4th CLASS

Project Management Methodology

Usually, project managers apply a project management methodology to their work.

 A methodology is a system of practices, techniques, procedures, and rules used by those
who work in a discipline
 Project management methodologies may be:
 Developed by experts within the organization,
 Purchased from vendors,
 Obtained from professional associations, or
 Acquired from government agencies.

Brief Overview of few methodologies are –

1. Traditional Project Management
 Traditional project management is a universal practice which includes a set of developed
techniques used for planning, estimating, and controlling activities.
 The aim of those techniques is to reach a desired result on time, within budget, and in
accordance with specifications.
 Initiation
 Establishing the ultimate goal
 Defining the objectives
 Listing possible risks and obstacles
 Planning
 Identifying project activities
 Estimating Activity duration
 Determining necessary resources
 Constructing and Analysisng project network
 Developing a documented plan
 Execution
 Carrying the project plan
 Regularly evaluating project’s quality
 Recruiting and organising project team
 Distributing needed information
 Scheduling and documenting work
 Monitoring & Control
 Controlling the scope change
 Controlling the costs
 Controlling the quality
 Establishing a programme reporting system
 Revising the project plan
 Closing
 Obtaining client acceptance
 Closing out the contract
  Issuing the final report
 Making recommendation and sharing lessons for future projects

Under Project Management the topic of scheduling is one of the most important area. Ineffective
planning and scheduling is one of the most important causes of project delay.
The purpose of scheduling is to plan the necessary activities in time and allocate the required
resources in an optimum way. This is Resource allocation in Project Management

What Is Resource Allocation In Project Management?

Resource allocation is the process of scheduling resources such as labor, materials or equipment
for the completion of project tasks. Resource allocation is a step of project resource management
that involves estimating resources, procuring resources, allocating resources and tracking
resources until the project is completed.

Why Is Resource Allocation Important?

As difficult as it might be to allocate resources correctly over the life cycle of a project, it’s an
essential part of any thorough project management plan and should be done in the planning stage
of a project. This keeps
 Costs down,
 Maximizes productivity and
 Helps with team morale.
 Facilitates client satisfaction by achieving the best outcome and successfully delivering the
project.

Resource Allocation Process: How to Allocate Project Resources

Resource allocation is a plan that you develop with the aim of making the most of the available
resources at your disposal in a project, which makes it a critical resource planning activity. This is
mostly a short-term plan set in place to achieve goals in the future.

The following are some general tips to help you with your resource allocation when
managing a project.
1. Define Your Project Scope
2. Estimate What Project Resources Will Be Needed within Project Budget
3. Assess Your Current Resource Utilization & Resource Availability
4. Create a Resource Allocation Plan
5. Keep Track of Your Project Resources
6. Use Resource Allocation Reports
Project Scope of Work:
A scope of work document is an agreement on the work you’re going to perform on the project. A
scope of work in project management includes:
 Project Deliverables
 Project Timeline
 Project Milestones
 Project Reports

The first step when writing a scope of work is to identify all your project tasks. This is done by
using a Work Breakdown Structure (WBS)

Scope of Work Example: Project Wedding Invitation

 Deliverables
 Invite list
 Addresses of attendees
 Addressed envelopes
 Stamps
 Invites

 Timeline
 Jan. 1: Decide on the invite list
 Feb. 1: Have addresses collected of attendees
 March 1: Pick invitation style and have printed
 April 1: Address and mail invites
 May 1: Get the final count of guests
 June 1: Wedding

 Milestones
 Selection of guests and collection of addresses
 Mailing of invitations
 The final count of attendees

 Reports
 Check on the status of address collection
 Stay in touch with the printer for progress on invitations
 Check RSVPs against the invitation list
Scope of Work Example: Project Construction

 Project deliverables
 Land clearing
 Ground leveling
 Footings
 Foundation
 Sewer Lines
 Wood Framing
 Sheathing Installation
 HVAC system installation
 Electrical panels and wiring installation
 Roof installation
 Insulation installation
 Drywall installation
 Interior painting, appliances, cabinets and other final details

 Project Timeline
 The scope of work timeline depends on the complexity of the construction
design and the agreement that the project owner reaches with the general
contractor, who will hire subcontractors to accomplish different types of
construction work.

 Project Milestones
 The building envelope has been completed
 Foundation, framing, plumbing and electrical inspections have been passed
 Exterior work has been completed
 Interior work has been completed
 Project has been delivered successfully

 Project Reports
 Project status reports
 Daily construction logs
 Construction punch list
What Is a Work Breakdown Structure (WBS)?

A work breakdown structure (WBS) is a

 Visual,
 Hierarchical and
 Deliverable-oriented deconstruction of a project.

It is a helpful diagram for project managers because it allows them to break down their
project scope and visualize all the tasks required to complete their projects.

All the steps of project work are outlined in the work breakdown structure chart, The
final project deliverable, as well as the tasks and work packages associated with it rest
on top of the WBS diagram, and the WBS levels below subdivide the project scope to
indicate the tasks, deliverables and work packages that are needed to complete the
project from start to finish.

Why Use a WBS In Project Management?

 Making a WBS is the first step in developing a project schedule.

 A well-constructed work breakdown structure helps with important project
management process groups and knowledge areas such as:
 Project Planning, Project Scheduling and Project Budgeting
 Risk Management, Resource Management, Task Management and Team
Management

Work Breakdown Structure Example

For our WBS example a commercial building construction project is taken as below:
 WorK Breakdown Structure, Commercial Project

Initiation Planning Execution Control Closing

Lay Foundation

Evaluation Excavate Pour

Charter Concrete
Scope Statement
Project Team Resource Management Audit
Plan Schedule Interior Work Cost Management Site Close Up
Budget Risk Management Document Hand Over

Electrical Plumbing

External Work
Finishing Touches

At the top of the work breakdown structure is your final deliverable (in this instance, the
construction project) in yellow. Immediately beneath that is the next WBS level in Brick Color,
which are the main project phases required to complete the project. The third and lowest level in
Blue shows work packages. Most WBS charts have 3 levels, but you can add more depending on
the complexity of your projects.

Types of WBS
There are two main types of WBS: deliverable-based, and phase-based. They depend on whether
you want to divide your project in terms of time or scope.

Phase-Based Work Breakdown Structure

The phase-based WBS displays the final deliverable on top, with the WBS levels below showing
the five phases of a project (initiation, planning, execution, control and closeout). Our previous
example of Work Breakdown Structure Example is a phase-based WBS example.

Deliverable-Based Work Breakdown Structure

A deliverable-based WBS first breaks down the project into all the major areas of the project scope
as control accounts and then divides those into project deliverables and work packages as shown
below for our commercial building project.
 Project

Project Initiation Design Plan Approval from KMC Construction Hand Over

Work Packages like Work Packages like Work Packages like Work Packages like Work Packages like

Project Charter Archtectural Drawings Submission to KMC Excavation Final Inspection

Preliminary Site analysis Cost Estimate Final meeting with KMC Foundation Execuation of deed
Budget Site Plan KMC Sanction Pouring Concrete
Internal Work
External Work
Plumbing

A project budget is the statement which shows

 Total projected costs
 Needed to complete a project
 Over a defined period of time.
 It’s used to estimate what the costs of the project will be for every phase of the project.
A project budget include total cost of all resources required to complete the project.

Types of Project Resources:

 People
 Materials
 Tools
 Information
 Energy
 Money
 Time

The project budgeting process involves the following:

 Budget planning: Estimating costs and making a budget based on a project estimate
 Budget tracking: Keeping track of project expenses during the project execution phase
 Project budget management: Setting guidelines and control procedures to guarantee that
costs don’t exceed the project budget

Typical project cost categories

Planning project costs is an essential step in mapping out a project budget. To do so, you’ll need
to create a list of time line items that are relevant for the project. Here’s a table with common
project cost categories to help you get started:
 Project Cost Category Example
Human resources Salary rates of full-time and temporary workers
Travelling spending Anyone who travels from one location to another to do
project work (including cost for meals and lodging)
Training fees Conferences, workshops, outside contractors
Material resources All the items your team might need to perform the work,
including software, equipment, or other unique materials
Research expenses Studies or data to support your project and deliver the best
value
Professional services Legal advice, consultants, market research firms, etc.
Capital expenditures Equipment or technical upgrades to complete the project
Contingency reserves Contingency funds to allow for flexibility and reduce risks of
budget overruns, usually 5-10% of the budget

Illustration:
Suppose a project has two primary task 1 & 2. Each Primary task has three secondary tasks whereas
each secondary task has 2 tertiary tasks
Labour Labour Total Labour Cost Material Material Cost p.u Total Material Cost Overall Total Cost
Task Category Time Time Wage Wage Units Units
WBS Estimated Actual Estimated Actual Estiamted Actual Estimated Actual Estimated Actual Estimated Actual Estimated Actual

1 Primary 40 20 800 20 50 1000 1800

1.1 Secondary 10 20 200
1.1.1 Tertiary 5 20 100
1.1.2 Tertiary 5 20 100
1.2 Secondary 20 20 400
1.2.1 Tertiary 10 20 200
1.2.2 Tertiary 10 20 200
1.3 Secondary 10 20 200
1.3.1 Tertiary 5 20 100
1.3.2 Tertiary 5 20 100

Suppose in chicken preparation one primary task is “Chicken marinating”. This primary task has
the following WBS:
1.1. Prepare Ingredients
1.1.1 Gather chicken pieces
1.1.2 Gather marinade ingredients (e.g., herbs, spices, liquids)
1.1.3 Gather mixing bowls and utensils
1.2. Preparation
1.2.1 Clean and dry chicken pieces
1.2.2 Chop herbs, spices as needed
1.2.3 Mix Marinade ingredients in a bowl
1.3. Marinating Process
1.3.1 Place chicken in a marinating container
1.3.2 Pour marinade over the chicken
1.3.3 Gently massage the marinade into the chicken
1.3.4 Seal the container securely
1.4. Refrigeration
1.4.1 Place the container in the refrigerator
1.4.2 Allow chicken to marinate for the recommended time
1.5. Final Steps
1.5.1 Remove chicken from the refrigerator
1.5.2 Drain excess marinade
1.5.3 Let chicken sit at room temperature for a few minutes before cooking

So Primary task ---Chicken Marinating has 5 secondary tasks—1.1, 1.2, 1.3, 1.4, 1.5
Secondary task 1.1 has three tertiary task –1.1.1, 1.1.2, 1.1.3. Similarly there are tertiary tasks for
other secondary tasks.

Creating a comprehensive budget for a 2-year MBA program using a bottom-up approach
involves breaking down all the potential costs associated with the project. Here's a sample budget
outline with various expense categories:

 Tuition & Fees

 Application fees
 Tuition for each semester/term
 Registration and course fees
 Graduation fees
 Miscellaneous academic fees

 Books and Supplies

 Textbooks and reference materials
 Stationery supplies (notebooks, pens, etc.)
 Laptop or computer expenses

 Housing and Accommodation

 Rent or housing fees
 Utilities (electricity, water, internet, etc.)
 Security deposit (if applicable)
 Furniture and household items

 Food and Groceries

 Monthly grocery expenses
 Eating out or dining costs

 Transportation
 Public transportation fees
 Gasoline or fuel costs
 Vehicle maintenance and insurance (if applicable)

 Health and Insurance

 Health insurance premiums
  Medical expenses and co-pays
 Medications and prescriptions

 Personal and Leisure

 Entertainment and leisure activities
 Gym or fitness memberships
 Clothing and personal care items

 Miscellaneous
 Mobile phone and internet bills
 Emergency fund
 Miscellaneous unexpected expenses

 Professional Development
 Membership fees for professional organizations
 Networking event fees

 Loan Interest (If applicable)

 Interest on student loans (if borrowing for the MBA)

 Internship or Job Search Expenses

 Travel and accommodation for job interviews
 Professional attire for interviews

 Extracurricular Activities
 Club memberships or activity fees
 Travel for conferences or seminars

Creating a project budget using a top-down approach involves starting with an overall estimate
and then breaking it down into specific cost categories. Here's a sample budget outline using a top-
down approach for a 2-year MBA program:

In this approach start with a realistic total budget estimate, and then allocate amounts to each
category, as in bottom up approach above, based on your priorities and research.

Total Budget: RXXX, XXX (Your Total Budget Estimate)

 Tuition & Fees (allocated amount RXXX, XXX)

 Application fees
 Tuition for each semester/term
 Registration and course fees
 Graduation fees
 Miscellaneous academic fees

 Books and Supplies (allocated amount RXXX, XXX)

  Textbooks and reference materials
 Stationery supplies (notebooks, pens, etc.)
 Laptop or computer expenses

 Housing and Accommodation (allocated amount RXXX, XXX)

 Rent or housing fees
 Utilities (electricity, water, internet, etc.)
 Security deposit (if applicable)
 Furniture and household items

 Food and Groceries (allocated amount RXXX, XXX)

 Monthly grocery expenses
 Eating out or dining costs

 Transportation (allocated amount RXXX, XXX)

 Public transportation fees
 Gasoline or fuel costs
 Vehicle maintenance and insurance (if applicable)

 Health and Insurance (allocated amount RXXX, XXX)

 Health insurance premiums
 Medical expenses and co-pays
 Medications and prescriptions

 Personal and Leisure (allocated amount RXXX, XXX)

 Entertainment and leisure activities
 Gym or fitness memberships
 Clothing and personal care items

 Miscellaneous (allocated amount RXXX, XXX)

 Mobile phone and internet bills
 Emergency fund
 Miscellaneous unexpected expenses

 Professional Development (allocated amount RXXX, XXX)

 Membership fees for professional organizations
 Networking event fees

 Loan Interest (If applicable) (allocated amount RXXX, XXX)

 Interest on student loans (if borrowing for the MBA)

 Internship or Job Search Expenses (allocated amount RXXX, XXX)

 Travel and accommodation for job interviews
 Professional attire for interviews

 Extracurricular Activities (allocated amount RXXX, XXX)

  Club memberships or activity fees
 Travel for conferences or seminars
Total of all allocated amount = Total budget amount set at the beginning

Other methods of project budgeting is Analogous and Parametric

Illustration

A manufacturing company is considering a proposal for producing a new product. The project will
require an initial investment of Rs.1000000 in plant and machinery. If the new product is
introduced for the next six years estimated revenues, expenses and working capital requirements
will be as follows:
(Rs’000)
1 2 3 4 5 6
Revenues 550 890 1840 2020 1680 1300
Expenses 300 472 958 1075 890 680
WC 20 30 50 70 70 30
The company can charge annual depreciation @25% as per Indian Income Tax Act and company
is falling under a tax bracket of 35%. It is estimated that the plant and machinery meant for this
project could be sold at the end of life of the project of 6 years at Rs.100000. If weighted average
required rate of return to financiers is 18%, compute NPV of the project either by i) Showing
separately present value of depreciation tax shield on post salvage book value in the computation
or by ii) Showing separately present value of loss of depreciation tax shield on salvage value in
the computation
Illustration
Excel Engineering Company is considering replacement of one of its existing fabrication machine
by a new machine which is expected to cost Rs. 160000. The existing machine has a book value
of Rs.40000 and can be sold for Rs.20000 now. It is good for the next 5 years and is estimated to
generate annual cash revenues of Rs.200000 and incur annual cash expenses of Rs.140000. If sold
after 5 years the salvage value of the existing machine can be expected to be Rs.2000. The new
machine will have a life of 5 years. It is expected to save costs and improve the quality of the
product that would help to increase sales. The new machine will yield annual cash revenues of
Rs.250000 and incur annual cash expenses of Rs.130000. The estimated salvage value of the new
machine after 5 years is Rs.8000. The company pays tax at 35% and can write off depreciation at
25% on WDV of the asset as per Indian Income tax act. Cost of Capital is 20%. Should Excel go
for new machine? Assume no inflation.
Illustration
Initial outlay of a project is Rs.200000. The project is going to be financed with capital for which
cost would be 12%. For 5 years life of the project the expected details are as follows:
 Particulars 1 2 3 4 5
Sales Rs.300000 Rs.400000 Rs.600000 Rs.800000 Rs.900000
Fixed cost Rs.20000 Rs.20000 Rs.20000 Rs.20000 Rs.20000
Other 5% 8% 9% 10% 10%
expense (%
on sales)
Depreciation is charged on block basis @20% on book value as per Indian Income tax Act. The
manufacturing expenses comprise Material, Labour and Overhead which are completely variable
in nature and vary with the level of sales. Present value of this variable natured manufacturing
expense is Rs.813161 before adjustment of tax @ 50%. Salvage of fixed asset at the end of 5th year
is Rs.10000. WC investment is 15% of sales p.a.
a) Compute PV of earnings before manufacturing expenses, depreciation, and interest after tax.
b) Compute PV of DT
c) Compute PV of Working Capital Investment
d) Do you accept the project on the basis of NPV?

Illustration
A firm is considering two investment projects. Project A requires a net cash outlay of B6000;
project B requires B5000. Both projects have an estimated life of three years. The net cash inflows
have been estimated as: For Project A, year 1, a 0.40 chance of B2000 and a 0.60 chance of B3000;
year 2, a 0.30 chance of B4000 and a 0.70 chance of B2000; year 3,a 0.50 chance of B3000 and a
0.50 chance of B2200; For Project B, year 1, a 0.30 chance of B1000 and a 0.70 chance of B2000;
year 2, a 0.20 chance of B2000 and a 0.80 chance of B1000; year 3,a 0.40 chance of B2000 and a
0.60 chance of B4000; Assume a 10% discount rate which project should be accepted and why?
--------------------------------------------------------------------------------------------------------------------