Professional Documents
Culture Documents
Part 1
Is Sydney Opera construction an example of successful project? No, because actual expenses exceeded the planned budget by several times. Yes, because it became one of the most famous Sydney attractions, bringing many tourists and a lot of money.
Iridium, backed by Motorola Inc. (MOT), sought bankruptcy-court protection in 1999 after its $5 billion low-Earth orbit satellite (LEOS) fleet failed to attract customers or provide the quality service its backers had hoped for.
The Product Life Cycle may be too long for reliable IRR estimation, Uncertainties may be too great for proper IRR management.
But, if project manager can find enough money and materials then the project total profit on the imposed date will be close to $219,000.
If we calculate the project schedule that accounts for financing, supply, and resource constraints then the total profit will be more than $25,000 lower.
For setting project success criterion it is necessary to incorporate the following data: Target finish that may be achieved with reasonable probability, Target budget that may be achieved with reasonable probability, Forecast of the probable future benefits (for an example future profit or revenue curve). The target finish and target budget shall be calculated, taking into account all project constraints (including resource, financing and supply constraints) and using risk simulation.
NPV forecast depends not only on project performance results but also on the market conditions and other project environmental parameters. So project managers will analyze not only project performance but also revenue/profit forecasts. Their objective will be trying to improve everything.
Still Profitable
Project Failure
Target Date
Part 2
Necessary Steps
1) Develop corporate databases 2) Develop typical fragnet library, 3) Create project model, 4) Define constraints, 5) Create project schedule, 6) Forecast future benefits, 7) Define project targets.
Corporate databases (Reference-books) should include at least: Activity cost and material requirements per activity type volume unit, Resource assignment cost and material requirements per assignment type volume unit, Resource assignment productivity, Assignment work load.
constraints include
time constraints, resource constraints, financing constraints (financing schedule), supply constraints (supply schedule), calendar constraints.
The problem of project schedule development without allowing for resource constraints has a correct mathematical solution (Critical Path Method), which would be the same for all PM packages, provided that the initial data are identical. All other problems are solved using different approaches and yielding different results.
Please pay attention to activities that became critical. Now delaying each of the activities 1, 2 and 5 will delay the project finish date. We call these activities Resource Critical and their sequence comprises Resource Critical Path.
In many projects it is necessary to simulate financing and production, and calculate project schedules taking into account all limitations (including availability of renewable resources, material supply and financing schedules). True critical path should account for all schedule constraints including resource and financial limitations.
Part 3
Necessary Steps
8) Analyze risks, 9) Define target success probability for project management team, 10) Define target success probability for the organization (management), 11) Calculate target values for PM team and top management, 12) Define failure value.
Risk Simulation
Risk
exceeding 90% in the optimistic scenario, exceeding 50% in the most probable scenario, all selected risks in the pessimistic scenario.
Recommended Parameters
They are used to rebuild probability curves for the dates, costs and material requirements. Defining desired probabilities of meeting project targets a project planner obtains recommended finish dates, costs and material requirements for any project deliverable.
Success Probabilities
If different targets were approved then it is necessary to calculate the probabilities of meeting these targets. If they are reasonable then they may be accepted. Probabilities to meet approved project targets we call Success Probabilities. These targets may be set for all project parameters that will be controlled (profit, expenses, duration, material consumption).
Baseline
Target dates do not belong to any schedule. Usually they are between most probable and pessimistic dates. A set of target dates and costs (analogue of milestone schedule) is the real project baseline.
But,
not exist!
Buffers
We recommend using the optimistic scenario for setting task objectives for project implementers and managing project reserves at the management level. The difference between scheduled and target finish dates shows current schedule contingency reserve (buffer), Cost buffer is the difference between targeted and calculated cost.
Buffers
As we discussed earlier there are several targets for each parameter and corresponding buffers (PM team targets, top management targets, contract targets, failure targets). Each target has its own initial probability of successful achievement. Example:
Project team target profit can be achieved with 65% probability, Management target profit has 80% probability of success, Failure profit will be exceeded with 95% initial probability.
There are time, cost and material buffers that show contingency reserves not only for a project as a whole (analogue of Critical Chain project buffer) but also for any activity in the optimistic project schedule.
Management by Trends
Part 4
Trend Analysis
Project Performance Management will be based on trend analysis. It is necessary to discover problems as soon as possible and, by analyzing trends of the major project parameters, the project manager can quickly understand if there are problems with project performance.
The best way to measure project performance is to analyze what is going on with the project success probabilities. If they are increasing it means that contingency reserves were spent slower than expected, if they dropped it means that project performance is not as good as planned and corrective actions are needed.
to:
Performance results Scope changes Cost changes Risk changes Resource changes Market conditions changes
Thus, success probability trends reflect not only project performance results but also what is going on around the project.
We
consider success probability trends to be the really integrated project performance measurement tool.
Part 5
1) Define integrated project success criterion that is based on the project business goal. Usually this criterion is the project cash flow (profit) value at some specific date in the future. 2) Set reasonable and achievable target values of project success criterion for project stuff, for project management team, for organization management. 3) Define what business results mean that project termination shall be considered.
4) Basing on performance management results calculate current value of success criterion, and current probabilities to meet project targets. 5) Analyze success probability trends. If this trends are negative consider corrective actions. 6) Determine, analyze and implement corrective actions. Corrective action should raise success criterion value.
Probability Trends integrate project scope, time, cost, risk, and procurement performance information. They may be used at the top management level as the only and sufficient tool for reliable project performance analysis and decision making.
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