Koe 068 Unit 1

SOFTWARE PROJECT MANAGEMENT
Subject Code: KOE-068

External Marks: 100
Internal Marks: 50
Unit-I Project Evaluation and Project Planning
Importance of Software Project Management, Activities, Methodologies,
Categorization of Software Projects, Setting objectives, Management
Principles, Management Control, Project portfolio Management, Cost-
benefit evaluation technology, Risk evaluation, Strategic program
Management, Stepwise Project Planning.
Unit-II Project Life Cycle and Effort Estimation
Software process and Process Models, Choice of Process models, Rapid

Application development, Agile methods, Dynamic System Development
Method, Extreme Programming, Managing interactive processes, Basics of
Software estimation, Effort and Cost estimation techniques, COSMIC Full
function points, COCOMO II, a Parametric Productivity
1 Model.
©The McGraw-Hill Companies, 2005
Unit-III Activity Planning and Risk Management
Objectives of Activity planning, Project schedules, Activities,

Sequencing and scheduling, Network Planning models, Formulating
Network Model, Forward Pass & Backward Pass techniques, Critical
path (CRM) method, Risk identification, Assessment, Risk Planning,
Risk Management, PERT technique, Monte Carlo simulation,
Resource Allocation, Creation of critical paths, Cost schedules.
Unit-IV Project Management and Control
Framework for Management and control Collection of data

Visualizing progress, Cost monitoring, Earned Value Analysis,
Prioritizing Monitoring, Project tracking, Change control Software
Configuration Management, Managing contracts, Contract
Management.
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Unit-V Staffing in Software Projects
Managing people, Organizational behavior, Best methods of staff

selection Motivation , The Oldham Hackman job characteristic model,
Stress, Health and Safety, Ethical and Professional concerns, Working in
teams Decision making Organizational structures Dispersed and Virtual
teams, Communications genres Communication plans Leadership.
Text Books:
1. Bob Hughes, Mike Cotterell and Rajib Mall: Software Project Management –
Fifth Edition, McGraw Hill, New Delhi, 2012.
2. Robert K. Wysocki ―Effective Software Project Management – Wiley
Publication, 2011.
3. Walker Royce: ―Software Project Management- Addison-Wesley, 1998.
4. Gopalaswamy Ramesh, ―Managing Global Software Projects – McGraw Hill
Education (India), Fourteenth Reprint 2013.
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UNIT-1
Unit-I Project Evaluation and Project Planning
Importance of Software Project Management,
Activities, Methodologies, Categorization of Software
Projects, Setting objectives, Management Principles,
Management Control, Project portfolio Management,
Cost-benefit evaluation technology, Risk evaluation,
Strategic program Management, Stepwise Project
Planning.
4
INTRODUCTION
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What is Software?
• Collection of computer programs and

related data (associated
documentation).
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What is a project?
Some dictionary definitions:
“A specific plan or design”
“A planned undertaking”
“A large undertaking e.g. a public works
scheme”
Key points above are planning and size

of task
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Jobs versus projects
‘Jobs’ – repetition of very well-defined and well

understood tasks with very little uncertainty
‘Exploration’ – e.g. finding a cure for cancer: the
outcome is very uncertain
‘Projects’ – in the middle!
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Characteristics of projects
A task is more ‘project-like’ if it is:
• Non-routine
• Planned
• Aiming at a specific target
• Work carried out for a customer
• Involving several specialisms
• Made up of several different phases
• Constrained by time and resources
• Large and/or complex
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Importance of Software Project
Management
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What are constraints on a
project? (Need/Importance of
SPM)
• Projects are constrained by three
factors: time, budget and quality.
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What are constraints on a project?
(Need/Importance of SPM)
• Software is said to be an intangible product.
• Software development is a kind of all new stream in
world business and there’s very little experience in
building software products.
• Most software products are tailor made to fit client’s
requirements.
• The most important is that the basic technology
changes and advances so frequently and rapidly that
experience of one product may not be applied to the
other one.
• All such business and environmental constraints
bring risk in software development hence it is
essential to manage software projects efficiently.
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What are constraints on a project?
(Need/Importance of SPM)
• The Figure above shows triple constraints for
software projects.
• It is an essential part of software organization to
deliver quality product, keeping the cost within client’s
budget constrain and deliver the project as per
scheduled.
• There are several factors, both internal and external,
which may impact this triple constrain triangle. Any of
three factor can severely impact the other two.
• Therefore, software project management is essential
to incorporate user requirements along with budget
and time constraints.
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What is Software Project
management?
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Software Project
• A Software Project is the complete
procedure of software development
from requirement gathering to testing
and maintenance, carried out according
to the execution methodologies, in a
specified period of time to achieve
intended software product.
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What is management?
Management can be defined as all the activities and tasks

undertaken by one or more persons for the purpose of planning
and controlling the activities of others in order to achieve
objectives or complete an activity that could not be achieved by
others acting independently. Management involves the following
activities:
• Planning – deciding what is to be done
• Organizing – making arrangements
• Staffing – selecting the right people for the job
• Directing – giving instructions
• Monitoring – checking on progress
• Controlling – taking action to remedy hold-ups
• Innovating – coming up with solutions when
problems emerge
• Representing – presenting to clients, users,
developers and other stakeholders
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Manager Must Know Project
Management Skills
• Building a work break down structure
• Documenting Plans
• Estimating Cost
• Managing Risks
• Scheduling
• Tracking Project Progress
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Manager Must Know People
Management Skills
• Appraising Performance: Evaluating
Team
• Holding Effective meetings
• Selecting a team
• Presenting Effectively: Good
communication skills
• Leadership
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Software Project Management
Software Project Management (SPM) is a
proper way of planning and leading software
projects. It is a part of project management in
which software projects are planned,
implemented, monitored and controlled.
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How Software Projects are different from
other Projects?
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software projects Vs other
projects
• Fred Brooks identified some characteristics of
software projects which make them different from
other projects.
1. Invisibility
2. Complexity
3. Conformity
4. Flexibility
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projects
1. Invisibility
When a physical artifact such as a bridge is
constructed the progress can actually be seen.
with software, progress is not immediately
visible.
2. Complexity
Software project contain more complexity than
other engineered artefacts.
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projects
3. Conformity
The 'traditional' engineer usually works with physical
systems and materials like cement and steel. These
physical systems have complexity, but are governed by
consistent physical laws. Software developers have to
conform to the requirement of human clients.
4. Flexibility
The ease with which software can be changed is
usually seen as one of its strength.
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Activities
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Activities covered by project
management
Feasibility study
Is project technically feasible and worthwhile from a
business point of view?
Planning
Only done if project is feasible
Execution
Implement plan, but plan may be changed as we go along
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management(SDLC)
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management(SDLC)
• Requirements analysis
– Requirements elicitation: what does the
client need?
– Analysis: converting ‘customer-facing’
requirements into equivalents that
developers can understand
– Requirements will cover
• Functions
• Quality
• Resource constraints i.e. costs
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management(SDLC)
• Specification: Detailed documentation of what the

proposed system is to do.
• Design: A design that meets the specification has to
be drawn. This design activity will be in two phases.
One will be the external or user design. This lays
down what the system is to look like to the users in
terms of menus, screen and report layout and so on.
The next stage produces the physical design, which
tackles the way in which the data and software
procedures are be structured internally.
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management(SDLC)
• Coding: Write the code. (some people refer

it as implementation)
• Verification and Validation: Whether
software is developed specially for the current
application or not, careful testing will be
needed to check that the proposed system
meets its requirements.
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management(SDLC)
• Implementation/Installation:
– The process of making the system operational
– Includes setting up standing data, setting system
parameters, installing on operational hardware
platforms, user training etc
Note: Some system development practitioner refer to the
whole of the project after design as ‘implementation’.
• Maintenance & Support: Once the system has been
installed there will be a continuing need for the support
(for example any error correction, improvement etc.)
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METHODOLOGIES
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Plan, Methods and Methodologies
• Plan: A way of doing something, especially a systematic
way; implies an orderly logical arrangement
A Plan consists of:
– Its start and end dates
– Who will carry it out
– What tools and materials will be used
• Method: takes the plan and convert it to real activities.
• Methodologies: A groups of methods or technique are

known as methodologies
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Project Management Methodologies (PMM)
• A project management methodology is a set of

principles, tools and techniques that are used to
plan, execute and manage projects.
PMM comprise of below approaches to manage
events occurring in SDLC of a project framework:
➢ Defining set of steps (processes).
➢ Prepare Guidelines.
➢ Define activities, tasks, techniques, tools, roles
and responsibilities etc.
➢ Procedure to control risks and changes.
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Key Functions
Differs from project to project but the backbone is

similar having below set of common activities:
• Project scheduling, cost & resource planning.
• Risk management planning.
• Quality assurance.
• Communication planning.
• Estimate and plan effort.
• Project tracking and control.
• High utilization of technical resource.
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The Benefits
• Better process.
• Flexibility to adapt across multiple projects.
• Focusing the quality.
• Manage the complexity.
• Delivering with consistency.
• Guiding the team.
• Reusable knowledge asset improve future
projects
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Types- (PMM)
• There are many methodologies to choose from, each
with their own set of rules, principles, processes, and
practices. Which methodology you should implement
depends entirely on the type of project you will
undertake.
➢ Waterfall
➢ Spiral
➢ Iterative
➢ Agile
➢ Scrum
➢ Kanban
➢ PRINCE2
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Categorization of Software
Projects
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Categorization of Software Projects
Distinguishing different types of project is

important as different types of task need
different project approaches.
1. Compulsory Vs Voluntary systems (projects):

Compulsory systems are the systems which the
staff of an organization have to use if they want
to do a task.
Voluntary systems are the systems which are
voluntarily used by the users e.g. computer
gaming, school project, etc.
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2. Software products vs software services:
Software Products, is simply a software system
delivered to customer along with documentation
about how to install and use particular software
system. Types of software product includes
generic products, customized products, etc.
Software Services, is a type of software
distribution model which is used to deliver
applications as a service. List of software services
includes IT Security services, infrastructure
support services, app maintenance services, etc.
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3. Information Vs Embedded systems (projects):

Information systems are used by staff to carry
out office processes and tasks e.g. stock control
system.
Embedded systems are used to control machines
e.g. a system controlling equipment in a building.
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4. Objective-based Vs Product-based systems (projects):
Product-based:
A project will be to create a product.
The details of the product is provided by the client.
Objective-based:
A project is to meet an objective.

The Client may have a problem and asks a specialist
to recommend solutions. For example, where a new information
system is implemented to improve some service to users inside or
outside an organization. The subject of an agreement would be the
level of service rather than the characteristics of a particular
information system
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Stakeholder
• People having stake or interest in the project.
• Three types of stakeholder:
– Internal to the Project team
– External to the Project team

• Internal to the organization
• External to the organization
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Problems with Software Projects
• Poor estimates and plans.
• Lack of quality standards and measures.
• Lack of guidance about making organizational decisions.
• Lack of techniques to make progress visible.
• Poor role definition- who does what?
• Inadequate specification of work.
• Lack of up-to date documentation.
• Late delivery.
• Deadline pressure.
• Lack of training.
• Lack of communication.
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Setting Objectives
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Setting objectives
• Project objectives are what you plan to achieve by
the end of your project.
• Answering the question ‘What do we have to do to
have a success?’
• Need for a project authority
– Sets the project scope
– Allocates/approves costs
• Could be one person - or a group
– Project Board
– Project Management Board
– Steering committee
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Objectives should be SMART
S– specific, that is, concrete and well-defined. This
involves describing the objective by answering the
questions “what, why, when, who, where”
M – measurable, that is, satisfaction of the objective can

be objectively judged. An objective should have metrics
and specific values that can be used to monitor and
assess success.
A– achievable, that is, it is within the power of the
individual or group concerned to meet the target
R – relevant, the objective must relevant to the true
purpose of the project.
T– time constrained: there is defined point in time

by which the objective should be46achieved.
Management Principles
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• The principles of project management are
the fundamental rules that should be
followed for the successful management of
projects. Figure shows the principle process
of project management.
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• Initiating – The process of outlining your project
and obtaining proper approval to begin.
• Planning – The process of developing your project
management plan to reach your project goals.
• Executing – The process of completing work as
defined in your project management plan.
• Monitoring and Controlling – The process of
reviewing and tracking the progress project as per
plan.
• Closing – The process of completing the project
work and receiving approval from the stakeholder.
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• Much of the project manager’s time is spent on the
planning, monitoring and controlling.
• Planning – It is an important responsibility of the
project manager. It carried out before development
start. Planning include following important activities:
1. Estimation: The following project attributes are
estimated.
➢ Cost: How much is it going to complete the project.
➢ Duration: How long is it going to take to complete
the project.
➢ Effort: How much effort would be necessary for
complete the project.
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2. Scheduling: Based on estimates of effort and
duration the schedules for manpower and other
resources are prepared.
3. Staffing: Organization of staff.
4. Risk Management: Includes risk identifications and
planning to deal with risks.
5. Miscellaneous Planning: Includes some other plans
such as quality assurance plans, configuration
management plans etc.
Monitoring and Controlling:
To check whether everything is going according to the plan.
To check the probability of risk and taking measures to address the
risk or report the status of various tasks.
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Management control
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Management control
• Management control is the process needed to track,
review, and regulate the progress and performance of the
project. It also identifies any areas where changes to the
project management method are required and initiates
the required changes.
• The whole process of the project control cycle is shown in
following figure.
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Management control
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Management control
Example: Take an IT project that is to replace
locally held paper-based records with a centrally-
organized database.
Data – the raw details
e.g. ‘6,000 documents processed at location X’
Information – the data is processed to
produce something that is meaningful and
useful
e.g. ‘productivity is 100 documents a day’
Comparison with objectives/goals
e.g. we will not meet target of processing all
documents by 31st March
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Management control
Modelling – working out the probable
outcomes of various decisions
e.g. if we employ two more staff at location
X how quickly can we get the documents
processed?
Implementation – carrying out the

remedial actions that have been
decided upon.
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Project Portfolio Management
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• When there are many projects run by an
organization, it is important for the organization to
manage their project portfolio. This helps the
organization to categorize the projects and align the
projects with their organizational goals.
• Project portfolio management (PPM) is the analysis
and optimization of the costs, resources,
technologies and processes for all the projects and
programs within a portfolio. Project portfolio
management is typically carried out by portfolio
managers or a project management office (PMO).
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• PPM Objective: The objectives of PPM are to
determine the optimal resource mix for delivery and
to schedule activities to best achieve an
organization’s operational and financial goals.
• Benefits of PPM:
➢ Project portfolio management ensures that projects
have a set of objectives, which when followed brings
about the expected results.
➢ PPM can be used to bring out changes to the
organization which will create a flexible structure
within the organization in terms of project execution.
In this manner, the change will not be a threat for the
organization.
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Project Portfolio Management (Benefits..)
➢ Quick fixes to the systems to deal with externally imposed
changes.
➢ Constant review and close monitoring brings about a
higher return.
➢ Advantage over other competitors (competitive
advantage).
➢ Helps to concentrate on the strategies, which will help to
achieve the targets rather than focusing on the project
itself.
➢ Facilitates IT and business alignment
➢ Enables reasoned investment decisions resulting in the
right project mix
➢ Reduces resource conflicts & constraints
➢ Helping, modifying, slowing, and stopping projects when
necessary 60
Some Problems with Project Portfolio
Management
Lack of data visibility: Poor visibility over and into
business- and project-related data is definitely one of
the most common and vexing problems that project
management professionals face:
➢ Which projects are in the pipeline?
➢ Which specific issues might they be facing?
➢ How do these projects contribute to the realization of the firm's
objectives?
➢ Who is working on what and when?
➢ Which share of the budget allocated to a project has been consumed?
Low Productivity: Poor data visibility issues directly
translate into lower-than-average productivity of work,
as project managers are wasting valuable time hunting
for information.
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Some Problems with Project Portfolio
Management…
Poor Collaboration across project teams: In the
organizations that haven’t implemented a standard,
structured PPM process, misalignments and
disconnects between project managers and project
teams can also be the major problem in the way of
effective project management.
Formatting: When managing a portfolio, it can be a
real challenge to try and see various projects from
multiple places in the same format.
Integration: When your data and information is spread
across multiple systems or projects, you can’t get a
comprehensive or accurate view into what is currently
going on.
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Project Portfolio Management Life Cycle (Key Aspects)
project portfolio management can be broken down into four basic
components: selecting the right projects, optimizing the portfolio,
protecting the portfolio’s value, and Deliver portfolio value as show in
figure.
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• 1) Define the Portfolio—

➢ Defining the portfolio includes process such as ideation, work-intake,
and Phase-Gate to select projects that align with strategic objectives.
➢ Here decision to be made which project is to be included or not
included.
➢ For example governance team define portfolio parameters such as
what types of projects to include (e.g. operational projects, strategic
projects, or both).
• 2) Optimize Portfolio Value—
➢ portfolio optimization means working within current limitations and
constraints, and in practice it requires governance teams to reject lower
value work in order to increase the overall value of the portfolio.
➢ Governance teams first need to establish intake processes and be able
to say no to new requests.
➢ Once basic governance is established, it is possible to truly optimize
the portfolio.
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3) Protect Portfolio Value—

➢ During the execution of an optimized portfolio, the aggregate project
benefits (portfolio value) must be protected.
➢ This occurs by monitoring projects, assessing portfolio, and managing
portfolio risk.
➢ It is not enough merely to initiate good projects, senior leadership plays
an important role in ensuring that projects meet their intended
objectives and deliver the expected value.
4) Deliver Portfolio Value —

➢ Part of this lifecycle phase involves benefits realization processes to
ensure that portfolio value is delivered by comparing expected benefits
with actual benefits.
➢ This requires teams to proactively measure project performance post-
completion.
➢ Many companies do not devote resources to benefit realization and
therefore miss an opportunity to compare expected benefits against
actual benefits.
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PM Vs PPM
• Project Management (PM), as name
suggests, is a management skill that involves
managing single project from starting to end
and makes sure it gets completed
successfully on given period of time.
• Portfolio Project Management (PPM), as
name suggests, is a management skill that
involves managing all projects within
organization so that they can maximize
earnings and increase return of investments.
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PM Vs PPM
PM PPM
It mainly focuses on management of It mainly focuses on all projects

particular project. within organization.
It simply manages individual It simply manages investments of

projects and makes sure that it gets individuals so that they can increase
completed on given period of time their earnings within given period of
within budget also. time.
This management generally focuses This management generally focuses

various tasks within particular on high-level view of any activity or
project to achieve desired result or task or project of any organization.
product.
It is a temporary process but It is a ongoing process that has to

unique. performed on daily basis.
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PM Vs PPM…
PM PPM
It does not make a strategic plans It makes strategic plans, prioritize
and prioritize projects. projects, selects important projects
that will benefit organization.
It makes unnecessary use of It decreases unnecessary use of

resources for each project that are resources by prioritizing project that
not even important. are important.
This management direct a individual This management is about selecting

project successfully. and implementing right projects for
organization to fulfill long-term
objectives.
Its main goal is to complete single Its main goal is to look at all
project and provide service. projects and in turn improves return
of investment as well as reduction
of costs.
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Project Evaluation
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Project Evaluation
Why:
➢ Want to decide whether a project can proceed before
it is too late
➢ Want to decide which of the several alternative
projects has a better success rate, for example a
higher turnover.
Who:
➢ Senior management
➢ Project manager/coordinator
➢ Team leader
When:
➢ Usually at the beginning of the project e.g. Step 0 of
Step Wise Framework.
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Project Evaluation…
What:
➢ Strategic assessment (Strategic Program Management)
➢ Technical assessment
➢ Economic assessment
How:
➢ Cost-benefit analysis
➢ Cash flow forecasting
➢ Cost-benefit evaluation techniques
➢ Risk Evaluation
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Strategic Assessment:
➢ Used to assess whether a project fits in the long-term goal of the
organization
➢ Usually carried out by senior management
➢ Needs a strategic plan that clearly defines the objectives of the
organization
➢ Evaluates individual projects against the strategic plan or the overall
business objectives
Strategic Program Management
➢ suitable for projects developed for use in the organization.
Strategic Portfolio management
➢ suitable for project developed for other companies by software
houses.
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• Individual projects as components of a
program within the organization.
• Program may be defined as “a group of
projects that are managed in a
coordinated way to gain benefits that
would not be possible were the projects
to be managed independently”
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Issues
Objectives:
➢ How does the project contribute to the long-term goal of the
organization?
➢ Will the product increase the market share? By how much?
Organization structure:
➢ How does the product affect the existing organizational
structure? the existing
➢ workflow? the overall business model?
IS (Information System) plan:
➢ Does the product fit into the overall IS plan?
➢ How does the product relate to other existing systems?
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Issues…
MIS (Management Information System):
➢ What information does the product provide?
➢ To whom is the information provided?
➢ How does the product relate to other existing MISs?
Personnel:
➢ In what way the proposed system affect manning levels and the
existing employee skill base?
➢ What are the implications for the organization’s overall policy
on staff development?
Image:
➢ How does the product affect the image of the organization?
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Programme managers versus project
managers
Programme managers project managers
Many simultaneous projects One project at a time
Personal relationship with skilled Impersonal relationship with
resources resources
Work with project managers to Plan and acquire project resources
plan project schedules, budgets, like budget, teams, and tools
and goals
Collaborate with executive Communicate with stakeholders
management to help achieve an (including program managers) and
organization’s goals and come up project team members to ensure
with new strategies alignment around goals
Facilitate communication across Maintain progress on projects by
different projects and cross- motivating team members,
functional teams addressing pain points, and leading
quality assurance
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Strategic programmes (Based on UK
government’s Office of Government
Commerce (OGC))
• Initial planning document is the Programme Mandate
describing
– The new services/capabilities that the programme should
deliver.
– How an organization will be improved.
– Fit with existing organizational goals.
• A programme director appointed a champion for the scheme.
• The programme brief – equivalent of a feasibility study:
emphasis on costs and benefits.
• The vision statement – explains the new capability that the
organization will have.
• The blueprint – explains the changes to be made to obtain the
new capability.
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Technical Assessment: Technical assessment of a proposed system
consist of evaluating:
➢ Functionality against hardware and software.
➢ The strategic IS plan of the organization.
➢ Any constraints imposed by the IS plan.
Economic Assessment:
Why?
➢ Consider whether the project is the best among other options.
➢ Priorities the projects so that the resources can be allocated effectively
if several projects are underway.
How?
➢ Cost-benefit analysis
➢ Cash flow forecasting
➢ Various cost-benefit evaluation techniques
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Cost-benefit analysis
The standard way of evaluating the economic benefits of
any project is to carry out a cost-benefit analysis, which
consists of two steps.
Step1: Identify and estimate all the costs and benefits of carrying out
the project.
Step2: Express the costs and benefits in a common unit for easy
comparison (e.g. $).
Costs:
➢ Development costs: include the salaries and other employment and
associated cost involved in the development project.
➢ Setup costs: include cost of putting the system into place.
➢ Operational costs: include cost of operating the system once it has been
installed.
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Cost-benefit analysis…
Benefits:
➢ Direct benefits: direct from the operation of the proposed system. For
example, include the reduction in salary bills through the introduction of a
new computerized system.
➢ Assessable indirect benefits: These are generally secondary benefits, such

as increased accuracy through the introduction of a more user-friendly
screen design where we might be able to estimate the reduction in errors,
and hence costs, of the proposed system.
➢ Intangible benefits: Considered very difficult to quantify. These benefits

are not included in financial calculations because they are difficult to
quantify and calculate. Examples of intangible benefits include brand
awareness, customer loyalty, etc.
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Cash flow forecasting
• What?
➢ Estimation of the cash flow over time
➢ Typical product life cycle cash flow is shown in following figure.
• Why?
➢ Need detailed estimation of benefits and costs versus time
➢ Need to forecast the expenditure and the income
➢ Accurate forecast is not easy
➢ Need to revise the forecast from time to time
82
Cost-benefit evaluation
techniques
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Cost-benefit evaluation techniques
• Net Profit:
❖ Very simple method
Net profit= Total income – Total costs
➢ May be at the expense of large investment
➢ Ignorance of timing of cash flows.
➢ Having to wait for a return has the disadvantage that the investment
must be funded for longer.
• Payback period:
❖ Simple to calculate
❖ Not particularly sensitive to small forecasting error
Payback period = Time taken to pay back the initial investment
➢ Ignores the overall profitability.
➢ In fact it totally ignores any income(or expenditure) once the project
has broken even.
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• Return on Investment (ROI):
❖ Also called accounting rate of return (ARR)
❖ A simple and easy to calculate and quite popular.
ROI= (average annual profit/total investment)×100
➢ Like net profit it also ignore timing of cash flows.
➢ Compare rate of return with current interest rate.
• Net present value (NPV):
❖ Takes into account both profitability and timing of cash flow.
❖ Use discount rate (discounting future cash flows by a percentage)
Let t be the number of year and r be the discount rate, the present value
(PV) is given by
PV= value in year t/(1+r)t
Note: here r is decimal value. 1/(1+r) is called discount factor. Assume
that any initial investment (for year 0) will not be discounted.
➢ The main difficulty is to choose an appropriate discount rate.
➢ It might not be directly comparable with earning from other
85
investments sources. ©The McGraw-Hill Companies, 2005
• Internal Rate of Return (IRR)
❖ Attempts to provide a profitability measure as a percentage return that
is directly comparable with interest rates.
❖ Usually calculated using a spreadsheet or other computer programs
that provides functions for calculating the IRR.
❖ We can say that a project with an IRR greater than current interest rates
will provide a better rate of return than lending the investment to a
bank.
➢ One deficiency of the IRR is that it does not indicate the absolute size
of the return. For example, a project with an NPV of Rs. 100000 and
an IRR of 15% can be more attractive than one with an NPV of Rs.
10000 and an IRR of 18%-the return on capital is lower but the net
benefits greater.
86
Problem
Consider the following table of four projects with cashflows (in Rs.)
details.
Year Project 1 Project 2 Project 3 Project 4
0 -1,00000 -10,00000 -1,00000 -1,20,000
1 10,000 2,00000 30,000 30,000
2 10,000 2,00000 30,000 30,000
3 10,000 2,00000 30,000 30,000
4 20,000 2,00000 30,000 30,000
5 1,00000 3,00000 30,000 75,000
1. Calculate Net profit for each project.

2. Calculate Payback period for each project.
3. Calculate ROI for each project.
4. Calculate NPV for each project (assume 10% discount rate)
87
Problem (Solution)
1. Net profit= Total income – Total costs
Year Project Project 2 Project 3 Project 4
1
0 -1,00000 -10,00000 -1,00000 -1,20,000
1 10,000 2,00000 30,000 30,000
2 10,000 2,00000 30,000 30,000
3 10,000 2,00000 30,000 30,000
4 20,000 2,00000 30,000 30,000
5 1,00000 3,00000 30,000 75,000

Net Profit 50,000 1,00000 50,000 75,000
88
Problem (Solution)…
2. Payback period = Time taken to pay back the initial investment
Year Project Project 2 Project 3 Project 4
1
0 -1,00000 -10,00000 -1,00000 -1,20,000
1 10,000 2,00000 30,000 30,000
2 10,000 2,00000 30,000 30,000
3 10,000 2,00000 30,000 30,000
4 20,000 2,00000 30,000 30,000
5 1,00000 3,00000 30,000 75,000

Payback Year 5 Year 5 Year 4 Year 5
89
3. ROI= (average annual profit/total investment)×100
Year Project 1 Project 2 Project Project 4
3
0 -1,00000 -10,00000 -1,00000 -1,20,000
1 10,000 2,00000 30,000 30,000
2 10,000 2,00000 30,000 30,000
3 10,000 2,00000 30,000 30,000

4 20,000 2,00000 30,000 30,000
5 1,00000 3,00000 30,000 75,000
Net Profit 50,000 1,00000 50,000 75,000
Avg. Annual 50,000/5=10,000 20,000 10,000 15,000

Profit
Total 1,00000 10,00000 1,00000 1,20,000
Investment
ROI (10,000/1,00000) 2% 10% 12.5%
×100 = 10%
90
4. PV= value in year t/(1+r)t
discount factor= 1/(1+r)
Given r= 10% means take r = 0.1
Year Project 1 Discount factor Discounted Cash flow
Cash flow
0 -1,00000 1.0000 -1,00000
1 10,000 1/(1+0.1)=0.9091 10,000×0.9091=9091
2 10,000 0.8264 8264
3 10,000 0.7513 7513

4 20,000 0.6830 13,660
5 1,00000 0.6209 62,090
Net Profit 50,000 NPV: 618
91
Risk Evaluation
92
Risk Evaluation
• Every project involves risk of some
form.
• When assessing and planning a project
we are concerned with the risk of the
project’s not meeting its objectives.
• Here we are concerned with taking risk
into account when deciding whether to
proceed with a proposed project.
93
Risk Evaluation…
• Risk Identification and ranking:
➢ Attempt to identify the risks and quantify their
potential effects.
➢ One common approach to risk analysis is to construct
a project risk matrix utilizing a checklist of possible
risks and classify each risk according to its relative
importance and likelihood.
• Risk and net present value:
➢ Where a project is relatively risky use a higher
discount rate to calculate net present value.
94
Example of a project risk
matrix
95
Risk Evaluation…
• Cost-benefit analysis:
➢ Consider each possible outcome and estimate
the probability of its occurring and its
corresponding value.
➢ The value of the project is then obtained by
summing the cost or benefit for each possible
outcome weighted by its corresponding
probability.
➢ Used in the evaluation of large projects.
➢ However this technique depend on the ability
to assign the probability.
96
Risk Evaluation…
• Risk Profile analysis:
➢ An approach attempts to overcome some of the objections to
cost-benefit averaging.
➢ Here risk analysis is done by constructing risk profiles using
sensitivity analysis.
➢ Involves varying each of the parameters that affect the project’s
cost or benefits to ascertain how sensitive the project’s
profitability is to each factor.
➢ For example, vary one of our original estimates by plus or minus
5% and recalculate the expected costs and benefits for the
project. By repeating this exercise for each of our estimates, the
sensitivity of the project to each factor can be evaluated.
➢ Based on sensitivity analysis factors which are most important
to the success of the project can be identified.
➢ Typical to do manually.
➢ Simulation tools are used such as Monte 97
Carlo Simulation.
Risk Evaluation…
• Using Decision Tree:
➢ All the previous approaches allows the risks to take its own
course naturally.
➢ The best we can do is to reject over-risky projects or choose
those with the best risk profile.
➢ There are many situations, however, where we can evaluate
whether a risk is important and if it is, indicate a suitable course
of action.
➢ Many such decisions will limit or affect future options and, at
any point, it is important to be able to see into the future to
assess how a decision will affect the future profitability of the
project. Decision tree is a way to see this in graphical way.
➢ For example, the company estimate the likelihood of the market
increasing significantly at 20%-and hence the probability that it
will not increase as 80%. This scenario can be represented as a
tree structure (decision tree) as shown in the following figure.
98
Decision trees
99
Stepwise Project Planning
100
• An Overview:
➢ Planning is the most difficult process in project
management. this chapter describes a framework
➢ The following figure presents a framework of basic steps
in project planning.
➢ Many different techniques can be used but here we will
discuss the overview of the steps and activities in each step
of project planning.
101
‘Step Wise’ - an overview
0.Select
1. Identify project 2. Identify project
project objectives infrastructure
3. Analyse
project
characteristics
Review
4. Identify products
and activities
5. Estimate effort
for activity
Lower For each
level activity
6. Identify activity
detail
risks
10. Lower level
7. Allocate
planning
resources
8. Review/ publicize
9. Execute plan plan 102
• Step 0: Select project

• Step 1: Identify project scope and objectives
• Step 2: Identify project infrastructure
• Step 3: Analyze project characteristics
• Step 4: Identify project products and activities
• Step 5: Estimate effort for each activity.
• Step 6: Identify activity risks.
• Step 7: Allocate resources
• Step 8: Review / Publicize pl\an
• Step 9 &10: Execute plan / lower level of planning
103
Step 0 Select project
• This is called step 0 because in a way of

project planning, it is outside the main
project planning process.
• Feasibility study suggests us that the
project is worthwhile or not.
104
Step 1 Identify project
scope and objectives
• 1.1 Identify objectives and measures of
effectiveness.
– ‘how do we know if we have succeeded?’
• 1.2 Establish a project authority.

– ‘who is the boss?’
• 1.3 Identify all stakeholders in the project and

their interests.
– ‘who will be affected/involved in the project?’
105
Step 1 continued
• 1.4 Modify objectives in the light of
stakeholder analysis.
– ‘do we need to do things to win over
stakeholders?’
• 1.5 Establish methods of communication

with all parties
– ‘how do we keep in contact?’
106
infrastructure
• 2.1 Establish link between project and
any strategic plan.
– ‘why did they want the project?’
• 2.2 Identify installation standards and

procedures.
– ‘what standards do we have to follow?’
• 2.3. Identify project team organization.

– ‘where do I fit in?’
107
Step 3 Analyze project
characteristics
• 3.1 Distinguish the project as either
objective or product-based.
• 3.2 Analyze other project characteristics

(including quality based ones)
– what is different about this project?
108
Step 3 continued
• 3.3 Identify high level project risks
– ‘what could go wrong?’
– ‘what can we do to stop it?’
• 3.4 Take into account user requirements
concerning implementation.
• 3.5 Select general life cycle approach.
– waterfall? Increments? Prototypes?
• 3.6 Review overall resource estimates
– ‘does all this increase the cost?’
109
products and activities
Product
• The result of an activity
• Could be (among other things)

– physical thing (‘installed pc’),
– a document (‘logical data structure’)
– a person (‘trained user’)
– a new version of an old product (‘updated
software’)
110
Product…
• The following are NOT normally
products:
– activities (e.g. ‘training’)
– events (e.g. ‘interviews completed’)
– resources and actors (e.g. ‘software
developer’) - may be exceptions to this
• Products CAN BE deliverable or
intermediate
111
4.1 Identify and describe project products (or
deliverables) –
‘what do we have to produce?’
➢ The products forms a hierarchy. The main products
will have sets of component products, which in turn
might have sub-component products and so on.
➢ These relationships can be documented in a Product
Breakdown Structure (PBS).
112
Example of PBS
113
• 4.2 Document generic product flows
➢ Some of the products will need some other product
to exist first before they can be created.
➢ These relationships can be described in a Product
Flow Diagram (PFD).
➢ For Example, a program design must be created
before the program can be written and the program
specification must exist before the design.
114
Example of PFD
115
Step 4.3 Recognize product
instances
• Same generic PFD fragment may relates
to more than one instance of a
particular type of product.
• Each of those instances should be
identified.
• For example it might be possible to
identify specific instances e.g. ‘module
A’, ‘module B’ …for product type
‘software module’. 116
4.4. Produce ideal activity
network
• Identify the activities needed to create
each product in the PFD.
• More than one activity might be needed
to create a single product.
• Draw up activity network.
117
Example of an Activity Network
118
4.5 Add check-points if needed
➢ In activity network it is assumed that an

activity will start as soon as the preceding
ones upon which it depends have been
completed.
➢ However there may be the need to modify
this assumption by dividing the project into
stages and including checkpoint activities to
check that they are compatible.
➢ These checkpoints are sometimes referred to
as milestone events.
➢ However, a checkpoint may delay work.
119
4.5 Example of Checkpoint
Design Code
module A module A
Design Design Code

system Test
module B module B system
Design Code put in a

module C module C check point
Design Code
module A module A
Design Design Code

system Check-point Test
module B module B system
Design Code
module C module C
120
Step 5:Estimate effort for each activity
• 5.1 Carry out bottom-up estimates
– distinguish carefully between effort and elapsed
time
– Effort is the total number of staff-hours (or days
etc) needed to complete a task. Elapsed time is the
calendar time between the time task starts and
when it ends. If 2 people work on the same task
for 5 days without any interruption, then the effort
is 10 staff-days and the elapsed time is 5 days.
• 5.2. Revise plan to create controllable activities

– break up very long activities into a series of
smaller ones.
121
Step 6: Identify activity risks
• 6.1.Identify and quantify risks for activities
– Find damage if risk occurs (measure in time lost or
money)
– likelihood if risk occurring
• 6.2. Plan risk reduction and contingency measures

– risk reduction: activity to stop risk occurring
– contingency: action if risk does occur
• 6.3 Adjust overall plans and estimates to take account of
risks
– e.g. add new activities which reduce risks associated
with other activities e.g. training, information gathering.
122
Step 7: Allocate resources
• 7.1 Identify and allocate resources to

activities
• 7.2 Revise plans and estimates to take

into account resource constraints.
– e.g. staff not being available until a later
date.
123
Step 8: Review/publicise
plan
• 8.1 Review quality aspects of project
plan.
• 8.2 Document plan and obtain
agreement of all the parties.
Step 9 and 10: Execute plan

and create lower level plans
124

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SOFTWARE PROJECT MANAGEMENT

Subject Code: KOE-068

Unit-II Project Life Cycle and Effort Estimation

Software process and Process Models, Choice of Process models, Rapid

Objectives of Activity planning, Project schedules, Activities,

Unit-IV Project Management and Control

Framework for Management and control Collection of data

Managing people, Organizational behavior, Best methods of staff

• Collection of computer programs and

Key points above are planning and size

‘Jobs’ – repetition of very well-defined and well

Management can be defined as all the activities and tasks

• Specification: Detailed documentation of what the

• Coding: Write the code. (some people refer

• Method: takes the plan and convert it to real activities.

• Methodologies: A groups of methods or technique are

• A project management methodology is a set of

Differs from project to project but the backbone is

Distinguishing different types of project is

1. Compulsory Vs Voluntary systems (projects):

3. Information Vs Embedded systems (projects):

A project is to meet an objective.

• Three types of stakeholder:

– Internal to the Project team

– External to the Project team

M – measurable, that is, satisfaction of the objective can

T– time constrained: there is defined point in time

Implementation – carrying out the

• 1) Define the Portfolio—

3) Protect Portfolio Value—

4) Deliver Portfolio Value —

It mainly focuses on management of It mainly focuses on all projects

It simply manages individual It simply manages investments of

This management generally focuses This management generally focuses

It is a temporary process but It is a ongoing process that has to

It makes unnecessary use of It decreases unnecessary use of

This management direct a individual This management is about selecting

➢ Assessable indirect benefits: These are generally secondary benefits, such

➢ Intangible benefits: Considered very difficult to quantify. These benefits

3 10,000 2,00000 30,000 30,000

4 20,000 2,00000 30,000 30,000

5 1,00000 3,00000 30,000 75,000

1. Calculate Net profit for each project.

3 10,000 2,00000 30,000 30,000

4 20,000 2,00000 30,000 30,000

5 1,00000 3,00000 30,000 75,000

3 10,000 2,00000 30,000 30,000

4 20,000 2,00000 30,000 30,000

5 1,00000 3,00000 30,000 75,000

3 10,000 2,00000 30,000 30,000

Avg. Annual 50,000/5=10,000 20,000 10,000 15,000

3 10,000 0.7513 7513

• Step 0: Select project

• This is called step 0 because in a way of

• 1.2 Establish a project authority.

• 1.3 Identify all stakeholders in the project and

• 1.5 Establish methods of communication

• 2.2 Identify installation standards and

• 2.3. Identify project team organization.

• 3.2 Analyze other project characteristics

• Could be (among other things)

➢ In activity network it is assumed that an

Design Design Code