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Chapter
Chapter One
One
Modern Project Management
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1–1
An
An Overview
Overview of
of Project
Project Management
Management 77thth ed
ed
.
What
What Is
Is aa Project?
Project?
• Project Defined (according to PMI)

– A temporary endeavor undertaken to create a unique
product, service, or result
• Major Characteristics of a Project
– Has an established objective
– Has a defined life span with a beginning and an end
– Requires across-the-organizational participation
– Involves doing something never been done before
– Has specific time, cost, and performance requirements
Program
Program versus
versus Project
Project
• Program Defined
– A group of related projects designed to accomplish a
common goal over an extended period of time
• Program Management
– A process of managing a group of ongoing,
interdependent, related projects in a coordinated way
to achieve strategic objectives
– Examples:
• Project: completion of a required course
in project management.
• Program: completion of all courses required
for a business major.
Comparison
Comparison of
of Routine
Routine Work
Work with
with Projects
Projects
Routine, Repetitive Work Projects

Taking class notes Writing a term paper
Daily entering sales receipts into Setting up a sales kiosk for a
the accounting ledger professional accounting meeting
Responding to a supply-chain Developing a supply-chain
request information system
Practicing scales on the piano Writing a new piano piece
Routine manufacture of an Apple Designing an iPod that is
iPod approximately 2 X 4 inches,
interfaces with PC, and
stores 10,000 songs
Attaching tags on a manufactured Wire-tag projects for GE and
product Wal-Mart
TABLE 1.1
.
Project
Project Life
Life Cycle
Cycle
FIGURE 1.1
The
The Challenge
Challenge of
of Project
Project Management
Management
• The Project Manager

– Manages temporary, non-repetitive activities and
frequently acts independently of the formal
organization.
• Marshals resources for the project.
• Is linked directly to the customer interface.
• Provides direction, coordination, and integration
to the project team.
• Is responsible for performance and success of the project.
– Must induce the right people at the right time to
address the right issues and make the right decisions.
Current
Current Drivers
Drivers of
of Project
Project Management
Management
• Factors leading to the increased use

of project management:
– Compression of the product life cycle
– Knowledge explosion
– Triple bottom line (planet, people, profit)
– Increased customer focus
– Small projects represent big problems
Project
Project Governance
Governance
• Integration (or centralization) of project

management provides senior management with:
– An overview of all project management activities
– A big picture of how organizational resources are used
– A risk assessment of their portfolio of projects
– A rough metric of the firm’s improvement in managing
projects relative to others in the industry
– Linkages of senior management with actual project
execution management
Integrated
Integrated Management
Management of
of Projects
Projects
FIGURE 1.2
.
Alignment
Alignment of
of Projects
Projects with
with
Organizational
Organizational Strategy
Strategy
• Problems resulting from the uncoordinated

project management systems include:
– Projects that do not support the organization’s overall
strategic plan and goals.
– Independent managerial decisions that create internal
imbalances, conflicts and confusion resulting in
dissatisfied customers.
– Failure to prioritize projects results in the waste of
resources on non-value-added activities/projects.
A
A Project
Project Management
Management Today:
Today:
A
A Socio-Technical
Socio-Technical Approach
Approach
• The Technical Dimension (The “Science”)
– Consists of the formal, disciplined, purely logical parts
of the process.
– Includes planning, scheduling, and controlling projects.
• The Sociocultural Dimension (The “Art”)
– Involves contradictory and paradoxical world of
implementation.
– Centers on creating a temporary social system within a
larger organizational environment that combines the
talents of a divergent set of professionals working to
complete the project.
AASocio-Technical
Socio-Technical
Approach
ApproachtotoProject
Project
Management
Management
FIGURE 1.3
.
Key
Key Terms
Terms
Program
Project
Project life cycle
Project Management Professional (PMP)
Where
Where We
We Are
Are Now
Now
Why
Why Project
Project Managers
Managers Need
Need
to
to Understand
Understand Strategy
Strategy
• Changes in the organization’s mission and

strategy
– Project managers must respond to changes with
appropriate decisions about future projects and
adjustments to current projects.
– Project managers who understand their organization’s
strategy can become effective advocates of projects
aligned with the firm’s mission.
The
The Strategic
Strategic Management
Management Process:
Process:
An
An Overview
Overview
• Strategic Management
– Requires every project to be clearly linked to strategy.
– Provides theme and focus of firm’s future direction.
• Responding to changes in the external environment—
environmental scanning
• Allocating scarce resources of the firm to improve its
competitive position—internal responses to new programs
– Requires strong links among mission, goals,
objectives, strategy, and implementation.
Four
Four Activities
Activities of
of the
the Strategic
Strategic
Management
Management Process
Process
• Review and define the organizational mission
• Set long-range goals and objectives
• Analyze and formulate strategies to reach
objectives
• Implement strategies through projects
Strategic
Strategic
Management
Management
Process
Process
FIGURE 2.1
.
Characteristics
Characteristics of
of Objectives
Objectives
S Specific Be specific in targeting an objective
M Measurable Establish a measurable indicator(s) of progress
A Assignable Make the objective assignable to one person

for completion
R Realistic State what can realistically be done with

available resources
T Time related State when the objective can be achieved,

that is, duration
EXHIBIT 2.1
.
Benefits
Benefits of
of Project
Project Portfolio
Portfolio Management
Management
• Builds discipline into the project selection process

• Links project selection to strategic metrics
• Prioritizes project proposals across a common set
of criteria, rather than on politics or emotion
• Allocates resources to projects that align with
strategic direction
• Balances risk across all projects
• Justifies killing projects that do not support strategy
• Improves communication and supports agreement
on project goals
EXHIBIT 2.2
A
A Portfolio
Management System
System
• Design of a project portfolio system:

– Classification of a project
– Selection criteria depending upon classification
– Sources of proposals
– Evaluating proposals
– Managing the portfolio of projects.
Portfolio
Portfolio of
of Projects
Projects by
by Type
Type
FIGURE 2.2
.
A
A Portfolio
Management System
System
• Selection Criteria
– Financial models: payback, net present value (NPV)
– Non-financial models: projects of strategic
importance to the firm
• Multi-Criteria Selection Models
– Use several weighted selection criteria to evaluate
project proposals.
Financial
Financial Models
Models
• The Payback Model

– Measures the time the project will take to recover
the project investment.
– Uses more desirable shorter paybacks.
– Emphasizes cash flows, a key factor in business.
• Limitations of Payback:
– Ignores the time value of money.
– Assumes cash inflows for the investment period
(and not beyond).
– Does not consider profitability.
Financial
Financial Models
Models (cont’d)
(cont’d)
• The Net Present Value (NPV) Model
– Uses management’s minimum desired rate-of-return
(discount rate) to compute the present value of all net
cash inflows.
• Positive NPV: project meets minimum desired rate
of return and is eligible for further consideration.

• Negative NPV: project is rejected.
Example
Example Comparing
Comparing Two
Two Projects
Projects
Using
Using Payback
Payback Method
Method
EXHIBIT 2.3A
.
Example
Example Comparing
Comparing Two
Two Projects
Projects
Using
Using Net
Net Present
Present Value
Value Method
Method
EXHIBIT 2.3b
.
Nonfinancial
Nonfinancial Strategic
Strategic Criteria
Criteria
• To capture larger market share

• To make it difficult for competitors to enter the market
• To develop an enabler product, which by its introduction will
increase sales in more profitable products
• To develop core technology that will be used in next-generation
products
• To reduce dependency on unreliable suppliers
• To prevent government intervention and regulation
• To restore corporate image or enhance brand recognition
• To demonstrate its commitment to corporate citizenship and support
for community development
Multi-Criteria
Multi-Criteria Selection
Selection Models
Models
• Checklist Model
– Uses a list of questions to review potential projects
and to determine their acceptance or rejection.
– Fails to answer the relative importance or value of a
potential project and doesn’t to allow for comparison
with other potential projects.
• Multi-Weighted Scoring Model
– Uses several weighted qualitative and/or quantitative
selection criteria to evaluate project proposals.
– Allows for comparison of projects with other potential
projects.
Sample
Sample Selection
Selection Questions
Questions Used
Used in
in Practice
Practice
Topic Question
Strategy/alignment What specific strategy does this project align with?
Driver What business problem does the project solve?
Success metrics How will we measure success?
Sponsorship Who is the project sponsor?
Risk What is the impact of not doing this project?
Risk What is the project risk to our organization?
Risk Where does the proposed project fit in our risk profile?
Benefits, value, ROI What is the value of the project to this organization?
Benefits, value, ROI When will the project show results?
Objectives What are the project objectives?
EXHIBIT 2.4
.
Sample
Sample Selection
Selection Questions
Questions Used
Used in
in Practice
Practice
Topic Question
Organization culture Is our organization culture right for this type of project?
Resources Will internal resources be available for this project?
Approach Will we build or buy?
Schedule How long will this project take?
Schedule Is the time line realistic?
Training/resources Will staff training be required?
Finance/portfolio What is the estimated cost of the project?
Portfolio Is this a new initiative or part of an existing initiative?
Portfolio How does this project interact with current projects?
Technology Is the technology available or new?
EXHIBIT 2.4 cont’d

.
Project
Project Screening
Screening Matrix
Matrix
FIGURE 2.3
.
Applying
Applying aa Selection
Selection Model
Model
• Project Classification
– Deciding how well a strategic or operations project
fits the organization’s strategy
• Selecting a Model
– Applying a weighted scoring model to align projects
closer with the organization’s strategic goals
• Reduces the number of wasteful projects
• Helps identify proper goals for projects
• Helps everyone involved understand how
and why a project is selected
Applying
Applying aa Selection
Selection Model
Model (cont’d)
(cont’d)
• Sources and Solicitation of Project Proposals

– Within the organization
– Request for proposal (RFP) from external sources
(contractors and vendors)
• Ranking Proposals and Selection of Projects
– Prioritizing requires discipline, accountability,
responsibility, constraints, reduced flexibility,
and loss of power
• Managing the Portfolio
– Senior management input
– The governance team (project office) responsibilities
A
A Proposal
Proposal Form
Form for
for
an
an Automatic
Automatic
Vehicular
Vehicular Tracking
Tracking
(AVL)
(AVL) Public
Public
Transportation
Transportation
Project
Project
FIGURE 2.4A
.
Risk
Risk
Analysis
Analysis for
for
500-Acre
500-Acre
Wind
Wind Farm
Farm
FIGURE 2.4B
.
Project
Project
Screening
Screening
Process
Process
FIGURE 2.5
.
Priority
Priority
Screening
Screening
Analysis
Analysis
FIGURE 2.6
.
Managing
Managing the
the Portfolio
Portfolio System
System
• Senior Management Input
– Provide guidance in selecting criteria that are
aligned with the organization’s strategic goals.
– Decide how to balance available resources among
current projects.
• The Governance Team Responsibilities
– Publish the priority of every project.
– Ensure that the project selection process is open
and free of power politics.
– Reassess the organization’s goals and priorities.
– Evaluate the progress of current projects.
Balancing
Balancing the
the Portfolio
Portfolio for
for
Risks
Risks and
and Types
Types of
of Projects
Projects
• Bread-and-butter Projects
– Involve evolutionary improvements
to current products and services.
• Pearls
– Represent revolutionary commercial opportunities
using proven technical advances.
• Oysters
– Involve technological breakthroughs
with high commercial payoffs.
• White Elephants
– Showed promise at one time
but are no longer viable.
Key
Key Terms
Terms
Implementation gap
Net present value
Organizational politics
Payback
Priority system
Priority team
Project portfolio
Project screening matrix
Project sponsor
Sacred cow
Strategic management process
.
Chapter
Chapter Four
Four
Defining the Project
Where
Where We
We Are
Are Now
Now
.
Defining
Defining the
the Project
Project
Step 1: Defining the Project Scope

Step 2: Establishing Project Priorities
Step 3: Creating the Work Breakdown Structure
Step 4: Integrating the WBS with the Organization
Step 5: Coding the WBS for the Information
System
Step
Step 1:
1: Defining
Defining the
the Project
Project Scope
Scope
• Project Scope
– A definition of the end result or mission of the project
—a product or service for the client/customer
• Purposes of the Project Scope Statement
– To clearly define the deliverable(s) for the end user.
– To focus the project on successful completion
of its goals.
– To be used by the project owner and participants
as a planning tool and for measuring project success
Project
Project Scope
Scope Checklist
Checklist
1. Project objective
2. Deliverables
3. Milestones
4. Technical requirements
5. Limits and exclusions
6. Reviews with customer
Project
Project Scope:
Scope: Terms
Terms and
and Definitions
Definitions
• Scope Statements
– Also called statements of work (SOW)
• Project Charter
– Can contain an expanded version of scope statement.
– A document authorizing the project manager to initiate
and lead the project
• Scope Creep
– The tendency for the project scope to expand over
time due to changing requirements, specifications, and
priorities
Step
Step 2:
2: Establishing
Establishing Project
Project Priorities
Priorities
• Causes of Project Trade-offs
– Shifts in the relative importance of criterions related
to cost, time, and performance parameters
• Budget–Cost
• Schedule–Time
• Performance–Scope
• Managing the Priorities of Project Trade-offs
– Constrain: original parameter is a fixed requirement.
– Enhance: optimizing a criterion over others
– Accept: reducing (or not meeting) a criterion
requirement
Project
Project Management
Management Trade-offs
Trade-offs
FIGURE 4.1
.
Project
Project Priority
Priority Matrix
Matrix
FIGURE 4.2
.
Step
Step 3:
3: Creating
Creating the
the Work
Work
Breakdown
Breakdown Structure
Structure
• Work Breakdown Structure (WBS)

– A hierarchical outline (map) that identifies the products
and work elements involved in a project
– Defines the relationship of the final deliverable
(the project) to its subdeliverables, and in turn,
their relationships to work packages.
– Best suited for design and build projects that have
tangible outcomes rather than process-oriented
projects
Hierarchical
Hierarchical
Breakdown
Breakdown ofof the
the
WBS
WBS
* This breakdown groups work

packages by type of work
within a deliverable and allows
assignment of responsibility to
an organizational unit. This
extra step facilitates a system
for monitoring project progress
(discussed in Chapter 13).
FIGURE 4.3
.
How
How WBS
WBS Helps
Helps the
the Project
Project Manager
Manager
• WBS
– Facilitates evaluation of cost, time, and technical
performance of the organization on a project.
– Provides management with information appropriate
to each organizational level.
– Helps in the development of the organization
breakdown structure (OBS), which assigns project
responsibilities to organizational units and individuals
– Helps manage plan, schedule, and budget.
– Defines communication channels and assists
in coordinating the various project elements.
Work
Work Breakdown
Breakdown Structure
Structure
FIGURE 4.4
.
Work
Work Packages
Packages
• A work package is the lowest level of the WBS.
– It is output-oriented in that it:
1. Defines work (what).
2. Identifies time to complete a work package (how long).
3. Identifies a time-phased budget to complete
a work package (cost).
4. Identifies resources needed to complete
a work package (how much).
5. Identifies a person responsible for units of work (who).
6. Identifies monitoring points for measuring success (how
well).
Step
Step 4:
4: Integrating
Integrating the
the WBS
WBS
with
with the
the Organization
Organization
• Organizational Breakdown Structure (OBS)

– Depicts how the firm is organized to discharge its
work responsibility for a project.
• Provides a framework to summarize
organization unit work performance.
• Identifies organization units responsible
for work packages.
• Ties organizational units to cost control
accounts.
Integration
Integration of
of
WBS and
WBS and OBSOBS
FIGURE 4.5
.
Step
Step 5:
5: Coding
Coding the
the WBS
WBS for
for
the
the Information
Information System
System
• WBS Coding System
– Defines:
• Levels and elements of the WBS
• Organization elements
• Work packages
• Budget and cost information
– Allows reports to be consolidated at
any level in the organization structure
• WBS Dictionary
– Provides detailed information about
each element in the WBS.
Coding
Coding
the
the WBS
WBS
EXHIBIT 4.1
Process
Process Breakdown
Breakdown Structure
Structure (PBS)
(PBS) for
for
Software
Software Development
Development Project
Project
FIGURE 4.6
.
Responsibility
Responsibility Matrices
Matrices
• Responsibility Matrix (RM)

– Also called a linear responsibility chart
– Summarizes the tasks to be accomplished and
who is responsible for what on the project.
• Lists project activities and participants responsible for
each activity.
• Clarifies critical interfaces between units
and individuals that need coordination.
• Provide a means for all participants to view their
responsibilities and agree on their assignments.
• Clarifies the extent or type of authority that
can be exercised by each participant.
Responsibility
Responsibility Matrix
Matrix for
for aa Market
Market Research
Research Project
Project
FIGURE 4.7
.
Responsibility
Responsibility Matrix
Matrix for
for the
the Conveyor
Conveyor Belt
Belt Project
Project
FIGURE 4.8
.
Project
Project Communication
Communication Plan
Plan
• What information needs to be collected

and when?
• Who will receive the information?
• What methods will be used to gather
and store information?
• What are the limits, if any, on who has access
to certain kinds of information?
• When will the information be communicated?
• How will it be communicated?
Developing
Developing aa Communication
Communication Plan
Plan
1. Stakeholder analysis
2. Information needs
3. Sources of information
4. Dissemination modes
5. Responsibility and timing
Stakeholder
Stakeholder Communications
Communications
FIGURE 4.9
.
Information
Information Needs
Needs
• Project status reports

• Deliverable issues
• Changes in scope
• Team status meetings
• Gating decisions
• Accepted request changes
• Action items
• Milestone reports
Shale
Shale Oil
Oil Research
Research Project
Project Communication
Communication Plan
Plan
FIGURE 4.10
.
Key
Key Terms
Terms
Cost account
Milestone
Organization breakdown structure (OBS)
Priority matrix
Process breakdown structure (PBS)
Project charter
Responsibility matrix
Scope creep
Scope statement
WBS dictionary
Work breakdown structure (WBS)
Work package
.
Chapter
Chapter Five
Five
Estimating Project Times and Costs
Where
Where We
We Are
Are Now
Now
.
Estimating
Estimating Projects
Projects
• Estimating
– The process of forecasting or approximating the time
and cost of completing project deliverables
– The task of balancing expectations of stakeholders
and need for control while the project is implemented
• Types of Estimates
– Top-down (macro) estimates: analogy, group
consensus, or mathematical relationships
– Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure
Why
Why Estimating
Estimating Time
Time and
and Cost
Cost Is
Is Important
Important
• To support good decisions

• To schedule work
• To determine how long the project should take and
its cost
• To determine whether the project is worth doing
• To develop cash flow needs
• To determine how well the project is progressing
EXHIBIT 5.1
.
Factors
Factors Influencing
Influencing the
the Quality
Quality of
of Estimates
Estimates
Planning
Planning
Horizon
Horizon
Other
Other Project
Project
(Nonproject)
(Nonproject) Complexity
Complexity
Factors
Factors
Quality of
Organization
Organization Estimates People
People
Culture
Culture
Padding
Padding Project
Project Structure
Structure
Estimates
Estimates and
and Organization
Organization
.
Estimating
Estimating Guidelines
Guidelines for
for Times,
Times,
Costs,
Costs, and
and Resources
Resources
1. Have people familiar with the tasks make the estimate

2. Use several people to make estimates
3. Base estimates on normal conditions, efficient methods,
and a normal level of resources
4. Use consistent time units in estimating task times
5. Treat each task as independent, don’t aggregate
6. Do not make allowances for contingencies.
7. Add a risk assessment to avoid surprises to
stakeholders
Developing
Developing Work
Work Package
Package Estimates
Estimates
Use
Use people
people
familiar
familiar with
with
the
the tasks
tasks
Use
Use several
several
Include
Include aa risk
risk people
people to
to make
make
assessment
assessment estimates
estimates
Preparing
Preparing
Make
Make no
no Initial
Initial Assume
Assume normal
normal
allowance
allowance for
for Estimates
Estimates conditions
conditions
contingencies
contingencies
Assume
Assume tasks
tasks Use
Use consistent
consistent
are
are independent
independent time
time units
units
.
Top-Down
Top-Down versus
versus Bottom-Up
Bottom-Up Estimating
Estimating
• Top-Down Estimates
– Are usually derived from someone who uses
experience and/or information to determine the project
duration and total cost.
– Are sometimes made by top managers who have little
knowledge of the processes used to complete the
project.
• Bottom-Up Approach
– Can serve as a check on cost elements in the WBS
by rolling up the work packages and associated cost
accounts to major deliverables at the work package
level.
Top-Down
Top-Down versus
versus Bottom-Up
Bottom-Up Estimating
Estimating
Conditions for Preferring Top-Down or

Bottom-up Time and Cost Estimates
Top-down Bottom-up
Condition Estimates Estimates
- Strategic decision making X
- Cost and time important X
- High uncertainty X
- Internal, small project X
- Fixed-price contract X
- Customer wants details X
- Unstable scope X
TABLE 5.1
.
Estimating
Estimating Projects:
Projects: Preferred
Preferred Approach
Approach
• Make rough top-down estimates

• Develop the WBS/OBS
• Make bottom-up estimates
• Develop schedules and budgets
• Reconcile differences between top-down
and bottom-up estimates
Top-Down
Top-Down Approaches
Approaches for
for Estimating
Estimating Project
Project
Times
Times and
and Costs
Costs
• Consensus methods
• Ratio methods (sometimes
called parametric)
• Apportion method Project Estimate
Times
Costs
• Function point methods for
software and system projects
• Learning curves
Apportion
Apportion Method
Method of
of Allocating
Allocating Project
Project Costs
Costs
Using
Using the
the Work
Work Breakdown
Breakdown Structure
Structure
FIGURE 5.1
.
Simplified
Simplified Basic
Basic Function
Function Point
Point Count
Count Process
Process
for
for aa Prospective
Prospective Project
Project or
or Deliverable
Deliverable
TABLE 5.2
.
Example:
Example: Function
Function Point
Point Count
Count Method
Method
TABLE 5.3
.
Bottom-Up
Bottom-Up Approaches
Approaches for
for Estimating
Estimating
Project
Project Times
Times and
and Costs
Costs
• Template methods
• Parametric procedures
applied to specific tasks
• Range estimates for
the WBS work packages
• Phase estimating: A hybrid
Range
Range Estimating
Estimating Template
Template
FIGURE 5.2
.
Phase
Phase Estimating
Estimating over
over Product
Product Life
Life Cycle
Cycle
FIGURE 5.3
.
Top-Down
Top-Down and
and Bottom-Up
Bottom-Up Estimates
Estimates
FIGURE 5.4
.
Level
Level of
of Detail
Detail
• Level of detail in the WBS varies with the

complexity of the project, the need for control,
the project size, cost, duration, and other
factors.
• Excessive detail is costly.
– Fosters a focus on departmental outcomes rather
than on deliverable outcomes
– Creates unproductive paperwork
• Insufficient detail is costly.
– Lack of focus on goals
– Wasted effort on nonessential activities
Types
Types of
of Costs
Costs
• Direct Costs
– Costs that are clearly chargeable to a specific work
package.
• Labor, materials, equipment, and other
• Direct (Project) Overhead Costs
– Costs incurred that are directly tied to project
deliverables or work packages.
• Salary, rents, supplies, specialized machinery
• General and Administrative Overhead Costs
– Organization costs indirectly linked to a specific
package that are apportioned to the project.
Contract
Contract Bid
Bid Summary
Summary Costs
Costs
Direct costs $80,000

Direct overhead $20,000
Total direct costs $100,000
G&A overhead (20%) $20,000
Total costs $120,000
Profit (20%) $24,000
Total bid $144,000
FIGURE 5.5
.
Three
Three Views
Views of
of Cost
Cost
FIGURE 5.6
.
Refining
Refining Estimates
Estimates
• Reasons for Adjusting Estimates
– Interaction costs are hidden in estimates.
– Normal conditions do not apply.
– Things go wrong on projects.
– Changes in project scope and plans
– Overly optimistic
– Strategic misrepresentation
• Adjusting Estimates
– Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.
Estimating
Estimating Database
Database Templates
Templates
FIGURE 5.7
.
Mega
Mega Projects:
Projects: A
A Special
Special Case
Case
• Mega Projects
– Are large-scale, complex ventures that typically cost
$1 billion or more, take many years to complete, and
involve multiple private and public stakeholders.
• High-speed rail lines, airports, healthcare reform, the
Olympics, development of new aircraft
– Often involve a double whammy.
• Cost much more than expected but underdelivered on
benefits they were to provide.
– Are sometimes called “White Elephants”
• Over budget, under value, high cost of maintaining (exceeds
the benefits received)
Three
Three Steps
Steps of
of the
the Reference
Reference Class
Class
Forecasting
Forecasting (RCF)
(RCF) Process
Process
• Select a reference class of projects similar to

your potential projects.
• Collect and arrange outcome data as a
distribution. Create a distribution of cost
overruns as a percentage of the original project
estimate.
• Use the distribution data to arrive at a realistic
forecast. Compare the original cost estimate for
the project with the reference class projects.
Key
Key Terms
Terms
Apportionment Phase estimating

Bottom-up estimates Range estimating
Delphi method Ratio methods
Direct costs Reference class forecasting (RCF)
Function points Template method
Learning curves Time and cost databases
Overhead costs Top-down estimates
Padding estimates White elephant
.
WBS
WBS Figure
Figure
Exercise Figure 5.1

.
Learning
Learning Curves
Curves Unit
Unit Values
Values
TABLE A5.1
.
Learning
Learning Curves
Curves Cumulative
Cumulative Values
Values
TABLE A5.2
.

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Chapter

• Project Defined (according to PMI)

Routine, Repetitive Work Projects

• The Project Manager

• Factors leading to the increased use

• Integration (or centralization) of project

• Problems resulting from the uncoordinated

• Changes in the organization’s mission and

S Specific Be specific in targeting an objective

M Measurable Establish a measurable indicator(s) of progress

A Assignable Make the objective assignable to one person

R Realistic State what can realistically be done with

T Time related State when the objective can be achieved,

• Builds discipline into the project selection process

• Design of a project portfolio system:

• The Payback Model

of return and is eligible for further consideration.

• To capture larger market share

Driver What business problem does the project solve?

Success metrics How will we measure success?

Sponsorship Who is the project sponsor?

Risk What is the impact of not doing this project?

Risk What is the project risk to our organization?

Benefits, value, ROI When will the project show results?

Objectives What are the project objectives?

Resources Will internal resources be available for this project?

Approach Will we build or buy?

Schedule How long will this project take?

Schedule Is the time line realistic?

Training/resources Will staff training be required?

Finance/portfolio What is the estimated cost of the project?

Portfolio Is this a new initiative or part of an existing initiative?

Portfolio How does this project interact with current projects?

Technology Is the technology available or new?

EXHIBIT 2.4 cont’d

• Sources and Solicitation of Project Proposals

Step 1: Defining the Project Scope

• Work Breakdown Structure (WBS)

* This breakdown groups work

• Organizational Breakdown Structure (OBS)

• Responsibility Matrix (RM)

• What information needs to be collected

• Project status reports

• To support good decisions

1. Have people familiar with the tasks make the estimate

Conditions for Preferring Top-Down or

• Make rough top-down estimates

• Level of detail in the WBS varies with the

Direct costs $80,000

• Select a reference class of projects similar to

Apportionment Phase estimating

Exercise Figure 5.1

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