Project monitoring

• Project monitoring is the process or protecting the client’s interests from

the risks associated with their interest in a development that is not under their direct
control.
• A project monitor is appointed, not to assume the responsibilities of the project
manager or developer, but to act as an investigator and advisor to the client,
responsible for protecting their interests in the development as it proceeds. In effect,
the project monitor acts as the ‘eyes and ears’ of the client during
the development process.
• Why is it important :
• Rescheduling the project : To run the budget in time
• Re budgeting the project : Appropriating funds from one head to another; avoiding
expenses under unnecessary heading
• To assess project result: to find out if and how objectives are being met and are
resulting in desired changes
• Project monitoring services can be carried out for a range of different client types:
• A funding institution which will acquire the project as
an investment upon completion.
• A tenant or purchaser who will commit to lease or purchase
the project upon completion.
• A bank or development finance company.
• Grant funders.
• Private finance initiative (PFI) funders.
•
• The project monitor assesses the project as it progresses in a way that is both
independent and impartial. They generally adopt a proactive rather than reactive
approach, providing a form of ‘early warning system’ for the client, anticipating
potential issues which may affect the project delivery. In this way, the project
monitor can also be of value to the developer, as they can help ensure there is
better-informed decision-making.
• Issues that the project monitor will typically advise on include:
• Land and property acquisition.
• Statutory consents.
• Issues relating to the developer and project management systems.
• Financial appraisals.
• Construction agreements
• Costs.
• Programme.
• Design and construction quality.
• Some of the advantages to the client of hiring a project
monitor include:
• Enhanced risk management.
• Enhanced financial management.
• Enhanced programme management.
• Enhanced quality management.
• Greater protection of the client’s interests.
• Better-informed decision making.
Duties of the project monitor

• Duties of the project monitor

• Initial audit report
• This report allows the project monitor to develop a close understanding of
the project.
• Progress reports
• Progress reports often coincide with key milestones,
such; completion of design stages, the start of construction or
the procurement of a construction contract. Progress reports will usually
continue up to the completion of the development or the client’s interest in
the development.
• Practical completion
• The project monitor should prepare a completion report at this stage. This
typically includes:
EARNED VALUE MONITORING
(CONSTRUCTION MANAGEMENT) - PROJECT MONITORING
DEFINITION:
• Earned Value is an approach where you monitor the project plan, actual work,
and work completed value to see if a project is on track. Earned Value shows how
much of the budget and time should have been spent, considering the amount of
work done so far.

• Ahead of schedule vs. behind schedule

• Over budget vs. under budget
CALCULATING EARNED VALUE
• Software packages such as Microsoft Project can perform earned value calculations
automatically, and they’re simple calculations that can quickly be performed
manually as needed. Earned value calculations require the following:

• Planned Value (PV) = the budgeted amount through the current reporting period

• Actual Cost (AC) = actual costs to date

• Earned Value (EV) = total project budget multiplied by the % of project completion
 • Schedule Performance Index (SPI) calculation: SPI = EV/PV
• SPI measures progress achieved against progress planned. An SPI value <1.0 indicates
less work was completed than was planned. SPI >1.0 indicates more work was
completed than was planned.
 • Cost Performance Index (CPI) calculation: CPI = EV/AC
• CPI measures the value of work completed against the actual cost. A CPI value <1.0
indicates costs were higher than budgeted. CPI >1.0 indicates costs were less than
budgeted.
• For both SPI and CPI, >1 is good, and <1 is bad. Note that if you’re in a hurry,
for both cost and schedule, you can subtract instead of dividing to get the
variance. Schedule variance = EV-PV, and cost variance = EV–AC. Subtracting
can quickly be done in your head, and for these cases, >0 is good, and <0 is
bad. But unlike SPI and CPI, variance cannot be effectively compared across
projects or over time, where the budget for a project may have changed,
because they’re relative to the size of the project.

• Estimated at Completion (EAC) calculation: EAC = (Total Project Budget)/CPI

• EAC is a forecast of how much the total project will cost.
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Planned Value (PV) = $55,000

Actual Cost (AC) = $45,000
Earned Value (EV) = ($100,000 * 0.5) = $50,000
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Schedule Variance (SV) = EV–PV = $50,000-

Planned Value (PV) = $55,000
$55,000 = -$5,000 (bad because <0)
Actual Cost (AC) = $45,000
Earned Value (EV) = ($100,000 * 0.5) = $50,000
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Schedule Variance (SV) = EV–PV = $50,000-$55,000 = -

Planned Value (PV) = $55,000 $5,000 (bad because <0)
Actual Cost (AC) = $45,000 Schedule Performance Index (SPI) =
Earned Value (EV) = ($100,000 * 0.5) = $50,000 EV/PV = $50,000/$55,000 = 0.91 (bad
because <1)
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Schedule Variance (SV) = EV–PV = $50,000-$55,000 = -

Planned Value (PV) = $55,000 $5,000 (bad because <0)
Actual Cost (AC) = $45,000 Schedule Performance Index (SPI) = EV/PV =
Earned Value (EV) = ($100,000 * 0.5) = $50,000 $50,000/$55,000 = 0.91 (bad because <1)

Cost Variance (CV) = EV–AC = $50,000-

$45,000 = $5,000 (good because >0)
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Schedule Variance (SV) = EV–PV = $50,000-$55,000 = -

Planned Value (PV) = $55,000 $5,000 (bad because <0)
Actual Cost (AC) = $45,000 Schedule Performance Index (SPI) = EV/PV =
Earned Value (EV) = ($100,000 * 0.5) = $50,000 $50,000/$55,000 = 0.91 (bad because <1)

Cost Variance (CV) = EV–AC = $50,000-$45,000 =

$5,000 (good because >0)

Cost Performance Index (CPI) = EV/AC =

$50,000/$45,000 = 1.11 (good because >1)
EXAMPLE:
• Let’s take a look at an example. Assume we’re halfway through a year-long project
that has a total budget of $100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month mark is $45,000.

Schedule Variance (SV) = EV–PV = $50,000-$55,000 = -

Planned Value (PV) = $55,000 $5,000 (bad because <0)
Actual Cost (AC) = $45,000 Schedule Performance Index (SPI) = EV/PV =
Earned Value (EV) = ($100,000 * 0.5) = $50,000 $50,000/$55,000 = 0.91 (bad because <1)

Cost Variance (CV) = EV–AC = $50,000-$45,000 =

$5,000 (good because >0)
Cost Performance Index (CPI) = EV/AC =
$50,000/$45,000 = 1.11 (good because >1)

Estimated at Completion (EAC) = (Total

Project Budget)/CPI = $100,000/1.11 =
$90,000
CONCLUSION:
• Because SV is negative and SPI is <1, the project is considered behind schedule.
We’re 50% of the way through the project but have planned for 55% of the costs to
be used. There will have to be some catch-up in the second half of the project.

• Because CV is positive and CPI is >1, the project is considered to be under budget.
We’re 50% of the way through the project, but our costs so far are only 45% of our
budget. If the project continues at this pace, then the total cost of the project (EAC)
will be only $90,000, as opposed to our original budget of $100,000.
REMEMBER:
• Take care not to rely solely on earned value — it represents a single objective data point.
Earned value can change quickly, and actual costs and project progress rarely occur as
budgeted. However, earned value does serve as an excellent early-warning system, and
looking at earned value trends can provide very useful data. It’s most common to report
earned value monthly, but this could be more frequent for a shorter project.

• Customer satisfaction and quality aren’t captured within earned value calculations.
• It’s important to make sure all actual costs are included in your calculations

• earned value calculations can help a project manager identify problems early and be more
proactive as opposed to “after the fact” and reactive. EV metrics are defined in a standard
manner, and the data is available to be reported regularly across the project portfolio.
Cost and Risk Control
Cost Control
Project Cost Management
• Cost is one of the key performance indicators
of the project. Involved in controlling costs are
processes centered around planning,
estimating, budgeting , financing and
managing cost so the project can be
completed within the approved budget.
 A critical part of Project Management is the ability to
control costs even when uncertainty prevails. The tight
connection between cost and risk forces the Project
Manager to plan and respond decisively. Any failure to
appropriately respond to risks can make the project over
budget, behind schedule, or mired in litigation.
Project Cost Management
• It is the task of overseeing and managing project expenses
as well as preparing for potential financial risks. This job is
typically the project manager's responsibility. Cost
control involves not only managing the budget, but also
planning, and preparing for potential risks. Risks can set
projects back and sometimes even require unexpected
expenses. Preparation for these setbacks can save team
time and potentially, money.
Factors
•Cost estimating
•Cost budgeting
•Cost control
Cost Estimating
• Developing an approximation or estimate of the costs of the resources needed to
complete a project.
• Includes identifying and considering various costing alternatives.

Cost Budgeting
• Allocation of overall cost estimates to individual work item in order to establish a
cost baseline for measuring project performances

Cost Control
• Controlling changes to the project budget
• Infuencing the factors which creates changes to the budget to ensure that changes
are beneficial
• Managing the actual changes when and as they occur.
Objectives of Cost Control
• To have a knowledge of the profit and loss of the project throughout the duration of
the project.
• To have a comparison between the actual project performance and that conceived in
the original project plan
• Provides feedback data on actual project performance to future project planning.
Techniques of cost control
• Earned value management
• Forecasting
• Cost variance
• Cost performance index
Earned Value Management
• It compares the amount of work that was planned with that was actually planned
earned with what actually spent to determine if cost and schedule performance are
as planned.
Earned Value Management
• Planned Value (PV) – is the budgeted cost for the work
scheduled to be completed on an activity.
• Earned Value (EV) – is the budgeted amount for the work
actually completed on the scheduled activity
• Actual Cost (AC) – the actual cost incurred in
accomplishing worn on schedule activity
Earned Value Chart
• The chart helps visualize how the project is performing
• Example
If the project goes as planned, it will in 12 months at cost of 900,000 php
• The actual cost line is always right on or above the earned value line.
• Interpretation: this means cost are equal to or more than planned.

The planned value line is pretty close to the EV line, just slightly higher in
the last month
Interpretation: the project has been right on schedule until last month
when the project fell behind schedule.
Forecasting
• Forecasting includes making estimates or predictions of conditions
in the project’s future based on the information and
knowledgeable available at the time of the forecast. As the project
progresses, the forecast adjusted.

Cost Variance
• The cost variance at the end of the project will be the difference
between the budget at the completion and the actual amount
spent.

• Formula : CV (Cost Variance) = EV (Earned Value) – AC (Actual

Cost)
Cost Performance Index
• Is a measure of financial effectiveness and efficiency of a project. It
represents the amount of completed work for every unit of cost spent

• Example : if a project has a earned value of £20,000 but actual costs were
£12,000.

• CPI = EV / AC = 20,000 / 12,000 = 1.66

• If the ratio has a value higher than 1 then it indicates the project is
performing well against the budget. A CPI of 1 means that the project is
performing on budget. A CPI of less than 1 means that the project is
over budget.
Risk Control
What is risk?
• Risk
• It is the possibility of loss or injury
• It is everywhere
• Driving a car
• Walking down the street
• Travelling, etc.

• Project Risk
• Part of any project and represents the uncertainty element in the project
• Unplanned events or conditions that can have an effect on the project.
• Can have negative or positive effect
Types of risk
• Financial risk – material cost, market demand, improper
estimation, inflation, payment delays, unmanaged cash flows and
financial incompetence of the contractor pose a huge threat
• Socio-political risk – government laws and regulations, payment
failure by the government, increase in taxes
• Environmental risk – inclement weather conditions, natural
disasters, accessibility to the site, pollution
• Construction-related risks – failure of logistics, labor disputes,
design changes, labor productivity, rush bidding, time-gap for
revision of drawings, accidents, equipment failures
Level of risk
• High risk: substantial impact on cost, technical performance ,
or schedule. Substantial action required to alleviate issue.
High-priority management attention is required

• Medium risk: some impact on cost, technical performance, or

schedule. Special action may be required to alleviate issue.
Additional management attention may be needed.

• Low risk: minimal impact on cost, technical performance, or

schedule, normal management oversight is sufficient
Risk Analysis
• Risk analysis is a systematic process to estimate the level of risk for identified
risk. This involves estimating the probability of occurrence and consequences of
occurrence and converting the results to a corresponding risk.
• The approach used depends upon the data available and requirements levied on
the project level

Risk management
• Project risk management is an activity undertaken to lessen the impact of
potentially adverse events on the projects.
• Risk management can help improve projects success by helping select good
projects, determining project scope, and developing realistic estimates.
• The goal of project risk management is to minimize potential negative risks while
maximizing potential positive risk
Risk management process
• It is deciding how to approach the risk
• This plan summarizes the result in risk identification, quantitative &
qualitative analysis and response method.
• It also include contingency plan which is a predefined action that a
project team will take if an identified risk event occurs.
• Contingency plans – are predefined actions that the project team will
take if an identified risk event occurs
• Fallback plans – are developed for risks that have a high impact on
meeting project objectives and are put on meeting project objectives
and are put into effect if attempts to reduce are not effective.
Risk management process
Risk identification
• It is the process of gaining understanding of the potentially unsatisfactory
outcomes that can occur to the project.
• Historical information can help identifying the areas where risk is high
• Tools and techniques
• Documentation reviews
• Quality of the plans, as well as consistency between those plans and the
project requirements and assumptions, may be indicators of risk in the
project.
• Information Gathering Techniques
• Include brainstorming, Delphi technique, interviewing, root cause analysis.
• Delphi Technique - a facilitator uses a questionnaire to solicit ideas about
important project risks. The responses are summarized and then re-
circulated to the experts
Checklist analysis
• Are developed based on historical information and knowledge that has been
accumulated from previous similar projects and from other sources of information.

Assumption analysis
• Explores the validity of assumptions as they apply to the project. It identifies risk to
the project from inaccuracy, instability, inconsistency, or incompleteness of
assumptions

SWOT Analysis
• Examines the project from each of the strengths, weakness, opportunities, and
threats (SWOT) perspectives to increase the breadth of identified risk.
Risk diagramming techniques
• Risk diagramming techniques
• Include cause and effect diagrams, process flow chats and influence
diagram.
• Process flow charts - shows how different elements of a particular
system relate with one another. It also deals with the causal
mechanisms of the risk.
• Cause and effect diagrams: This type of diagram is also called the
fishbone or Ishikawa diagram and it is used to identify the different
causes of risks.
• Influence diagram: Influence diagrams are graphical presentations of
different situations that show causal influence in time ordering
events
Risk diagram (fishbone or Ishikawa diagram )
Two methods of risk analysis
• Qualitative approach
• Quantitative approach

• Qualitative approach – use the probability or occurrence and consequence of

occurrence scales together with a risk mapping matrix to convert the values to
risk levels. The key benefit of this process is that it enables project managers to
reduce the level of uncertainty and to focus on high-priority risks.

• Quantitative approach – Is the process numerically analyzing the effect of

identified risk on overall project. The key benefit of this process is that it
produces quantitative risk information to support decision making in order to
reduce project uncertainty.
Qualitative Risk Analysis
• Tools & techniques

• Probability and impact matrix – the matrix maps out the risk, its
probability and its possible impact. The risk with higher
probability and impact are more serious treat to the project.
• Risk categorization - risk to the project can be categorized by
source of risk, or other useful categories to determine the areas
of the project most exposed to the effects
Probability and impact matrix
Quantitative Risk Analysis
• Tools & techniques
• Expected Monetary Value Analysis – it computes the expected monetary
outcome (according to different statistical criteria) pof a decision/risk
• Three Point Estimate - a technique that uses the optimistic, most likely,
and pessimistic values to determine the best estimate.
• Decision Tree Analysis - a diagram that shows the implications of choosing
one or other alternatives.
• Sensitivity analysis – a technique used to determine which risks have the
greatest impact on a project.
• Monte Carlo analysis – is a technique used to understand the impact of
risk and uncertainty in project management. by running simulations to
identify the range of possible outcomes for a number of scenarios.
Monte Carlo analysis
Expected Monetary Value Analysis
Three Point Estimate
Risk response planning
• The process of developing options and actions to enhance
opportunities and to reduce threats to project objectives.
• The key benefit of this process is that it addresses the risks by
their priority.
• Risk avoidance – trying to eliminate some or all the risk involved
• Risk acceptance – just accepting the consequences of the risk
• Risk transference – involved third parties like using insurance,
warranties
• Risk mitigation – involve reducing the impact of the risk event
by reducing the probability of occurrence.
Risk monitoring and control
• The process of implementing risk response plans, tracking identified risks,
monitoring risks, identifying new risk, and evaluating risk process
effectiveness throughout the project.
• The key benefit of this process is that it improves efficiency of the risk
approach throughout the project life cycle to continuously optimize risk
responses.

• Risk Reassessment (scheduled regularly to identify new risk)

• Risk audit (examine the effectiveness of planned response)
• Trend analysis (monitor overall project performance)