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Project Management

Introduction:
Project Management Drivers
Expansion of knowledge Demand for new products Worldwide markets Competition Belief better living though technology Expanding size of projects

Introduction:
Three Project Objectives

Performance Cost Time

Introduction:
Recent Managing Changes
Less hierarchical

Systems approach
Project oriented

Project Definition
Definition used by PMI*:
A temporary endeavor undertaken to create a unique product or service

*Project Management Institute

Terminology
Program (group of projects) Project Task (subset of work elements) Work package (sub element of task) Work unit

Project Attributes
Purpose Life cycle Interdependencies Uniqueness Conflict

Project Life Cycle:


(% Completion) Vs. (Time)
Slow start

Quick momentum

Slow finish

Project Life Cycle:


Increasing Marginal Returns
Return as applied to late stages in PLC Compare to standard PLC showing DECREASING marginal return in late stages of PLC

Project Life Cycle:


Reduce Uncertainty of Cost Estimate
Figure 1.6

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Strategic Management and Project Selection

Overview of PS Process
Project Management Office (PMO): Aligning corporate needs and project goals Project selection: Choose candidate projects using evaluation criteria Dealing with uncertainty: Risk analysis Strategically selecting best projects: Project Portfolio Process (PPP) Locking up the deal: Writing a project proposal
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Project Management Maturity Levels


Ad-hoc (essentially disorganized) Abbreviated (some processes exist) Organized (standardized processes) Managed (measured processes) Adaptive (continuous improvement)

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PS Models

Idealized view of reality Representing the STRUCTURE of the problem, not the detail Deterministic or stochastic

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Criteria for Project Selection Models


Realism (technical-, resource-, market-risk) Capability (adequately sophisticated) Flexibility (valid results over large domain) Ease of Use (no expert needed to run model) Cost (much less than project benefit) Easy Computerization (use standard software)

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Nature of PS models: Caveats


Project decisions are made by PM --NOT by PS model! A PS model APPROXIMATES, but does NOT DUPLICATE reality!

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Nature of PS Models:
Methodology
Start with detailed list of firms goals Create list of project evaluation factors
(PEFs)

Weigh every element in PEF list Compute an overall score for project
based on weighted PEFs Select project that has the closest alignment with firms goals

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Project Evaluation Factors (PEFs)


Production Factors Marketing Factors Financial Factors Personnel Factors Administrative and Misc. Factors

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Types of PS Models:
Nonnumeric
Sacred Cow Operating Necessity Competitive Necessity Product Line Extension Comparative Benefit Model

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Numeric PS Models: Profit / Profitability


Payback Period (PB) Average Rate of Return Discounted Cash Flow (NPV) Internal Rate of Return Profitability Index Other Profitability Models

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Choosing the PS Model


Dependent on wishes and philosophy of management 80% of Fortune 500 firms choose nonnumeric PS models Firms with outside funding often choose scoring PS models Firms without outside funding often choose profit / profitability PS models
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Elements of Project Management


Project team
Individuals from different departments within company

Matrix organization
Team structure with members from different functional areas depending on skills needed

Project manager
Leader of project team
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Project Planning, Scheduling, and Controlling


Project Planning
1. Setting goals 2. Defining the project 3. Tying needs into timed project activities 4. Organizing the team

Project Scheduling
1. Tying resources to specific activities 2. Relating activities to each other Before Project 3. Updating and revising on regular basis

Project Controlling 1. Monitoring resources, costs, quality


and budgets 2. Revising and changing plans 3. Shifting resources to meet demands
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During Project

Reasons for Project Planning


Establish directions for project team Support objectives of parent organization Make allowance for risk Put controls on the planned work

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Project Planning
Statement of work
Written description of goals, work & time frame of project

Activities require labor, resources & time Precedence relationship shows sequential relationship of project activities

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Project Planning
Statement of work
written description of goals, work & time frame of project

Simplified Project Network Activities require labor, resources & time


Precedence relationship shows sequential Construct forms Pour concrete relationship of project activities 1 2 3

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Elements of Project Planning


Define project objective(s) Identify activities Establish precedence relationships Make time estimates Determine project completion time Compare project schedule objectives Determine resource requirements to meet objective
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Work Breakdown Structure


Hierarchical organization of work to be done on a project Project broken down into modules Modules subdivided into subcomponents, activities, and tasks Identifies individual tasks, workloads, and resource requirements
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Dinner

Pasta

Work Breakdown Structure


Sauce Salad Bread Wine Setting Table Atmosphere Purchase Purchase Purchase Purchase Set table Light candles

Hierarchical organization of work to be done on a project Project broken down into modules Modules subdivided into subcomponents, activities, and tasks Identifies individual tasks, workloads, and resource requirements
Purchase Boil water Add tomato sauce/paste Wash lettuce Drain lettuce Tear lettuce Butter top Open Cook Saut onion & garlic Cool meatballs Slice Taste Drain Heat Serve Serve Add spices Add croutons/ dressing Mix Serve Cook sauce Serve Serve

Turn on music

Figure 6.1
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Budgeting and Cost Estimation

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Projects Make the Best of Scarce Resources

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Developing a Project Budget


Three major elements
Forecast what will be needed
Labor and material

How much will it cost? When will it be needed?

Thus, the budget reflects the project plan, time-phased, in monetary terms

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Why Budgeting for Projects is Tougher


By definition, projects are unique, nonrecurring efforts So theres often little history, little tradition to rely on Further, projects can last for years
More uncertainty, more risk

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Two Major Approaches to Budgeting


Top-Down Bottom-Up Each has advantages . . . And disadvantages as well

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Behavioral Issues in Budgeting


Different perspectives, based on managerial level
Senior people tend to underestimate, junior people tend to overestimate Lower levels tend to arbitrarily add reserves, upper levels to arbitrarily delete them

Bottom Line: Any system can be gamed So know what the games are . . .

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Financial Issues Worth Considering: Inflation


Inflation can distort estimates in different ways
Actual costs from the past will be less than comparables for today the older the data, the greater the disparity Long-duration projects can create special problems
Six percent inflation doubles cost in just 12 years . . . . . . And 6% is low in much of the world

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A Gantt Chart
Popular tool for project scheduling Graph with bar for representing the time for each task Provides visual display of project schedule Also shows slack for activities
Amount of time activity can be delayed without delaying project
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A Gantt Chart
0
Activity Design house and obtain financing Lay foundation Order and receive materials Build house Select paint Select carpet Finish work

Month 4

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3 Month

9
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CPM/PERT
Critical Path Method (CPM)
DuPont & Remington-Rand (1956) Deterministic task times Activity-on-node network construction

Project Eval. & Review Technique (PERT)


US Navy, Booz, Allen & Hamilton Multiple task time estimates Activity-on-arrow network construction
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The Project Network


Network consists of branches & nodes
Node

Branch
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Project Network for a House


Lay foundation 2

3
0 1

Dummy Build house Finish work

4
Select paint 1

Design house and obtain financing

Order and receive materials

3 1

6
Select carpet

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Critical Path
A path is a sequence of connected activities running from start to end node in network The critical path is the path with the longest duration in the network Project cannot be completed in less than the time of the critical path
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The Critical Path


1

Lay foundation 2 3

3
0 1

Dummy Build house Finish work

2
Design house and obtain financing Order and receive materials

4
Select paint 1

3 1

6
Select carpet

A: 1-2-3-4-6-7 3 + 2 + 0 + 3 + 1 = 9 months B: 1-2-3-4-5-6-7 3 + 2 + 0 + 1 + 1 + 1 = 8 months C: 1-2-4-6-7 3 + 1 + 3 + 1 = 8 months D: 1-2-4-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months


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The Critical Path


Activity Start Times 3

Lay foundation 2 3

3
0 1

Dummy Build house Finish work

1
Design house and obtain financing

2
Order and receive materials

4
Select paint 1

3 1

6
Select carpet

Start at 5 months 2 0 1

Finish at 9 months 1

4
1

3 1

Start at 3 months

Start at 8 months

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Probabilistic Time Estimates


Reflect uncertainty of activity times Beta distribution is used in PERT
Mean (expected time): Variance: where a = optimistic estimate m = most likely time estimate b = pessimistic time estimate a + 4m + b t= 6

b-a = 6

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Example Beta Distributions


P(time) P(time)

t
Time

a
Time

P(time)

m=t
Time

b
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Normal Distribution Of Project Time


Probability

= tp

Time
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Project Control
All activities identified and included Completed in proper sequence Resource needs identified Schedule adjusted Maintain schedule and budget Complete on time
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Time-Cost Relationship
Crashing costs increase as project duration decreases Indirect costs increase as project duration increases Reduce project length as long as crashing costs are less than indirect costs
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Time-Cost Tradeoff
Minimum cost = optimal project time

Total project cost

Indirect cost Cost ($)

Direct cost

Crashing Project duration

Time
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