as a project to be implemented.
Ex: A manufacturing firm can use evaluation/selection techniques to choose which machine to
adopt in a part-fabrication process.

Project Selection Steps:

The steps involved in project selection are as follows:
1. Develop a set of criteria against which the opportunity will be evaluated:
These criteria will probably include both quantitative and qualitative factors.
Ex: If a pharmaceutical company is considering opportunities involving the development
and introduction of several new products, it might evaluate each opportunity against the
following criteria:
 Increase in market share
 Establishment of new markets
 Investment required
  Estimated manufacturing cost per unit
 Technology development required
 Return on investment
Opportunities and needs could be very different and all compete for a company’s resources. One
may be to put a new roof on the factory, another to implement a new information system and a
third to develop a new product to replace one that is outdated and for which sales are rapidly
declining.
2. List assumptions that will be used as the basis for each opportunity:
Ex: If one opportunity is to build an on-site day care center for children and elderly
relatives of company employees, one assumption might be that the company would be
able to obtain a bank loan to build such a center.
3. Gather data and information for each opportunity to help ensure an intelligent
decision regarding project selection:
Ex: It may be necessary to gather some preliminary financial estimates associated with
each opportunity, such as estimated revenue projections and implementation and
operating costs. Such financial or economic models can include methodologies used to
calculate simple payback, discounted cash flow, net present value, internal rate of return,
return on investment, or life cycle costs associated with each opportunity being
considered. It is also necessary to obtain other information regarding each opportunity.
Ex: In the case of building an on-site day care center, it may be worthwhile to survey
employees to determine how many employees would use the day care center for children
or elderly relatives, and how often (all day, second shift, before or after school), ages of
children, the health care needs of elderly relatives.
4. Evaluate each opportunity against the criteria:
Once all the data and information has been collected, analyzed and summarized for each
opportunity, it should be given to all the individuals who are responsible for performing
the evaluation. It is beneficial to have several individuals involved in the evaluation and
selection decision in order to get various viewpoints. There may be someone from
marketing who knows consumer preferences, someone from finance who knows costs
and the company’s financial condition etc.

Criteria for Project Selection Models:

When a firm chooses a project selection model, the following criteria, based on Souder (1973),
are most important.
 Realism: The model should reflect the reality of the firm’s decision situation, especially
the multiple objectives of both the firm and its managers, bearing in mind that without a
common measurement system, direct comparison of different projects is impossible. The
model should also take into account the realities of the firm’s limitations on facilities,
capital, personnel, and so forth, and include factors that reflect project technical and
market risks: performance, cost, time, customer rejection, and implementation.
 Capability: The model should be sophisticated enough to deal with the relevant factors:
multiple time periods, situations both internal and external to the project (e.g., strikes,
interest rate changes), and so on.
 Flexibility: The model should give valid results within the range of conditions that the
firm might experience. It should be easy to modify in response to changes in the firm’s
 environment; for example, tax law changes, new technological advancements that alter
risk levels, and, above all, organizational goal changes.
 Ease of use: The model should be reasonably convenient, not take a long time to execute,
and be easy to use and understand. It should not require special interpretation, data that
are difficult to acquire, excessive personnel, or unavailable equipment.
 Cost: Data-gathering and modeling costs should be low relative to the cost of the project
and less than the potential benefits of the project. All costs should be considered,
including the costs of data management and of running the model.
 Easy computerization: It should be easy and convenient to gather and store the
information in a computer database, and to manipulate data in the model through use of a
widely available, standard computer package such as Excel.

PROJECT EVALUATION FACTORS:

TYPES OF PROJECT SELECTION MODELS:

There are two basic types of selection models: Numeric and Non-numeric models.
Non-numeric models: Does not use numbers as input for decision-making.

1. The Sacred Cow: In this case the project is suggested by a senior or powerful official
in the organization. The project is sacred in the sense that it will be maintained until
successfully concluded, or until the boss, personally, recognizes the idea as a failure and
 terminates it. Element enjoys acknowledge senior manager ‘protection’, whose
endorsement provides the trigger to create the project.
Sacred= will be maintained until successfully concluded or until the boss terminates it
Negatives= Self-interest, subjective decision making and personal risk
Senior management patronage does help.

2. The Operating Necessity: If a flood is threatening the plant, a project to build a

protective dike does not require much formal evaluation, in an example of this scenario.
If the project is required in order to keeps the system operating and if the system worth
saving the estimated cost of the project, project cost will be examined to make sure they
are kept as low as is consistent with project success, nut the project will be funded. Crisis,
maintaining and operational functionality are more important than cost-benefit exercise.
Redundant systems, lack of support for technology and or impending natural disaster will
push projects to top of the pile without proper evaluation. With such driving forces, there
is room for distortion and ruched decision making with a lack of structured checks and
balances.

3. The Competitive Necessity: Although the planning process for the project was quite
sophisticated, the decision to undertake the project was based on a desire to maintain the
company’s competitive position in the market. Few businesses willing to sacrifice Market
share after great cost and time spent. Competitive threat, a quick and decisive response
can bypass more independent evaluation processes. Response is entirely reactive, makes
project difficult to align with the strategic goals of the organization. Project’s
organization may spend all its project investment on playing ‘competitive catch-up’.

4. Product Line Extension: In this case, a project to develop and distribute new products
would be judge on the degree to which it fits the firm’s existing product line, fills a gap,
strengthens a weak line or extends the line in a new, desirable direction. Products and
services appeal ultimately starts to diminish over time. Marketing try “product
extensions” “product modifications” to reposition the product or service favorably with
the consumer. These decisions could be made intuitively without requiring too much
analysis. Supermarket shelves, television and other media channels are full of product
line extensions.

5. Comparative Benefit Model: For this situation, assume that an organization has many
projects to consider, perhaps several dozen. Senior management would like to select a
subset of the projects that would most benefit the firm, but the projects do not seem to be
easily comparable. For example, some projects concern potential new products, some
require the conduct of a research and development project for a government agency,
some concern changes in production methods, others concern computerization of certain
records, and still others cover a variety of subjects not easily categorized (e.g., a proposal
to create a daycare center for employees with small children). The organization has no
formal method of selecting projects, but members of the Selection Committee think that
some projects will benefit the firm more than others, even if they have no precise way to
define or measure “benefit.” Senior management of the funding organization then
examines all projects with positive recommendations and attempts to construct a portfolio
that best fits the organization’s aims and its budget.

Q-Sort Model: According to their relative merits, the projects are first divided into three
groups which are Good, Fair and Poor. The main group is further subdivided into the two
types of fair-minus and fair-plus if any group has the has more than eight members. The
projects within each type are ranked from best to worst when all types have eight or
fewer members. Again relative merit provides the basis for determining the order.
Specific criterion is used by the rater to rank each project or he may merely use general
entire judgment.
Numeric Models:
Numeric models are classified into two heads these are namely:
 Profitability
 Scoring
Profitability:
A large majority of all firms using project evaluation and selection models use profitability
as the sole measure of acceptability.

1. Payback Period: The payback period for a project is the initial fixed investment in
the project divided by the estimated annual net cash inflows from the project. The
ratio of these quantities is the number of years required for the project to repay its
initial fixed investment. For example suppose a project costs $200,000 to operate and
has annual net cash inflows of $40,000. Then
Payback Period = $200,000 / $40,000v = 5 Years
This method suppose that the cash inflows will die hard to the minimum extent to pay
back the investment, and any cash inflows outside the payback period are ignored.
This method also functions as inadequate representative for the risk. The company
faces less risk when it recovers the initial investment fast.

2. Average Rate of Return: The ratio of the average annual profit (either after or
before taxes) to the average or initial investment in the project is referred to as the
average rate of return. In the above mentioned example, suppose the average annual
profits are $30,000

Average Rate of Return = $30,000 / $200,000 = 0.15

None of the two above mentioned evaluation methods are effective for project
selection, though payback period is frequently used and exhibits reasonable value for
decisions related to cash budgeting. These two models have major advantage in the
shape of simplicity, but none of them cover the important concept of time value of
money.
3. Discounted Cash Flow: Also referred to as the net present value (NPV) method, the
discounted cash flow method determines the net present value of all cash flows by
discounting them by the required rate of return as follows:

The project is acceptable if the sum of the net present values of all estimated cash
flows over the life of the project is positive. A simple example will suffice. Using our
$100,000 investment with a net cash inflow of $25,000 per year for a period of eight
years, a required rate of return of 15 percent, and an inflation rate of 3 percent per
year,

4. Internal Rate of Return If we have a set of expected cash inflows and cash outflows,
the internal rate of return is the discount rate that equates the present values of the two
sets of flows. If At is an expected cash outflow in the period t and Rt is the expected
inflow for the period t, the internal rate of return is the value of k that satisfies the
following equation.

The value of k is found by trial and error.

 5. Profitability Index Also known as the benefit–cost ratio, the profitability index is the
net present value of all future expected cash flows divided by the initial cash
investment. If this ratio is greater than 1.0, the project may be accepted.

Advantages:
 The undiscounted models are simple to use and understand.
 All use readily available accounting data to determine the cash flows.
 Model output is in terms familiar to business decision makers.
 With a few exceptions, model output is on an “absolute” profit/profitability
scale and allows “absolute” go/no-go decisions.
 Some profit models can be amended to account for project risk.

Disadvantages:
 These models ignore all nonmonetary factors except risk.
 Models that do not include discounting ignore the timing of the cash flows and the
time–value of money.
 Models that reduce cash flows to their present value are strongly biased toward the short
run.
 Payback-type models ignore cash flows beyond the payback period.
 The internal rate of return model can result in multiple solutions.
 All are sensitive to errors in the input data for the early years of the project.
 All discounting models are nonlinear, and the effects of changes (or errors) in the
variables or parameters are generally not obvious to most decision makers.
 All these models depend for input on a determination of cash flows, but it is not
clear exactly how the concept of cash flow is properly defined for the purpose of
evaluating projects.

Scoring:
In an attempt to overcome some of the disadvantages of profitability models, particularly their
focus on a single decision criterion, a number of evaluation/selection models that use multiple
criteria to evaluate a project have been developed.

1. Unweighted 0–1 Factor Model A set of relevant factors is selected by management and
then usually listed in a preprinted form. One or more raters score the project on each
factor, depending on whether or not it qualifies for an individual criterion. The raters are
chosen by senior managers, for the most part from the rolls of senior management. The
criteria for choice are (1) a clear understanding of organizational goals and (2) a good
knowledge of the firm’s potential project portfolio. The columns of Figure 2-2 are
summed and those projects with a sufficient number of qualifying factors may be
selected. The main advantage of such a model is that it uses several criteria in the
decision process. The major disadvantages are that it assumes all criteria are of equal
importance and it allows for no gradation of the degree to which a specific project meets
the various criteria.
2. Unweighted Factor Scoring Model The second disadvantage of the 0–1 factor model can be
dealt with by constructing a simple linear measure of the degree to which the project being
evaluated meets each of the criteria contained in the list. The x marks in Figure 2-2 would be
replaced by numbers. Often a five-point scale is used, where 5 is very good, 4 is good, 3 is fair, 2
is poor, 1 is very poor. (Three-, seven-, and 10-point scales are also common.) The second
column of Figure 2-2 would not be needed. The column of scores is summed, and those projects
with a total score exceeding some critical value are selected. A variant of this selection process
might choose the highest-scoring projects (still assuming they are all above some critical score)
until the estimated costs of the set of projects equaled the resource limit. However, the criticism
that the criteria are all assumed to be of equal importance still holds.
Ex: Using the criterion just mentioned, “estimated annual profits in dollars,” we might construct
the following scale:
Score Performance Level
5 Above $1,100,000
4 $750,001 to $1,100,000
3 $500,001 to $750,000
2 $200,000 to $500,000
1 Less than $200,000
As suggested, these ranges might have been chosen so that about 20 percent of the projects
considered for funding would fall into each of the five ranges.
3. Weighted Factor Scoring Model: When numeric weights reflecting the relative importance of
each individual factor are added, we have a weighted factor scoring model. In general, it takes
the form

where
Si _ the total score of the ith project,
sij _ the score of the ith project on the jth criterion, and
wj _ the weight of the jth criterion.

Advantages:
 These models allow multiple criteria to be used for evaluation and decision making,
including profit/profitability models and both tangible and intangible criteria.
 They are structurally simple and therefore easy to understand and use.
 They are a direct reflection of managerial policy.
 They are easily altered to accommodate changes in the environment or managerial policy.
 Weighted scoring models allow for the fact that some criteria are more important than
others.
 These models allow easy sensitivity analysis. The trade-offs between the several criteria
are readily observable.

Disadvantages:
 The output of a scoring model is strictly a relative measure. Project scores do not
represent the value or “utility” associated with a project and thus do not directly indicate
whether or not the project should be supported.
 In general, scoring models are linear in form and the elements of such models are
assumed to be independent.
 The ease of use of these models is conducive to the inclusion of a large number of
criteria, most of which have such small weights that they have little impact on the total
project score.
 Unweighted scoring models assume all criteria are of equal importance, which is almost
certainly contrary to fact.
 To the extent that profit/profitability is included as an element in the scoring model, this
element has the advantages and disadvantages noted earlier for the profitability models
themselves.
 PROJECT PORTFOLIO PROCESS (PPP):
Project portfolio is a term that refers to an organization’s group of projects and the process in
which they are selected and managed. The project portfolio is strategically selected to advance
the corporation’s organizational goals. The PPP attempts to link the organization’s projects
directly to the goals and strategy of the organization.

Purpose of PPP:
 To identify proposed projects that are not really projects and should be handled through
other processes.
 To prioritize the list of available projects.
 To intentionally limit the number of overall projects being managed so the important
projects get the resources and attention they need.
 To identify projects that best fi t the organization’s goals and strategy.
 To identify projects that support multiple organizational goals and cross-reinforce other
important projects.
 To eliminate projects that incurs excessive risk and/or cost.
 To eliminate projects that bypassed a formal selection process and may not provide
benefits corresponding to their risks and/or costs.
 To keep from overloading the organization’s resource availability.
 To balance the resources with the needs.
 To balance short-, medium-, and long-term returns.

STEPS INVOLVED IN PROJECT PORTFOLIO PROCESS:

Step 1: Establish a Project Council:

The main purpose of the project council is to establish and articulate a strategic direction for
those projects spanning internal or external boundaries of the organization, such as cross-
departmental or joint venture. Thus, senior managers must play a major role in this council.
Without the commitment of senior management, the PPP will be incapable of achieving its main
objectives. The council will also be responsible for allocating funds to those projects that support
the organization’s goals and controlling the allocation of resources and skills to the projects. In
addition to senior management, others who should be members of the project council are:
• the project managers of major projects;
• the head of the Project Management Office, if one exists;
• particularly relevant general managers;
• those who can identify key opportunities and risks facing the organization; and
• anyone who can derail the progress of the PPP later on in the process.

Step 2: Identify Project Categories and Criteria:

The first task in this step is to list the goals of each existing and proposed project: What is the
mission, or purpose, of this project? Relating these to the organization’s goals and strategies
should allow the council to identify a variety of categories that are important to achieving the
organization’s goals. Based on the extent of product change and process change, Wheelwright et
al. identified four separate categories of projects:
Derivative projects: These are projects with objectives or deliverables that are only
incrementally different in both product and process from existing offerings. They are often meant
to replace current offerings or add an extension to current offerings (lower priced version,
upscale version).
Platform projects: The planned outputs of these projects represent major departures from
existing offerings in terms of either the product/service itself or the process used to make and
deliver it, or both. As such, they become “platforms” for the next generation of organizational
offerings, such as a new model of automobile or a new type of insurance plan. They thus form
the basis for follow-on derivative projects that attempt to extend the platform in various
dimensions.
Breakthrough projects: Breakthrough projects typically involve a newer technology than
platform projects. It may be a “disruptive” technology that is known to the industry or something
proprietary that the organization has been developing over time. Examples here include the use
of fiber-optic cables for data transmission, cash-balance pension plans, and hybrid gasoline-
electric automobiles.
R&D projects: These projects are “blue-sky,” visionary endeavors oriented toward using newly
developed technologies, or existing technologies in a new manner. They may also be for
acquiring new knowledge, or developing new technologies themselves.

The aggregate project plan can be used for many purposes:

• To view the mix of projects within each illustrated aspect (shape)
• To analyze and adjust the mix of projects within each category or aspect
• To assess the resource demands on the organization, indicated by the size, timing, and number
of projects shown
• To identify and adjust the gaps in the categories, aspects, sizes, and timing of the projects
• To identify potential career paths for developing project managers, such as team member of a
derivative project, then team member of a platform project, manager of a derivative project,
member of a breakthrough project, and so on.
Next, the council should develop separate criteria and cost ranges for each category that
determine those projects that will support the organizational strategy and goals. Example criteria
might include alignment with the organization’s goals/strategy, riskiness of the project, financial
return, probability of success, likelihood of achieving a breakthrough in a critical offering, appeal
to a large (or new) market, impact on customer satisfaction, contribution to employee
development, knowledge acquisition, and availability of staff/resources.

Step 3: Collect Project Data:

For each existing and proposed project, assemble the data appropriate to that category’s criteria.
Challenge and try to verify all data; get other people involved in validating the data, perhaps
even customers (e.g., market benefit). Include the timing, both date and duration, for expected
benefits and resource needs. Use the project plan, a schedule of project activities, past
experience, expert opinion, whatever is available to get a good estimate of the data. Then
document any assumptions made so that they can be checked in the future as the project
progresses. Identify any projects that can be deferred to a later time period, those that must
precede or follow other projects, those that support other projects or should be done in
conjunction with them, those that can be outsourced, and other such special aspects of the
projects. Next, use the criteria score limits to screen out the weaker projects: Have costs on
existing projects escalated beyond the project’s expected benefits? Has the benefit of a project
lessened because the organization’s goals have changed? Does a competitor’s new entry obviate
the advantages of a project? Also, screen in any projects that do not require deliberation, such as
projects mandated by regulations or laws, projects that are operating or competitive necessities,
projects required for environmental or personnel reasons, and so on. The fewer projects that need
to be compared and analyzed, the easier the work of the council.

Step 4: Assess Resource Availability:

Assess the availability of both internal and external resources, by type, department, and timing.
Note that labor availability should be estimated conservatively, leaving time for vacations,
personal needs, illness, holidays, and most important, regular functional (non project) work.
Timing is particularly important, since project resource needs by type typically vary up to 100
percent over the life cycle of projects. Eventually, the council will be trying to balance aggregate
project resource needs over future periods with resource availabilities so timing is as important
as the amount of maximum demand and availability.

Step 5: Reduce the Project and Criteria Set:

Multiple screens are employed to try to narrow down the number of competing projects. The first
screen is each project’s support of the organization’s goals. Other possible screens might be
criteria such as:
• Whether the required competence exists in the organization
• Whether there is a market for the offering
• How profitable the offering is likely to be
• How risky the project is
• If there is a potential partner to help with the project
• If the right resources are available at the right times
• If the project is a good technological/knowledge fi t with the organization
• If the project uses the organization’s strengths, or depends on its weaknesses
• If the project is synergistic with other important projects
• If the project is dominated by another existing or proposed project
• If the project has slipped in its desirability since the last evaluation

One way to evaluate the dominance of some projects over others, and at the same time eliminate
nondifferentiating criteria, is by comparing the coefficients of variation of each of the criteria
across the projects. The result of this step may involve canceling some ongoing projects or
replacing them with new, more promising projects.

Step 6: Prioritize the Projects within Categories:

Apply the scores and criterion weights to rank the projects within each category. It is acceptable
to hold some hard-to-measure criteria out for subjective evaluation, such as riskiness, or
development of new knowledge. Subjective evaluations can be translated from verbal to numeric
terms. Reconsider the projects in terms of their benefits first and their resource costs second. The
council has to summarize the “returns” from the projects to the organization. For example, R &
D projects will not have the expected monetary return of derivative projects; yet it would be
foolish to eliminate them simply because they do not measure up on this (irrelevant, for this
category) criterion.

Step 7: Select the Projects to Be Funded and Held in Reserve:

The first task in this step is an important one: determining the mix of projects across the various
categories (and aspects, if used) and time periods. Overall, the focus should be on committing to
fewer projects but with sufficient funding to allow project completion. Document why late
projects were delayed and why some, if any, were defunded. One special type of delayed project
mentioned earlier is sometimes called an “out-plan” project (in contrast to the selected “in-plan”
projects) Out plan projects are those that appear promising but are awaiting further investigation
before a final decision is made about their funding, which could occur in the next PPP cycle or
sooner, if they warrant the use of some of the 10–15 percent funding holdout. The result of this
step (and most of the project portfolio process) is illustrated in the Plan of Record. the mix across
categories is listed, the priorities and resource needs of each project are given, the timing
(schedule) of each project over the PPP cycle (is shown (to match resource availability), the out-
plan projects, if any, are shown, and the total resource needs and availabilities are listed.

Step 8: Implement the Process:

The first task in this final step is to make the results of the PPP widely known, including the
documented reasons for project cancellations, deferrals, and non-selection as was mentioned
earlier. Top management must now make their commitment to this project portfolio process
totally clear by supporting the process and the results. This may require a PPP champion near the
top of the organization. Senior management must fully fund the selected projects. Finally, the
process should be flexible and improved continuously. Instinct may suggest ways that the
process may be altered to better match the competitive environment, or to reflect more closely
the organization’s goals. The process should be changed when it is found appropriate to do so,
including categories, criteria, steps, the order of tasks, and so on.

PROJECT FORMULATION:

Project formulation is a concise, exact statement of a project to set the boundaries or limits of
work to be performed by the project.
Project formulation can be defined as one of the stages in the lifecycle of a project. The
formulation stage is also called initiation, conceptualization, definition, pre-project.
This stage aims to:
 Carefully identify and weight various components of project work.
 Analyze project feasibility and cost-effectiveness.
 Examine and approve project inputs and outputs.
 Identify stakeholders and their involvement and contribution.
 Define benefits and expectation.
 Estimate resources needed.
 Perform a preliminary analysis of risks.
 Make an outline of project schedule.

When all these steps are done, the stage results in developing a formulation document that
defines and approves a proposed project. This document is to be submitted to the sponsor for
review and signature. Once it is signed, the project is to be provided with necessary funds.

PROJECT MANAGER:
A project manager is the person responsible for leading a project from its inception to execution.
This includes planning, execution and managing the people, resources and scope of the project.
Project managers must have the discipline to create clear and attainable objectives and to see
them through to successful completion. The project manager has full responsibility and authority
to complete the assigned project.

Roles of a Project Manager:

The manager is responsible for developing, in conjunction with the project sponsor, a definition
of the project. The Project Manager then ensures that the project is delivered on time, to budget
and to the required quality standard (within agreed specifications). She/he ensures the project is
effectively resourced and manages relationships with a wide range of groups (including all
project contributors). The Project Manager is also responsible for managing the work of
consultants, allocating and utilizing resources in an efficient manner and maintaining a co-
operative, motivated and successful team.

Project Manager’s Responsibilities:

The PM’s responsibilities are broad and fall primarily into three separate areas: responsibility to
the parent organization, responsibility to the project and the client, and responsibility to the
members of the project team.
Responsibilities to the firm itself include proper conservation of resources, timely and accurate
project communications, and the careful, competent management of the project. It is very
important to keep senior management of the parent organization fully informed about the
project’s status, cost, timing, and prospects. Senior managers should be warned about likely
future problems. The PM should note the chances of running over budget or being late, as well as
methods available to reduce the likelihood of these dread events. Reports must be accurate and
timely if the PM is to maintain credibility, protect the parent firm from high risk, and allow
senior management to intercede where needed. Above all, the PM must never allow senior
management to be surprised!
The PM’s responsibility to the project and client is met by ensuring that the integrity of the
project is preserved in spite of the conflicting demands made by the many parties who have
legitimate interests in the project. The PM is in the middle of this turmoil. The PM must sort out
understanding from misunderstanding, soothe ruffled feathers, balance petty rivalries, and cater
to the demands of the client. One should, of course, remember that none of these strenuous
activities relieves the PM of the responsibility of keeping the project on time, within budget, and
up to specifications.
The project manager’s responsibilities to members of the project team are dictated by the
finite nature of the project itself and the specialized nature of the team. Because the project is, by
definition, a temporary entity and must come to an end, the PM must be concerned with the
future of the people who serve on the team. If the PM does not get involved in helping project
workers with the transition back to their functional homes or to new projects, then as the project
nears completion, project workers will pay more and more attention to protecting their own
future careers and less to completing the project on time.

Responsibilities of the Project Manager:

The project manager has primary responsibility for providing leadership in planning, organizing, and
controlling the work effort to accomplish the project objective. The project manager provides the
leadership to the project team to accomplish the project objective. The project manager
coordinates the activities of the various team members to ensure that they perform the right tasks
at the proper time, as a cohesive group.

Planning:
First, the project manager clearly defines the project objective and reaches agreement with the
customer on this objective. The manager then communicates this objective to the project team in
such a manner as to create a vision of what will constitute successful accomplishment of the
objective. The project manager spearheads development of a plan to achieve the project
objective. By involving the project team in developing this plan, the project manager ensures a
more comprehensive plan than he or she could develop alone. Furthermore, such participation
gains the commitment of the team to achieve the plan. The project manager reviews the plan
with the customer to gain endorsement and then sets up a project management information
system—either manual or computerized—for comparing actual progress to planned progress. It’s
important that this system be explained to the project team so that the team can use it properly to
manage the project.

Organizing:
Organizing involves securing the appropriate resources to perform the work. First, the project
manager must decide which tasks should be done in house and which tasks should be done by
subcontractors or consultants. For tasks that will be carried out in house, the project manager
gains a commitment from the specific people who will work on the project. For tasks that will be
performed by subcontractors, the project manager clearly defines the work scope and
deliverables and negotiates a contract with each subcontractor. The project manager also assigns
responsibility and delegates authority to specific individuals or subcontractors for the various
tasks, with the understanding that they will be accountable for the accomplishment of their tasks
within the assigned budget and schedule. For large projects involving many individuals, the
project manager may designate leaders for specific groups of tasks. Finally, and most important,
the task of organizing involves creating an environment in which the individuals are highly
motivated to work together as a project team.

Controlling:
To control the project, the project manager implements a project management information
system designed to track actual progress and compare it with planned progress. Project team
members monitor the progress of their assigned tasks and regularly provide data on progress,
schedule, and costs. These data are supplemented by regular project review meetings. If actual
progress falls behind planned progress or unexpected events occur, the project manager takes
immediate action. He or she obtains input and advice from team members regarding appropriate
corrective action and how to replan those parts of the project. It’s important that problems, and
even potential problems, be identified early and action taken.
The project manager plays the leadership role in planning, organizing, and controlling the project
but does not try to do it alone. She or he involves the project team in these functions to gain their
commitment to successful completion of the project.
SKILLS OF THE PROJECT MANAGER:

Effective project managers have strong leadership ability, the ability to develop people, excellent
communication skills, good interpersonal skills, the ability to handle stress, problem solving
skills, and time management skills.

Leadership Ability:
Leadership is getting things done through others; the project manager achieves results through
the project team. Project leadership involves inspiring the people assigned to the project to work
as a team to implement the plan and achieve the project objective successfully. Effective project
managers have a ‘‘can do’’ attitude—a desire to achieve and overcome obstacles. They thrive on
challenges and getting things done. They focus on ways to get the job done rather than on
reasons why it can’t be done. A good project manager is not deterred by barriers or excuses. She
or he has self-confidence and exhibits confidence in the project team members.

Ability to Develop People:

The effective project manager has a commitment to the training and development of people
working on the project. He or she uses the project as an opportunity to add value to each person’s
experience base so that all members of the project team are more knowledgeable and competent
at the end of the project than when they started it. One way of encouraging such activities is to
talk about the importance of self-development at project team meetings. Another way is to meet
with project team members individually at the start of their project assignments and encourage
them to take advantage of their assignments to expand their knowledge and skills. A capable
project manager provides opportunities for learning and development by encouraging individuals
to assume the initiative, take risks, and make decisions. Rather than create a fear of failure, the
manager acknowledges that mistakes are part of the learning and growth experience. A final way
in which the project manager can develop people is by having them attend formal training
sessions.

Communication Skills:
Project managers must be good communicators. They need to communicate regularly with the
project team, as well as with any subcontractors, the customer, and their own company’s upper
management. Effective and frequent communication is crucial for keeping the project moving,
identifying potential problems, soliciting suggestions to improve project performance, keeping
abreast of customer satisfaction, and avoiding surprises. A high level of communication is
especially important early in the project to build a good working relationship with the project
team and to establish clear expectations with the customer. Communication by project managers
needs to be timely, honest, and unambiguous. Effective communication establishes credibility
and builds trust. The project manager should create an atmosphere that fosters timely and open
communication without any fear of reprisal, and he or she must accept differing viewpoints.

Interpersonal Skills:
These skills depend on good oral and written communication skills. Good interpersonal skills
enable a project manager to empathize with individuals when special circumstances arise. A
project manager needs good interpersonal skills to try to influence the thinking and actions of
others. Throughout the project, the project manager will have to persuade and negotiate with the
customer, the project team, and the company’s upper management. A project manager also needs
good interpersonal skills to deal with disagreement or divisiveness among team members. Such
situations can require delicate handling on the project manager’s part in order to mediate a
resolution in which no one loses face and the project work is not affected.

Ability to Handle Stress:

Project managers need to be able to handle the stress that can arise from work situations. Stress is
likely to be high when a project is in jeopardy of not meeting its objective because of a cost
overrun, a schedule delay, or technical problems with the equipment or system; when changes in
scope are requested by the customer; or when conflict arises within the project team regarding
the most appropriate solution to a problem. Project activity can get both tense and intense at
times. The project manager cannot panic; she or he has to remain unruffled. The project manager
can improve her or his ability to handle stress by keeping physically fit through regular exercise
and good nutrition. The project manager also can organize stress relief activities for the project
team, such as a softball game, golf outing, or hiking trip.

Problem-Solving Skills:
A project manager needs to be a good problem solver. Early identification of a problem will
allow more time to develop a well-thought-out solution. Good problem identification requires a
timely and accurate data-driven information system; open and timely communication among the
project team, the subcontractors, and the customer; and some ‘‘gut feelings’’ based on
experience. The project manager should encourage project team members to identify problems
early and solve them on their own. The project team needs to be self-directed in solving
problems and not wait for or depend on the project manager to get them started.

Time Management Skills:

Good project managers manage their time well. Projects require a lot of energy because they
involve many concurrent activities and unexpected events. To make optimal use of the time
available, project managers need to have self-discipline, be able to prioritize, and show a
willingness to delegate.

SELECTING THE PROJECT MANAGER:

The following is a list of some of the most popular attributes, skills, and qualities that have been
sought when selecting project managers:
• A strong technical background.
• A hard-nosed manager.
• A mature individual.
• Someone who is currently available.
• Someone on good terms with senior executives.
• A person who can keep the project team happy.
• One who has worked in several different departments.
• A person who can walk on (or part) the waters.

PROJECT TEAMS:
A project team is a group of individuals working interdependently to achieve the project
objective.
Stages of Team Development and Growth:
B. W. Tuckman has defined four stages of team development: forming, storming, norming and
performing. In 1977, Tuckman, jointly with Mary Ann Jensen, added a fifth stage to the 4 stages,
adjourning.

Forming: During this initial stage the members get acquainted with each other and understand
the scope of the project. They begin to establish ground rules by trying to find out what
behaviors are acceptable with respect to both the project (what role they will play, what
performance expectations are) and interpersonal relations (who’s really in charge). This stage is
completed once members begin to think of themselves as part of a group.

Storming: As the name suggests, this stage is marked by a high degree of internal conflict.
Members accept that they are part of a project group but resist the constraints that the project and
group put on their individuality. There is conflict over who will control the group and how
decisions will be made. As these conflicts are resolved, the project manager’s leadership
becomes accepted, and the group moves to the next stage.

Norming: The third stage is one in which close relationships develop and the group
demonstrates cohesiveness. Feelings of camaraderie and shared responsibility for the project are
heightened. The norming phase is complete when the group structure solidifies and the group
establishes a common set of expectations about how members should work together.

Performing: The team operating structure at this point is fully functional and accepted. Group
energy has moved from getting to know each other and how the group will work together to
accomplishing the project goals.
Adjourning: During this stage, the team prepares for its own disbandment. High performance is
no longer a top priority. Instead attention is devoted to wrapping up the project. Responses of
members vary in this stage. Some members are upbeat, basking in the project team’s
accomplishments. Others may be depressed over loss of camaraderie and friendships gained
during the project’s life.

The Effective Project Team:

A project team is a group of interdependent individuals working cooperatively to achieve the
project objective.

Characteristics associated with effective project teams include:

• a clear understanding of the project objective
• clear expectations of each person’s role and responsibilities
• a results orientation
• a high degree of cooperation and collaboration
• a high level of trust
Barriers to Team Effectiveness:
 Unclear Goals.
 Unclear definition of roles and responsibilities.
 Lack of project structure.
 Lack of Commitment.
 Poor Communication.
 Poor Leadership.
 Turnover of project team members.
 Dysfunctional behavior.

Types of Project teams:

Functional organization
Functional organization organizations are those that are subdivided into functional units, i.e.
marketing unit, finance unit, HR unit etc. For Functionally organization projects, the project is
assigned to the Functional unit that has the most interest in ensuing its success or can be most
helpful in implementing it.

Advantages and disadvantages of projects in Functional organization

 There is maximum flexibility in the use of staff.
 Individuals experts can be utilized by many different projects.
 Specialists in the division can be grouped to share knowledge and experience.
 The Functional division also serves as a base of technological continuity when individual
choose to leave the project and even the parent firm.
 The Functional division contains the normal path of advancement for individuals whose
expertise is in the Functional area.
Disadvantages:

 A primary disadvantage is this arrangement is that that the client is not the focus of
activity and concern.
 The functional division tends to be oriented towards the activities particularly to its
function.
 Occasionally in Functionally organized projects, no individual is given full responsibility
for the project.
 The same reasons that lead to lack of coordinated efforts tends to make response to client
needs slow and arduous.
 There is a tendency to sub optimize the project.
 The motivation of the people assigned to the project tends to be weak Such an
organizational arrangement does not facilitate holistic approach.
 Cross-communication and sharing of knowledge is slow and difficult to its best.

Pure Project Organization

An organization in which the project is separated from the rest of the parent system. It becomes a
self-contained unit with its own technical staff, its administration, tied to the parent firm by the
tenuous strands of periodic progress reports and oversight. Some parent organizations prescribe
administrative, financial, personnel and control procedures in detail. Others allow the project
total freedom within the final accountability.

Advantages and disadvantages of the Pure Project Organization.

The project manager has full line authority over the project
 All members of the project work force are directly responsible to the PM.
 When the project is removed from the functional division, the lines of communication are
shortened.
 When there are several successive projects of a similar kind, the pure project organization
can manipulate a more or less permanent cadre of experts who develop considerable skill
in specific technologies.
 The project team that has a strong and separate identity of its own tends to develop a high
level of commitment from its members.
 Because authority is centralized, the ability to make swift decisions is greatly enhanced.
 The entire project organization can react more rapidly to the requirements of the client
and the needs of senior management.
 Unity of command exists.
 Pure project organization are structurally simple and flexible, which makes them
relatively easy to understand and to implement. The organizational structure tends to
support a holistic approach to the project.
Disadvantages:

 When the parent organization takes on several projects, it is common for each on to be
fully staffed.
 In fact, the needs to ensure access to technical knowledge and skills result in an attempt
by the Pm to stockpile equipment and technical assistance in order to certain that it will
be available when needed.
 Though individuals Engaged with project develop considerable depth in the technology
of the project, they tend to fall behind in other areas of their technical expertise Pure
project group seems to foster inconsistency in the way in which policies and procedures
are carried out.
 In pure project organizations, the project takes on a life of its own.
 Another symptoms of projectitis is the worry about life after the project ends.

The Matrix Organization

The matrix organization is the combination of the 2: it is pure project organization overlaid on
the functional divisions of the parent firm. A matrix organization can take on a wide variety of
specific forms, depending on which of the 2 extremes ( functional or pure project). The strong
matrix resembles the pure project organization The weak matrix resemble functional
organization. Balanced matrix lies in the middle of the 2 extremes. The matrix is not separated
from its parent organization In matrix organization the Pm controls when and what these people
will do, while functional managers control who will be assigned to the project and what
technology will be used.

ADVANTAGES OF MATRIX

 The project is the point of emphasis the PM, takes responsibility for managing the
project.
 Because the project organization is overlaid on the functional divisions, temporarily
drawing labor and talent from them, the project has reasonable access to the entire
reservoir of technology in all functional divisions.
 There is less anxiety about what happens when the project is completed than is typical of
the pure project organization.
 Response to clients needs is as rapid as in the pure project case, and the matrix
organization is just flexible.
 With matrix management, the project will have- or have access to – representatives from
the administrative units of parent firm
 Where there are several projects simultaneously under way, matrix organization allows a
better companywide balance of resources to achieve the several different time/cost
performance targets of individual projects.
 While pure project and functional organization represents extreme of the organizational
spectrum, matrix organization cover a wide range in between
DISADVANTAGES OF MATRIX
In the case of functionally organized projects, there is no doubt that the functional
division is the focus of decision- making power in the pure project case, it is clear that the
PM is the power center of the project.
 With matrix organizations, the power is more balanced.
 Often, the balance is fairly delicate.
 While the ability to balance time, cost, and performance between several projects is an
advantage of matrix organization, the ability has its dark side.
 For strong matrices, problems associated with shutting down a project are almost as
severe as those in pure project organizations.
 In matrix-organized projects, the PM controls administrative decisions and the functional
heads control technological decisions.
 Matrix management violates the management principle of unity of command.
Virtual Projects (Sections 4.3, 10.2). With the rapid increase in globalization, many projects
now involve global teams with team members operating in different countries and different time
zones, each bringing a unique set of talents to the project. These are known as virtual projects
because the team members may never physically meet before the team is disbanded and another
team reconstituted. Advanced telecommunications and computer technologies allow such virtual
projects to be created, conduct their work, and complete their project successfully.
Quasi-Projects (Section 1.1). Led by the demands of the information technology/systems
departments, project management is now being extended into areas where the final performance
(or “scope”) requirements may not be understood, the time deadline unknown, and/or the budget
undetermined. This ill-defined type of project (which we call a “quasi-project”) is extremely
difficult to manage and is often initiated by setting an artificial due date and budget, and then
completed by “de-scoping” the required performance to meet those limits. However, new tools
for these kinds of quasi-projects are now being developed—prototyping, phase gating, and others
—to help these teams achieve results that satisfy the customer in spite of all the unknowns.

UNIT II: PLANNING AND BUDGETING

The Planning Process – Work Break down Structure – Role of Multidisciplinary teams. Budget
the Project – Methods. Cost Estimating and Improvement. Budget uncertainty and risk
Management.

THE PLANNING PROCESS:

Project planning defines the project activities and end products that will be performed and
describes how the activities will be accomplished. The purpose of project planning is to define
each major task, estimate the time and resources required, and provide a framework for
management review and control.

The project planning activities and goals include defining:

 The specific work to be performed and goals that define and bind the project.
 Estimates to be documented for planning, tracking, and controlling the project.
 Commitments that are planned, documented, and agreed to by affected groups.
 Project alternatives, assumptions, and constraints

The planning process consists of the following basic tasks:

• Define the technical approach used to solve the problem.
• Define and sequence the tasks to be performed and identify all deliverables associated
with the project.
• Define the dependency relations between tasks.
• Estimate the resources required to perform each task.
• Schedule all tasks to be performed.
• Define a budget for performing the tasks.
• Define the organization used to execute the project.
• Identify the known risks in executing the project.
• Define the process used for ensuring quality.
• Define the process used for specifying and controlling requirements.

WORK BREAK DOWN STRUCTURE:

The Project Management Institute (PMI) defines the WBS as follows: ‘‘a deliverable–oriented
grouping of project elements which organizes and defines the total scope of the project. Each
descending level represents an increasingly detailed definition of a project component. Project
components may be products or services’’
The breaking down of large activities into comprehensible or manageable units is a fundamental
part of project management. WBS is also known as 'chunking' or 'unbundling'. This is attractive
as it gives people responsibility for a manageable part of the project. WBS also facilitates
financial control activities, as individual parts can have their consumption of resources tracked.
The sensitivity of such control is preferable to keeping track of a single large activity.
The WBS breaks a project down into manageable pieces, or items, to help ensure that all of the
work elements needed to complete the project work scope is identified. It’s a hierarchical tree of
end items that will be accomplished or produced by the project team during the project. The
accomplishment or production of all of these items constitutes completion of the project work
scope.

Purpose of WBS:
 Accurate and readable project organization.
 Accurate assignment of responsibilities to the project team.
 Indicates the project milestones and control points.
 Helps to estimate the cost, time and risk.
 Illustrate the project scope, so the stakeholders can have a better understanding of the
same.

Creating the Work Break down Structure:

Hierarchical Breakdown of the WBS:
The WBS begins with the project as the final deliverable. Major project work
deliverables/systems are identified first; then the sub deliverables necessary to accomplish the
larger deliverables are defined. The process is repeated until the sub deliverable detail is small
enough to be manageable and where one person can be responsible. This sub deliverable is
further divided into work packages. Because the lowest sub deliverable usually includes several
work packages, the work packages are grouped by type of work—for example, hardware,
programming, testing. These groupings within a sub deliverable are called cost accounts. This
grouping facilitates a system for monitoring project progress by work, cost, and responsibility.

WBS Sample Diagram:

WBS Tree Diagram:

WBS Example of Bicycle Manufacturing:

ROLE OF MULTIDISCIPLINARY TEAMS:
A multidisciplinary team is a group of workers from different professional backgrounds or work
disciplines that collaborate on specific projects or on an ongoing basis.
A cross-functional team is an organizational team consisting of members at the same level of
hierarchy in the organization but serving in different areas.
Members of cross-functional teams come with a diversity of experience, expertise, and
knowledge. This diversity can help broaden perspectives and create synergy, where interaction
of the members create a greater effect than the sum effects of each member acting alone, leading
to a high level of creativity. A cross-functional team comprises people from different
departments and with special areas of expertise working to achieve a common goal.
The latter arrangement imputes greater importance to the project. The person managing such a
project is designated the project coordinator. Though this person has no line authority over team
members, he does have authority to make and execute decisions about project budgets,
schedules, and work performance. Besides the high-level position of reporting to the general
manager, the coordinator’s influence, like that of the expeditor, originates in his knowledge of
the project and being at the center of everything that is happening.

Cross-Functional Team Characteristics:

Organizational Structure: Matrix/cross-functional: Serving more than one (often several)
functional areas.
Organization Type : New, temporary organization.

>1 “sponsors” who share

Project Ownership: project ownership and
responsibility

Turf Issues: Turf is unlimited

Chain of Command: Shared/consensus authority within team
Information Flow: Information flows in all directions (circular structure) and in and out of team
from all areas
Resource Ownership and Delegation: “Borrows” resources (staff, funds). Project is viewed as
“extra” to business or departmental products
Individual member status: Disregard for title/dept. status of individual members—more focus
on what value each member brings to the team
Assessment / Reward: Team product and teamwork performance/reward focus

BUDGET THE PROJECT- METHODS:

A budget is a plan for allocating resources. Thus, the act of budgeting is the allocation of
scarce resources to the various endeavors of an organization.
Estimating Project Budgets:
There are two fundamentally different strategies for data gathering, top-down and bottom-up.

Top-Down Budgeting:
This strategy is based on collecting the judgments and experiences of top and middle managers,
and available past data concerning similar activities. These managers estimate overall project
cost as well as the costs of the major subprojects that comprise it. These cost estimates are then
given to lower-level managers, who are expected to continue the breakdown into budget
estimates for the specific tasks and work packages that comprise the subprojects. This process
continues to the lowest level. The budget, like the project, is broken down into successively finer
detail, starting from the top, or most aggregated level following the WBS. When senior managers
insist on maintaining their budgetary positions—based on “considerable past experience”—
junior managers feel forced to accept what they perceive to be insufficient allocations to achieve
the objectives to which they must commit. Competition among junior managers is often quite
intense. The advantage of this top-down process is that aggregate budgets can often be developed
quite accurately. Another advantage of the top-down process is that small yet costly tasks need
not be individually identified, nor need it be feared that some small but important aspect has
been overlooked. The experience and judgment of the executive is presumed automatically to
factor all such elements into the overall estimate.

Bottom-Up Budgeting:
In this method, elemental tasks, their schedules, and their individual budgets are constructed,
again following the WBS. The people doing the work are consulted regarding times and budgets
for the tasks to ensure the best level of accuracy. Standard analytic tools such as learning curve
analysis and work sampling are employed where appropriate to improve the estimates.
Differences of opinion are resolved by the usual discussions between senior and junior managers.
If necessary, the project manager and the functional manager(s) may enter the discussion in order
to ensure the accuracy of the estimates. The resulting task budgets are aggregated to give the
total direct costs of the project. The PM adds such indirect costs as general and administrative
(G&A), possibly a project reserve for contingencies, and then a profit figure to arrive at the final
project budget. It is far more difficult to develop a complete list of tasks when constructing that
list from the bottom up than from the top down. The advantages of the bottom-up process are
those generally associated with participative management. Individuals closer to the work are apt
to have a more accurate idea of resource requirements than their superiors or others not
personally involved. In addition, the direct involvement of low-level managers in budget
preparation increases the likelihood that they will accept the result with a minimum of
grumbling. Involvement also is a good managerial training technique, giving junior managers
valuable experience in budget preparation as well as the knowledge of the operations required to
generate a budget. Senior managers see the bottom-up process as risky. They tend not to be
particularly trusting of ambitious subordinates who may overstate resource requirements in an
attempt to ensure success and build empires. They are understandably reluctant to hand over that
control to subordinates whose experience and motives are questionable. This attitude is carried to
an extreme in one large corporation that conducts several dozen projects simultaneously, each of
which may last five to eight years and cost millions of dollars.

Work Element Costing:

The actual process of building a project budget—either top-down or bottom-up or, as we will
suggest, a combination of both—tends to be a straightforward but tedious process. Each work
element in the action plan or WBS is evaluated for its resource requirements, and the cost of each
resource is estimated. Suppose a work element is estimated to require 25 hours of labor by a
technician. The specific technician assigned to this job is paid $17.50/hr. Overhead charges to
the project are 84 percent of direct labor charges. The appropriate cost appears to be

25 hours X $17.50 X 1.84 = $805.00

but the accuracy of this calculation depends on the precise assumptions behind the 25-hr
estimate. A typical allowance for personal time is 12 percent of total work time. If personal time
was not included in the 25-hr estimate made above, then the cost calculation becomes

1.12 X 25 hours X $17.50 X 1.84 = $901.60

The uncertainty in labor cost estimating lies in the estimate of hours to be expended. Not
including personal time ensures an underestimate.

An Iterative Budgeting Process—Negotiation-in-Action:

An iterative planning process with subordinates developing action plans for the tasks for which
they were responsible. Superiors review these plans, perhaps suggesting amendments. The
strength of this planning technique is that primary responsibility for the design of a task is
delegated to the individual accountable for its completion, and thus it utilizes participative
management. If done correctly, estimated resource usage and schedules are a normal part of the
planning process at all planning levels. Therefore, the superior constructing an action plan at the
highest level would estimate resource requirements and durations for each of the steps in the
action plan.

Comments on the Budget Request Process:

The budget process often begins with an invitation from top management for each division to
submit a budget request for the coming year. Division heads pass the invitation along to
departments, sections, and subsections, each of which presumably collect requests from below,
aggregate them, and pass the results back up the organizational ladder. Along with the formal
invitation for submission of a budget request, in the iterative system another message is passed
down—a much less formal message that carries the following kinds of information: the percent
by which the wage bill of the organization may be increased or must be decreased, organizational
policy on adding to or cutting the work force, the general attitude toward capital expenditures,
knowledge about which projects and activities are considered to be high priority and which are
not, and a number of other matters that, in effect, prescribe a set of limits on lower-level
managers. As the budget requests are passed back up the organization, they are carefully
inspected for conformity to guidelines. If they do not conform, they are “adjusted,” often with
little or no consultation with the originating units. Senior management tends to adopt an
autocratic stance on budget making for many reasons, but two are very common: the need to feel
in control of the budget, and the feeling that a tight budget will somehow motivate subordinates
to perform more efficiently. Repeated failure to conform will be rewarded with a ticket to
“corporate Siberia.” It is the budget originator’s responsibility to find out about budget policy.

Cost Category Budgeting vs. Program/Activity Budgeting:

Another facet of budgeting has to do with the degree to which a budget is category-oriented or
program/activity-oriented. The traditional organizational budget is category-oriented often based
upon historical data accumulated through a traditional, category-based, cost accounting system.
Individual expenses are classified and assigned to basic budget lines such as phone, materials,
personnel- clerical, utilities, direct labor, etc. or to production centers or processes. These
expense lines are gathered into more inclusive categories, and are reported by organizational unit
—for example, by section, department, and division. In other words, the budget can be overlaid
on the organizational chart. If a program consists of a set of separate projects, the use of program
budgeting for each project allows those project budgets to be aggregated for the program as a
whole by time periods.

COST ESTIMATING AND IMPROVEMENT:

Estimating is the process of forecasting or approximating the time and cost of completing project
deliverables. Project estimating becomes a task of balancing the expectations of stakeholders and
the need for control while the project is implemented.

Types of Estimates:
 Top-down estimates: analogy, group consensus, or mathematical relationships.
 Bottom-up estimates: estimates of elements found in the work breakdown structure.

Factors Influencing the Quality of Estimates:

 Planning Horizon: The quality of the estimate depends on the planning horizon; estimates
of current events are close to 100 percent accurate but are reduced for more distant
events.
 Project Duration: Long-duration projects increase the uncertainty in estimates.
 People: The people factor can also introduce errors in estimating times and cost. For
example, accuracy of estimates depends on the skills of the people making the estimates.
 Project Structure and Organization: projects operating in a matrix environment may reduce
costs by more efficiently sharing personnel across projects but may take longer to
complete since attention is divided and coordination demands are higher.
 Padding Estimates: In work situations where you are asked for time and cost estimates,
most of us are inclined to add a little padding to increase the probability and reduce the
risk of being late. If everyone at all levels of the project adds a little padding to reduce
risk, the project duration and cost are seriously overstated. This phenomenon causes some
managers or owners to call for a 10–15 percent cut in time and/or cost for the project.
  Organization Culture: Organization culture can significantly influence project estimates.
In some organizations padding estimates is tolerated and even privately encouraged.
Other organizations place a premium on accuracy and strongly discourage estimating
gamesmanship.
 Other Factors: Non project factors can impact time and cost estimates. For example,
equipment down-time can alter time estimates. National holidays, vacations, and legal
limits can influence project estimates. Project priority can influence resource assignment
and impact time and cost. Estimates of time and cost together allow the manager to
develop a time-phased budget, which is imperative for project control.

Why Estimating Time and Cost are Important:

 Estimates are needed to support good decisions.
 Estimates are needed to schedule work.
 Estimates are needed to determine how long the project should take and its cost.
 Estimates are needed to determine whether the project is worth doing.
 Estimates are needed to develop cash flow needs.
 Estimates are needed to determine how well the project is progressing.
 Estimates are needed to develop time-phased budgets and establish the project baseline.

Estimating Guidelines for Times, Costs and Resources:

A manager can follow seven guidelines to develop useful work package estimates:
 Responsibility: At the work package level, estimates should be made by the person(s)
most familiar with the task.
 Use several people to estimate: It is well known that a cost or time estimate usually has
a better chance of being reasonable and realistic when several people with relevant
experience and/or knowledge of the task is used.
 Normal conditions: Estimates should be based on normal conditions, efficient methods,
and a normal level of resources.
 Time units: All task time estimates need consistent time units.
 Independence: Estimators should treat each task as independent of other tasks that might
be integrated by the WBS.
 Contingencies: Work package estimates should not include allowances for
contingencies.
 Adding risk assessment to the estimate helps to avoid surprises to stakeholders: A
new technology usually carries more time and cost risks than a proven process. Simply
identifying the degree of risk lets stakeholders consider alternative methods and alter
process decisions.

Macro Vs Micro Estimating:

Conditions for preferring Top-Down or Bottom-Up Time and Cost Estimates:
 Condition Top-Down Estimates Bottom-Up Estimates
Strategic decision making X
Cost and time important X
High uncertainty X
Internal, Small project X
Fixed-price contract X
Customer wants details X
Unstable scope X

Methods for Estimating Project Times and Costs:

1. Macro (Top-Down) Approaches:
 Consensus Methods.
 Ratio Methods.
 Apportion Methods.
 Function Point Methods for Software and System Projects.
 Learning Curves.

Consensus Methods:
This method simply uses the pooled experience of senior and/or middle managers to estimate the
total project duration and cost. This typically involves a meeting where experts discuss, argue,
and ultimately reach a decision as to their best guess estimate. Firms seeking greater rigor will
use the Delphi Method to make these macro estimates.

Ratio Methods:
Top-down methods (sometimes called parametric) usually use ratios, or surrogates, to estimate
project times or costs. Top-down approaches are often used in the concept or “need” phase of a
project to get an initial duration and cost estimate for the project. Two other common examples
of top-down cost estimates are the cost for a new plant estimated by capacity size, or a software
product estimated by features and complexity. For example, contractors frequently use number
of square feet to estimate the cost and time to build a house; that is, a house of 2,700 square feet
might cost $160 per square foot (2,700 feet 3 $160 per foot equals $432,000).

Apportion Methods:
This method is an extension to the ratio method. Apportionment is used when projects closely
follow past projects in features and costs. Given good historical data, estimates can be made
quickly with little effort and reasonable accuracy. This method is very common in projects that
are relatively standard but have some small variation or customization. Anyone who has
borrowed money from a bank to build a house has been exposed to this process. Given an
estimated total cost for the house, banks and the FHA (Federal Housing Authority) authorize pay
to the contractor by completion of specific segments of the house. For example, foundation
might represent 3 percent of the total loan, framing 25 percent, electric, plumbing and heating 15
percent, etc. Payments are made as these items are completed.

Function Point Methods for Software and System Projects:

In the software industry, software development projects are frequently estimated using weighted
macro variables called “function points” or major parameters such as number of inputs, number
of outputs, number of inquiries, number of data files, and number of interfaces. These weighted
variables are adjusted for a complexity factor and added. The total adjusted count provides the
basis for estimating the labor effort and cost for a project.

The application of the element count is applied and the function point count total is 660. Given
this count and the fact that one-person month has historically been equal to 5 function points, the
job will require 132 person months (660/5 = 132). Assuming we have 10 programmers who can
work on this task, the duration would be approximately 13 months. The cost is easily derived by
multiplying the labor rate per month times 132 person months. For example, if the monthly
programmer rate is $4,000, then the estimated cost would be $528,000 (132 X 4,000). Although
function point metrics are useful, their accuracy depends on adequate historical data, currency of
data, and relevancy of the project/deliverable to past averages.
Learning Curves:
Some projects require that the same task, group of tasks, or product be repeated several times.
Managers know intuitively that the time to perform a task improves with repetition. This
phenomenon is especially true of tasks that are labor intensive. In these circumstances the pattern
of improvement phenomenon can be used to predict the reduction in time to perform the task.
From empirical evidence across all industries, the pattern of this improvement has been
quantified in the learning curve (also known as improvement curve, experience curve, and
industrial progress curve), which is described by the following relationship:

Each time the output quantity doubles, the unit labor hours are reduced at a constant rate.

2. Micro (Bottom-Up) Approaches:

 Template Methods.
 Parametric Procedures Applied to Specific Tasks.
 Range Estimating.
 A Hybrid: Phase Estimating.

Template Methods:
If the project is similar to past projects, the costs from past projects can be used as a starting
point for the new project. Differences in the new project can be noted and past times and costs
adjusted to reflect these differences. For example, a ship repair dry-dock firm has a set of
standard repair projects (i.e., templates for overhaul, electrical, mechanical) that are used as
starting points for estimating the cost and duration of any new project. Differences from the
appropriate standardized project are noted (for times, costs, and resources) and changes are
made. This approach enables the firm to develop a potential schedule, estimate costs, and
develop a budget in a very short time span. Development of such templates in a database can
quickly reduce estimate errors.

Parametric Procedures Applied to Specific Tasks:

Just as parametric techniques such as cost per square foot can be the source of top-down
estimates, the same technique can be applied to specific tasks. For Example, to estimate the
wallpapering allowance on a house remodel, the contractor figured a cost of $5 per square yard
of wallpaper and $2 per yard to install it, for a total cost of $7. By measuring the length and
height of all the walls she was able to calculate the total area in square yards and multiply it by
$7.

Range Estimating:
Range estimating works best when work packages have significant uncertainty associated with
the time or cost to complete. If the work package is routine and carries little uncertainty, using a
person most familiar with the work package is usually the best approach. They know from
experience or know where to find the information to estimate work package durations and costs.
However, when work packages have significant uncertainty associated with the time or cost to
complete, it is a prudent policy to require three time estimates—low, average, and high. The low
to high give a range within which the average estimate will fall. Determining the low and high
estimates for the activity is influenced by factors such as complexity, technology, newness,
familiarity.

A Hybrid: Phase Estimating:

Phase estimating is used when an unusual amount of uncertainty surrounds a project and it is
impractical to estimate times and costs for the entire project. Phase estimating uses a two-
estimate system over the life of the project. A detailed estimate is developed for the immediate
phase and a macro estimate is made for the remaining phases of the project. Figure 5.3 depicts
the phases of a project and the progression of estimates over its life. For example, when the
project need is determined, a macro estimate of the project cost and duration is made so analysis
and decisions can be made. Simultaneously a detailed estimate is made for deriving project
specifications and a macro estimate for the remainder of the project. As the project progresses
and specifications are solidified, a detailed estimate for design is made and a macro estimate for
the remainder of the project is computed. Clearly, as the project progresses through its life cycle
and more information is available, the reliability of the estimates should be improving. Phase
estimating is preferred by those working on projects where the final product is not known and the
uncertainty is very large.

Phase Estimating over Project Life Cycle

Level of Detail:
Level of detail is different for different levels of management. The level of detail in the WBS
varies with the complexity of the project; the need for control; the project size, cost, duration;
and other factors. Excessive detail also means more unproductive paperwork and emphasis will
be on departmental outcomes. If the level of detail is not adequate, an organization unit may find
the structure falls short of meeting its needs.

TOP-DOWN VS BOTTOM-UP ESTIMATES:

Types of Costs:
1. Direct costs: These costs are clearly chargeable to a specific work package. Ex: Labor,
Materials, Equipment and Other.
2. Direct project overhead costs: Costs incurred that are directly tied to an identifiable project
deliverable or work package. Ex: Salary, rents, supplies, specialized machinery.
3. General and administrative (G&A) overhead costs: These represent organization costs that
are not directly linked to a specific project. These costs are carried for the duration of the project.
Ex: Advertising.

RISK MANAGEMENT:
Risk: Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on
project objectives.
Project Risk: Project risk is defined as, "an uncertain event or condition that, if it occurs, has a
positive or negative effect on a project’s objectives."
Risk management: Attempts to recognize and manage potential and unforeseen trouble spots
that may occur when the project is implemented. Risk management identifies as many risk
events as possible (what can go wrong), minimizes their impact (what can be done about the
event before the project begins), manages responses to those events that do materialize
(contingency plans), and provides contingency funds to cover risk events that actually
materialize.

Risk during the project:

  Risk and the associated cost to address the risk, varies over the project life cycle.
 For initial phase there is high chance of risk events, but low cost impact.
 For final phase there is low chance of risk events, but cost impact is high.
 Identifying and managing risks will greatly affect project success.

Risk Management Steps:

Risk management is the identification, assessment, and prioritization of risks followed by
coordinated and economical application of resources to minimize, monitor, and control the
probability and/or impact of unfortunate events or to maximize the realization of opportunities.
Risk management’s objective is to assure uncertainty does not deflect the endeavor from the
business goals. The major
components of the risk
management process are
depicted in the below diagram.
A risk management plan
should be developed during the
initial project phase and
immediately implemented. The
plan should be reviewed and
revised as needed during each
project phase.

Step 1: Risk Identification:

The risk management process
begins by trying to generate a
list of all the possible risks that
could affect the project.
Typically the project manager
pulls together, during the
planning phase, a risk
management team consisting
of core team members and
other relevant stakeholders.
The team uses brainstorming
and other problem identifying
techniques to identify potential
problems. Focus on risk
events, rather than risk consequences. For Example, team members may identify failing to meet
schedule as a major risk. What they need to focus on are the events that could cause this to
happen (i.e., poor estimates, adverse weather, shipping delays, etc.). Only by focusing on actual
events can potential solutions be found. Organizations use risk breakdown structures (RBSs)
in conjunction with work breakdown structures (WBSs) to help management teams identify and
eventually analyze risks.

A risk profile is another useful tool. A risk profile is a list of questions that address traditional
areas of uncertainty on a project. These questions have been developed and refined from
previous, similar projects. Risk profiles recognize the unique strengths and weaknesses of the
firm. Finally, risk profiles address both technical and management risks. Project teams can
investigate what happened on similar projects in the past to identify potential risks. The risk
identification process should not be limited to just the core team. Input from customers,
sponsors, subcontractors, vendors, and other stakeholders should be solicited. The goal is to find
potential problems before they happen. The RBS and risk profiles are useful tools for making
sure no stones are left unturned.

Step 2: Risk Assessment

Not all of these risks deserve attention. Scenario analysis is the easiest and most commonly used technique for
analyzing risks. Team members assess each risk in terms of:
 The undesirable event.
 All the outcomes of the event’s occurrence.
 The magnitude or severity of the event’s impact.
 Chances/probability of the event happening.
 When the event might occur in the project.
 Interaction with other parts of this or other projects.
Documentation of scenario analyses can be seen in various risk assessment forms used by
companies. The diagram below is a partial example of a risk assessment form used on an IS
project.

Often organizations find it useful to categorize the severity of different risks into some form of
risk assessment matrix. The matrix is typically structured around the impact and likelihood of the
risk event. For example, the risk matrix presented in diagram consists of a 5 X 5 array of
elements with each element representing a different set of impact and likelihood values. The
matrix is divided into red, yellow, and green zones representing major, moderate, and minor
risks, respectively. The risk severity matrix provides a basis for prioritizing which risks to
address. Red zone risks receive first priority followed by yellow zone risks. Green zone risks are
typically considered inconsequential and ignored unless their status changes.
Step 3: Risk Response Development
Responses to risk can be classified as mitigating, avoiding, transferring, sharing, or retaining.
Mitigating Risk: Risk mitigation is defined as taking steps to reduce adverse effects. There are
basically two strategies for mitigating risk: (1) reduce the likelihood that the event will occur
and/ or (2) reduce the impact that the adverse event would have on the project.
Ex: Testing electrical components after receipt would reduce the likelihood that “bad” parts
would be used in a circuit.
Avoiding Risk: Risk avoidance is changing the project plan to eliminate the risk or condition.
Although it is impossible to eliminate all risk events, some specific risks may be avoided before
you launch the project. For example, adopting proven technology instead of experimental
technology can eliminate technical failure.
Risk Transfer: It is a risk management and control strategy that involves the contractual shifting
of a pure risk from one party to another. One example is the purchase of an insurance policy, by
which a specified risk of loss is passed from the policyholder to the insurer.
Sharing Risk: Risk sharing allocates proportions of risk to different parties. A self-insurance
method of managing or reducing exposure to risk by spreading the burden of loss among several
units of an enterprise. For Ex: the deductibles and premiums you pay for insurance are a form of
risk sharing—you accept responsibility for a small portion of the risk, while transferring the
larger portion of the risk to the insurer.
Retaining Risk: In some cases a conscious decision is made to accept the risk of an event
occurring. Some risks are so large it is not feasible to consider transferring or reducing the event
(e.g., an earthquake or flood). The project owner assumes the risk because the chance of such an
event occurring is slim. In other cases risks identified in the budget reserve can simply be
absorbed if they materialize. The risk is retained by developing a contingency plan to implement
if the risk materializes. In a few cases a risk event can be ignored and a cost overrun accepted
should the risk event occur.
A contingency plan is an alternative plan that will be used if a possible foreseen risk event
becomes a reality. The contingency plan represents actions that will reduce or mitigate the
negative impact of the risk event.
Develop a response for risks:
A risk response plan identifies the primary components necessary for managing the risk:
 What response strategy will be used?
 How will the risk event be detected and the response triggered.
 What plan will be put in place in response to the event?
 Who will be responsible for monitoring and controlling the risk?
Technical Risks: Risks associated with the technical aspects of a project can have the most
sever outcomes. Can be mitigated by building and testing prototypes of critical components.
Have available backup or alternate designs that have much lower risk.
Schedule Risks: The risk that the project takes longer than scheduled. It can lead to cost risks, as
longer projects always cost more, and to performance risk, if the project is completed too late to
perform its intended tasks fully. Manage “slack” time to provide resources for delayed
components. Bring in more people( increase costs) or reduce performance.
Cost Risks: Risks associated with costs usually result from estimate errors and omissions. Time
and cost are related; trade-off schedule delays with lowest cost. “Descope” options that remove
components of the project, but still allow the primary mission to proceed.
All budgets should include a reserve percentage that can be expended as risk events occur.

Step 4: Risk Response Control

The first three steps of the risk management process are summarized in a formal document often
called the risk register. A risk register details all identified risks, including descriptions,
category, and probability of occurring, impact, responses, contingency plans, owners, and current
status. The register is the backbone for the last step in the risk management process: risk control.
Risk control involves executing the risk response strategy, monitoring triggering events,
initiating contingency plans, and watching for new risks. Project managers need to monitor risks
just like they track project progress. Risk assessment and updating needs to be part of every
status meeting and progress report system. Project managers need to establish an environment in
which participants feel comfortable raising concerns and admitting mistakes. Changes in any
aspect of the project need to be documented and communicated.
 Who will have the authority to approve a change?
 Use written form to track hardware, software and document changes.
 Who is notified of what changes when?

Change Control Management:

A major element of the risk control process is change management. Most changes easily fall into
three categories:
 Scope changes in the form of design or additions represent big changes; for example,
customer requests for a new feature or a redesign that will improve the product.
 Implementation of contingency plans, when risk events occur, represent changes in
baseline costs and schedules.
 Improvement changes suggested by project team members represent another category.

Change management systems involve reporting, controlling, and

recording changes to the project baseline. Change Management
Systems are designed to accomplish the following:
 Identify proposed changes.
 List expected effects of proposed change(s) on schedule &
budget.
 Review, evaluate, and approve or disapprove changes
formally.
 Negotiate and resolve conflicts of change, conditions, and
cost.
 Communicate changes to parties affected.
 Assign responsibility for implementing change.
 Adjust master schedule and budget.
 Track all changes that are to be implemented.

Benefits of a Change Control System:

 Inconsequential changes are discouraged by the formal
process.
 Costs of changes are maintained in a log.
 Integrity of the WBS and performance measures is
maintained.
 Allocation & use of budget & management reserve funds
are tracked.
 Responsibility for implementation is clarified.
 Effect of changes is visible to all parties involved.
 Implementation of change is monitored.
 Scope changes will be quickly reflected in baseline and performance measures.