Chap 3projectcostmanagement

Chapter 5:
Project Cost Management
Information Technology
Project Management
Learning Objectives
⚫Understand the importance of project cost
management
⚫Explain basic project cost management
principles, concepts, and terms
⚫Discuss different types of cost estimates and
methods for preparing them
2
Learning Objectives (continued)
⚫Understand the processes involved in cost
budgeting and preparing a cost estimate, and
budget for an information technology project
⚫Understand the benefits of earned value
management and project portfolio management
to assist in cost control
⚫Describe how project management software can
assist in project cost management
3
The Importance of Project Cost
Management
⚫IT projects have a poor track record for meeting
budget goals
⚫The CHAOS studies found the average cost
overrun (the additional percentage or dollar
amount by which actual costs exceed estimates)
4
What is Cost and
Project Cost Management?
⚫Cost is a resource sacrificed or foregone to achieve a
specific objective or something given up in exchange
⚫Costs are usually measured in monetary units like dollars
⚫Project cost management includes the processes
required to ensure that the project is completed within
an approved budget
⚫Project managers must make sure their projects are well
defined, have accurate time and cost sestimates and have
a realistic budget that they were involved in approving
5
Reasons for Cost Overruns
⚫Not emphasizing the importance of realistic project
cost estimates from the outset
⚫Many of the original cost estimates for IT projects are
low to begin with and based on very unclear project
requirements
⚫Many IT professionals think preparing cost
estimates is a job for accountants when in fact it is a
very demanding and important skill that project
managers need to acquire
⚫Many IT projects involve new technology or
business processes which involve untested products
and inherent risks
6
Project Cost Management Processes
⚫There are three project cost management
processes:
⚫Cost estimating: developing an approximation or
estimate of the costs of the resources needed to
complete a project
⚫Cost budgeting: allocating the overall cost
estimate to individual work items to establish a
baseline for measuring performance
⚫Cost control: controlling changes to the project
budget
7
Basic Principles of Cost Management
⚫Most members of an executive board better
understand and are more interested in financial
terms than IT terms, so IT project managers must
speak their language
⚫Profits are revenues minus expenditures
⚫Profit margin is the ratio of revenues to profits
⚫$2 profit per $100 revenue 🡪 2% profit margin
⚫Life cycle costing considers the total cost of
ownership, or development plus support costs, for a
project
⚫A project could take 2 years to build and be in place for
10 years; costs and benefits must be estimated for the
entire lifetime of the project
8
⚫Cash flow analysis determines the estimated annual
costs and benefits for a project and the resulting annual
cash flow
⚫ Too many projects with high cash flow needs in the same
year may not be able to be supported which will impact
profitability
⚫Tangible costs or benefits are those costs or benefits
that an organization can easily measure in dollars
⚫ A task that was allocated $150,000 but actually costs
$100,000. would have a tangible benefit of $50,000 if the
assets allocated are used for other projects
⚫Intangible costs or benefits are costs or benefits that
are difficult to measure in monetary terms
⚫ Costs – resources used to research related areas of a project
but not billed to the project
⚫ Benefits – goodwill, prestige, general statements of improved
9 productivity not easily translated in dollars
⚫Direct costs are costs that can be directly related to
producing the products and services of the project
⚫Salaries, cost of hardware and software purchased
specifically for the project
⚫Indirect costs are costs that are not directly related
to the products or services of the project, but are
indirectly related to performing the project
⚫Cost of electricity, paper towels
⚫Sunk cost is money that has been spent in the past;
when deciding what projects to invest in or continue,
you should not include sunk costs
⚫To continue funding a failed project because a great
deal of money has already been spent on it is not a
valid way to decide on which projects to fund
⚫Sunk costs should be forgotten
10
⚫Reserves are dollars included in a cost estimate to
mitigate cost risk by allowing for future situations that
are difficult to predict
⚫Contingency reserves allow for future situations that
may be partially planned for (sometimes called known
unknowns) and are included in the project cost baseline
⚫Recruiting and training costs for expected personnel
turnover during a project
⚫Management reserves allow for future situations that
are unpredictable (sometimes called unknown
unknowns)
⚫Extended absence of a manager; supplier goes out of
business
11
Resource Assignment
3 types of resource assignment

⚫Assign resources at a constant rate
⚫Assign resources as a total
⚫Assign resources based on availability
Cost Estimating
⚫After developing a good resource requirements
list, PMs and their teams must develop several
estimates of the costs for these resources
⚫Project managers must take cost estimates
seriously if they want to complete projects within
budget constraints
⚫It’s important to know the types of cost estimates,
how to prepare cost estimates, and typical
problems associated with IT cost estimates
13
Types of cost estimation
⚫Rough order of magnitude estimate

⚫Provides a rough idea of the costs involved in a project
⚫Budgetary estimate
⚫Is used to allocate money according to an
organization’s budget
⚫Definitive estimate
⚫Provides the most accurate estimate of project costs
14 Project Cost Management

Cost Estimating
⚫ A rough order of magnitude (ROM) estimate provides an
estimate of what a project will cost.
⚫Also referred to as a ballpark estimate, a guesstimate, a
swag, or a broad gauge.
⚫Provides a rough idea of the costs involved in a project
⚫Done very early in a project, before a project is officially
started to help PMs make project selection decisions.
⚫Accuracy is typically -50 percent to +100 percent, meaning
the project’s actual costs could be 50 percent below the
ROM estimate or 100 percent above.
⚫ A ROM estimate that actually cost $100,000 would range between
$50,000 to $200,000. The accuracy range is often much wider for IT
projects.
⚫ Often IT project estimates for software development are doubled because
of the history of cost overruns
15
Cost Estimating
⚫A budgetary estimate is used to allocate money
into an organization’s budget.
⚫Many organizations develop budgets at least two
years into the future.
⚫Budgetary estimates are made one to two years prior
to project completion.
⚫The accuracy of budgetary estimates is typically -
10% to +25%
⚫A budgetary estimate that actually costs $100,000
would range between $90,000 to $125,000.
16
Cost Estimating
⚫A definitive estimate provides an accurate estimate
of project costs (most accurate of the three types).
⚫Definitive estimates are used for making many
purchasing decisions for which accurate estimates are
required and for estimating final project costs.
⚫For example, if a project involves purchasing 1000
personal computers from an outside supplier in the
next three months, a definitive estimate would be
required to aid in evaluating supplier proposals and
allocating the funds to pay the chosen supplier.
⚫Definitive estimates are made one year or less prior to
project completion
⚫Accuracy range is normally -5% to +10%
17
Types of Cost Estimates
⚫It is important to provide supporting details

(assumptions, project scope, WBS, etc) used in
computing estimates so that it will be easier to prepare
updates as needed or similar estimates on other
projects.
18
Cost Management Plan
⚫A cost management plan is a document that
describes how the organization will manage cost
variance on the project
⚫For example, how to respond to proposals from
suppliers that are higher or lower than estimates
⚫A large percentage of total project costs are often
labor costs, so project managers must develop and
track estimates for labor
⚫Many organizations estimate the number of people or
hours they need by department or skill over the life
cycle of a project
19
Cost Estimation Tools and Techniques
⚫ Analogous or top-down estimates: use the actual cost of a
previous, similar project as the basis for estimating the cost of
the current project
⚫ How similar the current and previous project are determines the
accuracy of the estimate. Using a different language or hardware can
skew the estimate
⚫ Bottom-up estimates or Activity Based Costing : involve
estimating individual work items or activities and summing
them to get a project total
⚫ The smaller the work items, the better the estimate but these estimates
are usually time intensive and expensive to develop
20
⚫ Parametric modeling: uses project characteristics
(parameters) in a mathematical model to estimate project
costs
⚫For example, a model might provide an estimate of $50 per line
of code for a s/w development project based on the programming
language, level of expertise of the programmers, size and
complexity of the data involved, etc
⚫Some models may be simpler such as a $10,000 ballpark
estimate per workstation in a large office automation project
based on history of similar projects during the same time period
21
Typical Problems with IT Cost Estimates1
⚫ Estimates are done too quickly
⚫ Many estimates must be done quickly, before clear system
requirements have been produced
⚫ Lack of estimating experience
⚫ The people developing the costs estimates often don’t have much
experience, especially on large projects
⚫ There is not enough accurate, reliable project data available on which
to base estimates
⚫ Human beings are biased toward underestimation
⚫ Senior team members make estimates based on their skill level but
should take into account the junior people on the project
⚫ Management desires accuracy but wants to spend less in order to win a
bid or internal funding
⚫ Top management never forgets the first estimate and rarely, if ever,
remembers how approved changes affect the estimate.
⚫ The PM must keep the communication lines open at all times
_______________________________________________________________
1. DeMarco, Tom, Controlling Software Projects, New York:Yourdon Press, 1982.
22
Cost Budgeting
⚫Cost budgeting involves allocating the project cost
estimate to individual work items over time
⚫The WBS is a required input to the cost budgeting
process since it defines the work items
⚫An important goal is to produce a cost baseline
⚫A time-phased budget that project managers use to
measure and monitor cost performance
⚫Estimating costs for each major project activity over
time provides management with a foundation for
project cost control
⚫Cost budgeting also provides info for project funding
requirements –at what point(s) in time will the money
be needed
23
Cost Budgeting
Concept 5000 13 %
Design 10000 25 %
Develop 10000 25 %
RM 5000 RM 10000 RM 10000 RM 5000 RM 10000
Roll out 5000 13 %
Support 10000 25 %
_______________
Total 40000 100%
Eg: Surveyor Pro Project Cost Baseline
⚫ The Surveyor Pro project team could use the cost
estimate along with the project schedule and other info
to allocate costs for each month as below
*Numbers are rounded, so some totals appear to be off.
25
Cost Control
⚫Project cost control includes:
⚫Monitoring cost performance
⚫Ensuring that only appropriate project changes are
included in a revised cost baseline
⚫Informing project stakeholders of authorized changes
to the project that will affect costs
⚫Many organizations around the globe have
problems with cost control
26
Cost Control
⚫Performance review meetings can be a powerful
tool to help control project costs
⚫Knowing you have to report on your progress is an
incentive for people to perform better
⚫Performance measurement is another important tool
for cost control
⚫There are many general accounting approaches for
measuring cost performance but earned value
management is a tool unique to project management
27
Earned Value Management (EVM)
⚫ EVM is a project performance measurement technique that
integrates scope, time, and cost data
⚫ Given a baseline (original plan plus approved changes),
you can determine how well the project is meeting its goals
⚫ You must enter actual information periodically to use EVM
⚫ Was a WBS item completed or approximately how much of
the work was completed
⚫ Actual start and end dates
⚫ Actual cost
⚫ More and more organizations around the world are using
EVM to help control project costs
28
Earned Value Management Terms
⚫ The planned value (PV), formerly called the budgeted cost of
work scheduled (BCWS), also called the budget, is that
portion of the approved total cost estimate planned to be
spent on an activity during a given period
⚫ Eg: purchasing and installing new server
⚫ It take one week and cost of total of $10000 for labor hours, hardware and
software
⚫ Planned value (PV) for that activity for that week is $10000
⚫ Actual cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect costs
incurred in accomplishing work on an activity during a given
period
⚫ Eg: suppose it take 2 weeks and cost $20000 to purchase and install.
Assume that $15000 of these actual costs were incurred during week
1 and $5000 was incurred in week.
⚫ These amount are the actual cost for the activity each week
29
⚫ The earned value (EV), formerly called the budgeted cost
of work performed (BCWP), is an estimate of the value of
the physical work actually completed
⚫ EV is based on the original planned costs for the project or
activity and the rate at which the team is completing work
on the project or activity to date
⚫Eg ($10000): suppose the server installation was
halfway completed by the end of week 1. th
⚫The earned value estimate after one week is $5000
e rate of performance would be 50% because by the
end of week 1, the planned schedule reflects that the
task should be 100% complete

Rate of Performance
⚫Rate of performance (RP) is the ratio of actual
work completed to the percentage of work planned
to have been completed at any given time during
the life of the project or activity
⚫Brenda Taylor, Senior Project Manager in South
Africa, suggests this term and approach for
estimating earned value
⚫For example, suppose the server installation was halfway
completed by the end of week 1; the rate of performance
would be 50% because by the end of week 1, the planned
schedule reflects that the task should be 100% complete
and only 50% of that work has been completed
⚫The EV would thus be $5,000 after week 1 ($10,000*50%)
31
Earned Value Calculations
for One Activity After Week One
32
Information Technology Project Management, Fifth Edition, Copyright 2007
Earned Value Formulas
33
Information Technology Project Management, Fifth Edition, Copyright 2007
⚫ Negative numbers for cost and schedule variance indicate
problems in those areas
⚫ If CV is negative it means that performing the work cost more
than planned
⚫ A negative SV means that it took longer than planned to
perform the work
⚫ CPI can be used to estimate the projected cost of
completing the project based on performance to date (EAC)
⚫ =1:the planned and actual costs are the same; <1: over
budget; >1: under budget
⚫ SPI can be used to estimate the projected time to complete
the project
⚫ =1: on schedule; <1 behind schedule; >1 ahead of schedule
34
Earned Value Management
⚫Case study: Week 1(Designing Interface)
⚫Lets say that, according to the plan, RM 10000
involves for designing interface
⚫Assume that RM 15000 was incurred
⚫Only half of the interfaces were designed
(50% task completed)
State PV, AC, RP
Calculate the earned value…EV, CV, SV, CPI, and
SPI
Term Value
PV, AC, RP 10000, 15000, 50%
EV 5000
CV -10000
SV -5000
CPI 30%
SVI 50%
Case study 2
⚫Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented plan)
⚫Actuals, at end of week 4 show: $325K spent
⚫BCWS = $400K ($100K x 4)
⚫ACWP = $325K
⚫What conclusions can you draw?
⚫Under budget?
⚫Is project on schedule?
37
⚫Suppose BCWP is $300K
⚫How is this determined?
⚫What conclusions now?
⚫SV = BCWP – BCWS
⚫SV = $300k - $400K = -$100K
⚫Behind schedule, but what does the $100K in
variance really mean?
⚫CV = BCWP – ACWP = $300K - $325K
⚫Over budget by $25K
Earned Value Chart
⚫The chart helps visualize how the project is
performing.
⚫ If the project goes as planned, it will finish in 12
months at a cost of $100,000
⚫ The actual cost line is always right on or above the
earned value line.
⚫Interpretation: This means costs 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
39 until last month when the project fell behind schedule
Earned Value Chart
⚫ Many commercial organizations do not use EV
management
⚫ Because IT projects do not have good planning information,
tracking performance against a plan might produce
misleading information
⚫ Estimating percentage completion of tasks might also
produce misleading information.
⚫ What does it mean to say a task is 75% complete after 3 months? 1
more month is needed to finish? Will finish after spending an
additional 25% of the planned budget? Could very well be no to both
of those question.
⚫ To simply EV management,
⚫ Use percentage completion of 0(not started), 50 (in progress)
and 100 (completed)
40 ⚫ Or, enter and collect EV data at summary levels of the WBS

Earned Value Chart for Project after Five Months
⚫ EAC = $122,308 = BAC/CPI = $100,000/.81761
⚫ ETC = 12.74 months = Original Time Estimate/SPI = 12 months/.94203
41
Project Portfolio Management
⚫Many organizations collect and control an entire
suite of projects or investments as one set of
interrelated activities in a portfolio
⚫Five levels for project portfolio management
1. Put all your projects in one database
2. Prioritize the projects in your database
3. Divide your projects into two or three budgets
based on type of investment
4. Automate the repository
5. Apply modern portfolio theory, including risk-return
tools that map project risk on a curve
42
Benefits of Portfolio Management
⚫Schlumberger saved $3 million in one year by
organizing 120 information technology projects
into a portfolio
⚫80% of the prjects overlapped
⚫14 separate projects were trying to accomplish the
same thing
⚫META Group research shows that:
⚫Organizations that evaluate information technology
projects by what their business impacts are and
what their potential business values will be
implement projects that result in 25 percent more
improvement to the bottom line
⚫Business executives state that using project
portfolio management allows managers to make
decisions faster and with more confidence
43
Chapter 3:
Project Cost Management
The Importance of Project Cost
Management
🞂IT projects have a poor track record for meeting
budget goals
🞂A cost overrun is the additional percentage or dollar
amount by which actual costs exceed estimates
Copyright 2016 45
What is Cost and Project Cost
Management?
🞂Cost is a resource sacrificed or foregone to achieve
a specific objective or something given up in
exchange
🞂Costs are usually measured in monetary units like
dollars
🞂Project cost management includes the processes
required to ensure that the project is completed
within an approved budget
◦ Project managers must make sure their projects are well defined,
have accurate time and cost sestimates and have a realistic budget
that they were involved in approving
Copyright 2016 46
Project Cost Management Processes
🞂Planning cost management :determining the
policies, procedures, and documentation that will
be used for planning, executing, and controlling
project cost.
🞂Estimating costs: developing an approximation or
estimate of the costs of the resources needed to
complete a project
🞂Determining the budget: allocating the overall
cost estimate to individual work items to establish a
baseline for measuring performance
🞂Controlling costs: controlling changes to the
project budget
Copyright 2016 47
Reasons for Cost Overruns
🞂Not emphasizing the importance of realistic project
cost estimates from the outset
◦ Many of the original cost estimates for IT projects are low to
begin with and based on very unclear project requirements
🞂Many IT professionals think preparing cost estimates
is a job for accountants when in fact it is a very
demanding and important skill that project managers
need to acquire
🞂Many IT projects involve new technology or business
processes which involve untested products and
inherent risks
Copyright 2016 48
🞂Most members of an executive board better
understand and are more interested in financial
terms than IT terms , so IT project managers must
speak their language
◦ Profits are revenues minus expenditures
◦ Profit margin is the ratio of revenues to profits
● $20 profit per $200 revenue 🡪 10% profit margin
◦ Cash flow analysis determines the estimated annual
costs and benefits for a project and the resulting annual
cash flow
● A project could take 2 years to build and be in place for 10
years; costs and benefits must be estimated for the entire
lifetime of the project
Copyright 2016 49
Types of Costs and Benefits
🞂Tangible costs or benefits are those costs or
benefits that an organization can easily measure in
dollars
◦ A task that was allocated $150,000 but actually costs $100,000.
would have a tangible benefit of $50,000 if the assets allocated
are used for other projects
🞂Intangible costs or benefits are costs or benefits

that are difficult to measure in monetary terms
◦ Costs – resources used to research related areas of a project but
not billed to the project
◦ Benefits – goodwill, prestige, general statements of improved
productivity not easily translated in dollars
Copyright 2016 50
Types of Costs and Benefits
🞂Direct costs are costs that can be directly related
to producing the products and services of the
project
◦ Salaries, cost of hardware and software purchased specifically for
the project
🞂Indirect costs are costs that are not directly
related to the products or services of the project,
but are indirectly related to performing the project
◦ Cost of electricity, paper towels
🞂Sunk cost is money that has been spent in the
past; when deciding what projects to invest in or
continue, you should not include sunk costs
◦ To continue funding a failed project because a great deal of
money has already been spent on it is not a valid way to decide
on which projects to fund
◦ Sunk costs should be forgotten
◦
Copyright 2016 51
More Basic Principles of Cost Management
🞂Reserves are dollars included in a cost estimate
to mitigate cost risk by allowing for future
situations that are difficult to predict
◦ Contingency reserves allow for future situations that
may be partially planned for (sometimes called known
unknowns) and are included in the project cost baseline
● Recruiting and training costs for expected personnel turnover
during a project
◦ Management reserves allow for future situations that

are unpredictable (sometimes called unknown
unknowns
● Extended absence of a manager; supplier goes out of business
Copyright 2016 52
Planning Cost Management
🞂The project team uses expert judgment, analytical
techniques, and meetings to develop the cost
management plan
🞂A cost management plan includes:
◦ Level of accuracy and units of measure
◦ Organizational procedure links
◦ Control thresholds
◦ Rules of performance measurement
◦ Reporting formats
◦ Process descriptions
Copyright 2016 53
Estimating Costs
🞂Project managers must take cost estimates
seriously if they want to complete projects within
budget constraints
🞂It’s important to know the types of cost estimates,
how to prepare cost estimates, and typical
problems associated with IT cost estimates
Copyright 2016 54
Type of Cost Estimating
🞂 A rough order of magnitude (ROM) estimate provides an
estimate of what a project will cost.
◦ Also referred to as a ballpark estimate, a guesstimate, a
swag, or a broad gauge.
◦ Provides a rough idea of the costs involved in a project
◦ Done very early in a project, before a project is officially
started to help PMs make project selection decisions.
◦ Accuracy is typically -50 percent to +100 percent, meaning
the project’s actual costs could be 50 percent below the
ROM estimate or 100 percent above.
● A ROM estimate that actually cost $100,000 would range between
$50,000 to $200,000. The accuracy range is often much wider for IT
projects.
● Often IT project estimates for software development are doubled because
of the history of cost overruns
55
Copyright 2016
🞂A budgetary estimate is used to allocate money
into an organization’s budget.
◦ Many organizations develop budgets at least two years
into the future.
● Budgetary estimates are made one to two years prior to
project completion.
◦ The accuracy of budgetary estimates is typically -10% to
+25%
● A budgetary estimate that actually costs $100,000 would range
between $90,000 to $125,000.
56
Copyright 2016
🞂A definitive estimate provides an accurate estimate
of project costs (most accurate of the three types).
◦ Definitive estimates are used for making many purchasing
decisions for which accurate estimates are required and for
estimating final project costs.
◦ For example, if a project involves purchasing 1000 personal
computers from an outside supplier in the next three months,
a definitive estimate would be required to aid in evaluating
supplier proposals and allocating the funds to pay the chosen
supplier.
◦ Definitive estimates are made one year or less prior to
project completion
◦ Accuracy range is normally -5% to +10%
57
Copyright 2016
Types of Cost Estimates
⚫ It is important to provide supporting details

(assumptions, project scope, WBS, etc) used in
computing estimates so that it will be easier to prepare
updates as needed or similar estimates on other
projects.
Copyright 2016 58
🞂Basic tools and techniques for cost estimates:
◦ Analogous or top-down estimates: use the actual cost
of a previous, similar project as the basis for estimating
the cost of the current project
◦ Bottom-up estimates: involve estimating individual work

items or activities and summing them to get a project total
◦ Parametric modeling uses project characteristics

(parameters) in a mathematical model to estimate project
costs
Copyright 2016 59
Typical Problems with IT Cost Estimates
🞂Estimates are done too quickly
◦ Many estimates must be done quickly, before clear system
requirements have been produced
🞂People lack estimating experience
◦ The people developing the costs estimates often don’t have much
experience, especially on large projects
◦ There is not enough accurate, reliable project data available on which
to base estimates
🞂Human beings are biased toward underestimation
◦ Senior team members make estimates based on their skill level but
should take into account the junior people on the project
🞂Management desires accuracy
◦ Top management never forgets the first estimate and rarely, if ever,
remembers how approved changes affect the estimate.
● The PM must keep the communication lines open at all times
Copyright 2016 60
Example: Surveyor Pro Project Cost Estimate
Copyright 2016 61
Cost Budgeting
🞂Cost budgeting involves allocating the project cost
estimate to individual work items over time
🞂The WBS is a required input to the cost budgeting
process since it defines the work items
🞂An important goal is to produce a cost baseline
◦ Cost Baseline is the authorized time-phased spending plan
for the project
◦ A time-phased budget that project managers use to
measure and monitor cost performance
◦ Estimating costs for each major project activity over time
provides management with a foundation for project cost
control
◦ Cost budgeting also provides info for project funding
requirements –at what point(s) in time will the money be
needed
Copyright 2016
Cost Budgeting
Concept 5000 13 %
Design 10000 25 %
RM 5000 RM 10000 RM 10000 RM 5000 RM 10000
Develop 10000 25 %
Roll out 5000 13 %
Support 10000 25 %
_______________
Total 40000 100%
Copyright 2016
Example: Surveyor Pro Project Cost
Baseline
Copyright 2016 64
Controlling Costs
🞂Project cost control includes
◦ Monitoring cost performance
◦ Ensuring that only appropriate project changes are
included in a revised cost baseline
◦ Informing project stakeholders of authorized changes to
the project that will affect costs
🞂Many organizations around the globe have
problems with cost control
Copyright 2016 65
Cost Control
🞂Performance review meetings can be a powerful
tool to help control project costs
◦ Knowing you have to report on your progress is an
incentive for people to perform better
🞂Performance measurement is another important
tool for cost control
◦ There are many general accounting approaches for
measuring cost performance but earned value
management is a tool unique to project management
66
Earned Value Management (EVM)
🞂EVM is a project performance measurement
technique that integrates scope, time, and cost data
🞂Given a baseline, you can determine how well the
project is meeting its goals
🞂You must enter actual information periodically to
use EVM
🞂More and more organizations around the world are
using EVM to help control project costs
Copyright 2016 67
🞂 The planned value (PV), formerly called the budgeted
cost of work scheduled (BCWS), also called the budget,
is that portion of the approved total cost estimate planned
to be spent on an activity during a given period
● It take one week and cost of total of $10000 for labor hours,
hardware and software
● Planned value (PV) for that activity for that week is $10000
🞂 Actual cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect
costs incurred in accomplishing work on an activity during
a given period
● Eg: suppose it take 2 weeks and cost $20000 to purchase and
install. Assume that $15000 of these actual costs were incurred
during week 1 and $5000 was incurred in week.
● These amount are the actual cost for the activity each week
Copyright 2016 68
🞂The earned value (EV), formerly called the
budgeted cost of work performed (BCWP), is an
estimate of the value of the physical work
actually completed
🞂EV is based on the original planned costs for the
project or activity and the rate at which the team
is completing work on the project or activity to
date
◦ EV is based on the original planned costs for the project or
activity and the rate at which the team is completing work
on the project or activity to date
● Eg ($10000): suppose the server installation was halfway
completed by the end of week 1.
● The earned value estimate after one week is $5000
Copyright 2016 69
Rate of Performance
🞂Rate of performance (RP) is the ratio of actual
work completed to the percentage of work planned
to have been completed at any given time during
the life of the project or activity
● For example: purchasing and installing new server
● For example, suppose the server installation was halfway
completed by the end of week 1; the rate of performance would
be 50% because by the end of week 1, the planned schedule
reflects that the task should be 100% complete and only 50% of
that work has been completed
Copyright 2016 70
Copyright 2016 71
Rules of Thumb for Earned Value
Numbers
🞂Negative numbers for cost and schedule variance
indicate problems in those areas
🞂CPI and SPI less than 100% indicate problems
🞂Problems mean the project is costing more than
planned (over budget) or taking longer than
planned (behind schedule)
🞂The CPI can be used to calculate the estimate at
completion (EAC)—an estimate of what it will
cost to complete the project based on
performance to date. The budget at completion
(BAC) is the original total budget for the project
Copyright 2016 72
🞂Case study: Week 1(Designing Interface)
◦ Lets say that, according to the plan, RM 10000 involves
for designing interface. Assume that RM 15000 was
incurred. Only half of the interfaces were designed
● State: PV, AC, RP
● Calculate the EV, CV, SV, CPI, and SPI
● What the conclusion of the project in term of time and cost?
Copyright 2016
Term Value
PV, AC, RP 10000, 15000, 50%
EV 5000
CV -10000
SV -5000
CPI 30%
SVI 50%
Earned Value Chart for Project after
Five Months
Information Copyright 2016 75

Chapter Summary
🞂Project cost management is a traditionally weak
area of IT projects, and project managers must
work to improve their ability to deliver projects
within approved budgets
🞂Main processes include
◦ Plan cost management
◦ Estimate costs
◦ Determine the budget
◦ Control costs
Copyright 2016 76
Chapter 4:
Project Time Management
Project Management
Importance of Project Schedules
⚫Managers often cite delivering projects on time as
one of their biggest challenges
⚫Time has the least amount of flexibility; it passes
no matter what happens on a project
⚫Schedule issues are the main reason for conflicts
on projects, especially during the second half of
projects
78
Individual Work Styles and Cultural
Differences Cause Schedule Conflicts
⚫One dimension of the Meyers-Briggs Type
Indicator focuses on peoples’ attitudes toward
structure and deadline
⚫Judgment type people prefer to follow schedules,
meet deadlines and have closure. Perception
types prefer to keep things open and flexible;
deadlines are a signal to start rather than to
complete a project
⚫Different cultures and even entire countries have
different attitudes about schedules
79
80
Project Time Management Processes
⚫ Activity definition: identifying the specific activities/tasks
that the project team members and stakeholders must
perform to produce the project deliverables
⚫ Activity sequencing: identifying and documenting the
relationships between project activities
⚫ Activity resource estimating: estimating how many
resources a project team should use to perform project
activities
⚫ Activity duration estimating: estimating the number of
work periods that are needed to complete individual
activities
⚫ Schedule development: analyzing activity sequences,
activity resource estimates, and activity duration estimates
to create the project schedule
⚫ Schedule control: controlling and managing changes to
the project schedule
81
Activity Definition
⚫Project schedules grow out of the basic
documents that initiate a project
⚫Project charter includes start and end dates and
budget information
⚫Scope statement and WBS help define what will be
done
⚫Activity definition involves developing a more
detailed WBS and supporting explanations to
understand all the work to be done so you can
develop realistic cost and duration estimates
82
Activity Definition
⚫The basis for creating a project schedule is
derived from four project time management
processes
⚫Activity definition – further defining the scope
⚫Activity sequencing – further defining the time
⚫Activity resource and activity duration (further
defining the time and cost)
83
Activity Lists and Attributes
⚫An activity list is a tabulation of activities to be
included on a project schedule that includes:
⚫The activity name
⚫An activity identifier or number
⚫A brief description of the activity
⚫Activity attributes provide more information
such as predecessors, successors, logical
relationships, leads and lags, resource
requirements, constraints, imposed dates, and
assumptions related to the activity
84
Milestones
⚫A milestone is a significant event that normally
has no duration
⚫Not every deliverable or output created for a
project is a milestone
⚫It often takes several activities and a lot of work
to complete a milestone
⚫They’re useful tools for setting schedule goals
and monitoring progress
⚫Examples include obtaining customer sign-off on
key documents or completion of specific products
such as software modules or the installation of
new hardware
85
Activity Sequencing
⚫After defining project activities, the next step is
activity sequencing
⚫Involves reviewing the activity list and attributes,
project scope statement, milestone list and
approved change requests to determine the
relationships between activities
⚫A dependency or relationship is the
sequencing of project activities or tasks
⚫You must determine dependencies in order to
use critical path analysis
86
Three Types of Dependencies
⚫Mandatory dependencies: inherent in the nature
of the work being performed on a project,
sometimes referred to as hard logic
⚫Discretionary dependencies: defined by the
project team; sometimes referred to as soft logic
and should be used with care since they may limit
later scheduling options
⚫External dependencies: involve relationships
between project and non-project activities
⚫Delivery of new hardware; if delayed can impact
project schedule
87
Task Dependency Types
88
Network Diagrams
⚫Network diagrams are the preferred technique for
showing activity sequencing
⚫A network diagram is a schematic display of the
logical relationships among, or sequencing of,
project activities
⚫Two main formats are the arrow and precedence
diagramming methods
89
Sample Activity-on-Arrow (AOA)
Network Diagram for Project X
90
Arrow Diagramming Method (ADM)
⚫Also called activity-on-arrow (AOA) network
diagrams
⚫Activities are represented by arrows
⚫Nodes or circles are the starting and ending
points of activities
⚫Can only show finish-to-start dependencies
⚫Can omit activities that have no dependencies
91
Process for Creating AOA Diagrams
1. Find all of the activities that start at node 1: Draw their finish
nodes and draw arrows between node 1 and those finish
nodes; put the activity letter or name and duration estimate
on the associated arrow
2. Continue drawing the network diagram, working from left to
right: Look for bursts and merges
⚫ Bursts occur when a single node is followed by two or more
activities
⚫ A merge occurs when two or more nodes precede a single node
3. Continue drawing the project network diagram until all
activities are included on the diagram that have
dependencies
4. As a rule of thumb, all arrowheads should face toward the
right, and no arrows should cross on an AOA network
92 diagram
Precedence Diagramming Method (PDM)
⚫More popular than ADM method and used by
project management software
⚫Activities are represented by boxes
⚫Arrows show relationships between activities
⚫Better at showing different types of dependencies
93
Sample PDM Network Diagram
94
Activity Resource Estimating
⚫Before estimating activity durations, you must have a
good idea of the quantity and type of resources that
will be assigned to each activity
⚫Consider important issues in estimating resources
⚫How difficult will it be to do specific activities on this
project?
⚫What is the organization’s history in doing similar
activities?
⚫Are the required resources available or need to be
acquired?
⚫A resource breakdown structure is a hierarchical
structure that identifies the project’s resources by
category and type
95
Activity Duration Estimating
⚫Duration includes the actual amount of time
worked on an activity plus elapsed time
⚫Effort is the number of workdays or work hours
required to complete a task
⚫Effort does not normally equal duration
⚫People doing the work should help create
estimates, and an expert should review them
96
Three-Point Estimates
⚫Instead of providing activity estimates as a
discrete number, such as four weeks, it’s often
helpful to create a three-point estimate
⚫An estimate that includes an optimistic, most likely,
and pessimistic estimate, such as three weeks for
the optimistic, four weeks for the most likely, and
five weeks for the pessimistic (no logic) estimate
97
Program Evaluation and Review
Technique (PERT)
⚫PERT is a network analysis technique used to
estimate project duration when there is a high
degree of uncertainty about the individual activity
duration estimates
⚫PERT uses probabilistic time estimates
⚫Duration estimates based on using optimistic, most
likely, and pessimistic estimates of activity durations,
or a three-point estimate
⚫PERT attempts to address the risk associated with
duration estimates by developing schedules that are
more realistic
⚫It involves more work than CPM since it requires several
98 duration estimates
PERT Formula and Example
⚫PERT weighted average =
optimistic time + 4 X most likely time + pessimistic time
6
⚫Example:
PERT weighted average =
8 workdays + 4 X 10 workdays + 24 workdays = 12 days
6
where optimistic time= 8 days,
most likely time = 10 days, and
pessimistic time = 24 days
Therefore, you’d use 12 days on the network diagram
instead of 10 when using PERT for the above example
99
Schedule Development
⚫Uses results of the other time management
processes to determine the start and end date of
the project
⚫Ultimate goal is to create a realistic project
schedule that provides a basis for monitoring
project progress for the time dimension of the
project
⚫Important tools and techniques include Gantt
charts, critical path analysis, critical chain
scheduling, and PERT analysis
100
Gantt Charts
⚫Gantt charts provide a standard format for
displaying project schedule information by listing
project activities and their corresponding start
and finish dates in a calendar format
⚫Symbols include:
⚫Black diamonds: milestones
⚫Thick black bars: summary tasks
⚫Lighter horizontal bars: durations of tasks
⚫Arrows: dependencies between tasks
101
Gantt Chart for Project X
102
Critical Path Method (CPM)
⚫CPM is a network diagramming technique used
to predict total project duration
⚫A critical path for a project is the series of
activities that determines the earliest time by
which the project can be completed
⚫The critical path is the longest path through the
network diagram and has the least amount of
slack or float
⚫Slack or float is the amount of time an activity
may be delayed without delaying a succeeding
activity or the project finish date
103
Calculating the Critical Path
⚫First develop a good network diagram
⚫Add the duration estimates for all activities on
each path through the network diagram
⚫The longest path is the critical path
⚫If one or more of the activities on the critical path
takes longer than planned, the whole project
schedule will slip unless the project manager
takes corrective action
104
Determining the Critical Path for Project X
105
More on the Critical Path
⚫A project team at Apple computer put a stuffed
gorilla on the top of the cubicle of the person
currently managing a critical task
⚫The critical path is not the one with all the critical
activities; it only accounts for time
⚫There can be more than one critical path if the
lengths of two or more paths are the same
⚫The critical path can change as the project
progresses
106
Using Critical Path Analysis to
Make Schedule Trade-offs
⚫Free slack or free float is the amount of time an
activity can be delayed without delaying the early
start of any immediately following activities
⚫Total slack or total float is the amount of time an
activity may be delayed from its early start without
delaying the planned project finish date
⚫A forward pass through the network diagram
determines the early start and finish dates
⚫A backward pass determines the late start and
finish dates
107
Calculating Early and Late Start
and Finish Dates
108
Free and Total Float or Slack for
Project X
109
How to Find the Critical Path
⚫ General Foundry’s schedule and slack times
EARLIEST EARLIEST LATEST LATEST

START, FINISH, START, FINISH, SLACK, ON CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
Using the Critical Path
to Shorten a Project Schedule
⚫Three main techniques for shortening schedules
⚫Shortening durations of critical activities/tasks by
adding more resources or changing their scope
⚫Crashing activities by obtaining the greatest amount
of schedule compression for the least incremental
cost
⚫A 2 week task with one person working 50% could be
shortened to 1 week if the person is assigned 100% -
no increase in cost
⚫Or, a temporary worker could be hired to work in
parallel with the other worker to speed up the task (at
a cost)
111
Project Crashing
⚫Projects will sometimes have deadlines that are
impossible to meet using normal procedures
⚫By using exceptional methods it may be possible to
finish the project in less time than normally required
⚫However, this usually increases the cost of the
project
⚫Reducing a project’s completion time is called
crashing
Project Crashing
⚫Crashing a project starts with using the normal
time to create the critical path
⚫The normal cost is the cost for completing the
activity using normal procedures
⚫If the project will not meet the required deadline,
extraordinary measures must be taken
⚫The crash time is the shortest possible activity
time and will require additional resources
⚫The crash cost is the price of completing the
activity in the earlier-than-normal time
Using the Critical Path
to Shorten a Project Schedule
⚫Fast tracking activities by doing them in parallel
or overlapping them instead of doing them in
sequence
⚫Instead of waiting for all analysis to be
completed before starting coding, some
coding could begin for those tasks that have
been fully analyzed
⚫Drawback – starting a task too soon could
lengthen the project because other tasks
whose analysis has not been completed could
impact this task and cause rework
114
Importance of Updating
Critical Path Data
⚫It is important to update project schedule
information to meet time goals for a project
⚫The critical path may change as you enter actual
start and finish dates
⚫If you know the project completion date will slip,
be proactive and negotiate with the project
sponsor and stakeholders
115
Schedule Control
⚫ Perform reality checks on schedules
⚫Allow for contingencies
⚫Don’t plan for everyone to work at 100%
capacity all the time
⚫Hold progress meetings with stakeholders
and be clear and honest in communicating
schedule issues
116
Schedule Control (continued)
⚫Goals are to know the status of the schedule,
influence factors that cause schedule changes,
determine that the schedule has changed, and
manage changes when they occur
⚫Tools and techniques include:
⚫Progress reports
⚫A schedule change control system
⚫Project management software, including schedule
comparison charts like the tracking Gantt chart
⚫Variance analysis, such as analyzing float or slack
⚫Performance management, such as earned value
117
Reality Checks on Scheduling
⚫First review the draft schedule or estimated
completion date in the project charter
⚫Prepare a more detailed schedule with the
project team
⚫Make sure the schedule is realistic and followed
⚫Alert top management well in advance if there
are schedule problems
⚫Verify schedule progress – just because a team
member says a task was completed on time
doesn’t always mean that it was
118
Working with People Issues
⚫Strong leadership helps projects succeed more
than good PERT charts
⚫Project managers should use:
⚫Empowerment
⚫Incentives
⚫Discipline
⚫Negotiation
119
Using Software to Assist
in Time Management
⚫Software for facilitating communications helps
people exchange schedule-related information
⚫Decision support models help analyze trade-offs
that can be made
⚫Project management software can help in various
time management areas
120
Chapter 6:
Information Technology Project

Management, Eighth Edition
Note: See the text itself for full

citations.
Importance of Project Schedules
🞂Managers often cite delivering projects on time as
one of their biggest challenges
🞂Time has the least amount of flexibility; it passes no
matter what happens on a project
🞂Schedule issues are the main reason for conflicts
on projects, especially during the second half of
projects
122
123
🞂 Planning schedule management: determining the policies,
procedures, and documentation that will be used for planning,
executing, and controlling the project schedule
🞂 Defining activities: identifying the specific activities that the
project team members and stakeholders must perform to produce
the project deliverables
🞂 Sequencing activities: identifying and documenting the
relationships between project activities
🞂 Estimating activity resources: estimating how many resources
a project team should use to perform project activities
🞂 Estimating activity durations: estimating the number of work
periods that are needed to complete individual activities
🞂 Developing the schedule: analyzing activity sequences, activity
resource estimates, and activity duration estimates to create the
project schedule
🞂 Controlling the schedule: controlling and managing changes to
the project schedule
124
Defining Activities
🞂An activity or task is an element of work normally
found on the work breakdown structure (WBS) that
has an expected duration, a cost, and resource
requirements
🞂Activity definition involves developing a more
detailed WBS and supporting explanations to
understand all the work to be done so you can
develop realistic cost and duration estimates
125
Activity Lists and Attributes
🞂An activity list is a tabulation of activities to be
included on a project schedule that includes
◦ the activity name
◦ an activity identifier or number
◦ a brief description of the activity
🞂Activity attributes provide more information such
as predecessors, successors, logical
relationships, resource requirements, constraints,
imposed dates, and assumptions related to the
activity
126
Milestones
🞂A milestone is a significant event that normally
has no duration
🞂It often takes several activities and a lot of work to
complete a milestone
🞂They’re useful tools for setting schedule goals and
monitoring progress
🞂Examples include obtaining customer sign-off on
key documents or completion of specific products
127
Sequencing Activities
🞂Involves reviewing activities and determining
dependencies
🞂A dependency or relationship is the sequencing
of project activities or tasks
🞂You must determine dependencies in order to
use critical path analysis
128
Three types of Dependencies
🞂Mandatory dependencies: inherent in the nature
of the work being performed on a project,
sometimes referred to as hard logic
🞂Discretionary dependencies: is one that isn't
based on a "have to", but on a "should"
🞂External dependencies: involve relationships
between project and non-project activities
◦ Delivery of new hardware; if delayed can impact project
schedule
129
Network Diagrams
🞂Network diagrams are the preferred technique for
showing activity sequencing
🞂A network diagram is a schematic display of the
logical relationships among, or sequencing of,
project activities
🞂Two main formats are the arrow and precedence
diagramming methods
130
Example: Network Diagram for Project
X
131
Arrow Diagramming Method (ADM)
🞂Also called activity-on-arrow (AOA) network
diagrams
🞂Activities are represented by arrows
🞂Nodes or circles are the starting and ending points
of activities
🞂Can only show finish-to-start dependencies
132
1. Find all of the activities that start at node 1. Draw their finish
nodes and draw arrows between node 1 and those finish
nodes. Put the activity letter or name and duration estimate on
the associated arrow
2. Continuing drawing the network diagram, working from left to
right. Look for bursts and merges. Bursts occur when a single
node is followed by two or more activities. A merge occurs
when two or more nodes precede a single node
133
3. Continue drawing the project network diagram until all

activities are included on the diagram that have
dependencies
4. As a rule of thumb, all arrowheads should face toward
the right, and no arrows should cross on an AOA
network diagram
134
Precedence Diagramming Method (PDM)
🞂Activities are represented by boxes
🞂Arrows show relationships between activities
🞂More popular than ADM method and used by
project management software
🞂Better at showing different types of dependencies
135
Example: PDM Network Diagram
136
Estimating Activity Resources
🞂Before estimating activity durations, you must
have a good idea of the quantity and type of
resources that will be assigned to each activity;
resources are people, equipment, and materials
🞂Consider important issues in estimating resources
◦ How difficult will it be to do specific activities on this
project?
◦ What is the organization’s history in doing similar
activities?
◦ Are the required resources available?
🞂A resource breakdown structure is a hierarchical
structure that identifies the project’s resources by
category and type
137
Activity Duration Estimating
🞂Duration includes the actual amount of time
worked on an activity plus elapsed time
🞂Elapsed time example: you work on a IT project
for eight days from Monday to the next
Wednesday, with a weekend (Saturday and
Sunday) in between. Your elapsed time is 10 days
since the non-working days are also counted
🞂Effort is the number of workdays or work hours
required to complete a task
🞂Effort does not normally equal duration
🞂People doing the work should help create
estimates, and an expert should review them
138
Three-Point Estimates
🞂Instead of providing activity estimates as a
discrete number, such as four weeks, it’s often
helpful to create a three-point estimate
◦ an estimate that includes an optimistic, most likely, and
pessimistic estimate, such as three weeks for the
optimistic, four weeks for the most likely, and five weeks
for the pessimistic estimate
🞂Three-point estimates are needed for PERT and
Monte Carlo simulations
139
Developing the Schedule
🞂Uses results of the other time management
processes to determine the start and end date of
the project
🞂Ultimate goal is to create a realistic project
schedule that provides a basis for monitoring
project progress for the time dimension of the
project
🞂Important tools and techniques include Gantt
charts, critical path analysis, and critical chain
scheduling, and PERT analysis
140
Program Evaluation and Review
Technique (PERT)
🞂PERT is a network analysis technique used to
estimate project duration when there is a high
degree of uncertainty about the individual activity
duration estimates
🞂PERT uses probabilistic time estimates
◦ duration estimates based on using optimistic, most likely,
and pessimistic estimates of activity durations, or a
three-point estimate
141
PERT Formula and Example
🞂PERT weighted average =
optimistic time + 4X most likely time + pessimistic time
6
🞂Example:
PERT weighted average =
8 workdays + 4 X 10 workdays + 24 workdays = 12 days
6
where optimistic time= 8 days
most likely time = 10 days, and
pessimistic time = 24 days
Therefore, you’d use 12 days on the network diagram
instead of 10 when using PERT for the above example
142
Gantt Charts
🞂Gantt charts provide a standard format for
displaying project schedule information by listing
project activities and their corresponding start and
finish dates in a calendar format
🞂Symbols include:
◦ A black diamond: a milestones
◦ Thick black bars: summary tasks
◦ Lighter horizontal bars: durations of tasks
◦ Arrows: dependencies between tasks
143
Example: Gantt Chart for Software
Launch Project
144
Adding Milestones to Gantt Charts
🞂Many people like to focus on meeting milestones,

especially for large projects
🞂Milestones emphasize important events or
accomplishments on projects
🞂Normally create milestone by entering tasks with a
zero duration, or you can mark any task as a
milestone
145
Critical Path Method (CPM)
🞂CPM is a network diagramming technique used to
predict total project duration
🞂A critical path for a project is the series of
activities that determines the earliest time by
which the project can be completed
🞂The critical path is the longest path through the
network diagram and has the least amount of
slack or float
🞂Slack or float is the amount of time an activity
may be delayed without delaying a succeeding
activity or the project finish date
146
Calculating the Critical Path
🞂First develop a good network diagram
🞂Add the duration estimates for all activities on
each path through the network diagram
🞂The longest path is the critical path
🞂If one or more of the activities on the critical path
takes longer than planned, the whole project
schedule will slip unless the project manager
takes corrective action
147
Figure 6-8. Determining the Critical
Path for Project X
148
More on the Critical Path
🞂A project team at Apple computer put a stuffed gorilla
on the top of the cubicle of the person currently
managing critical task
🞂The critical path is not the one with all the critical
activities; it only accounts for time
◦ Remember the example of growing grass being on the
critical path for Disney’s Animal Kingdom
🞂There can be more than one critical path if the
lengths of two or more paths are the same
🞂The critical path can change as the project
progresses
149
Using Critical Path Analysis to Make
Schedule Trade-offs
🞂Free slack or free float is the amount of time an
activity can be delayed without delaying the early
start of any immediately following activities
🞂Total slack or total float is the amount of time an
activity may be delayed from its early start without
delaying the planned project finish date
🞂A forward pass through the network diagram
determines the early start and finish dates
🞂A backward pass determines the late start and
finish dates
150
Example. Calculating Early and Late
Start and Finish Dates
151
Table 6-1. Free and Total Float or
Slack for Project X
152
Exercise
Activity Predecessor Estimate in Days
Start - 0
A Start 6
B A 5
C B 7
D Start 2
Finish C 4
1. Using the table below, draw the network diagram
2. Identify the critical path

The start date of the project is 27 April 2018 and all day are
working days. Calculate the early start date, late start date,
early finish date and late finish date for each activity
153
Using the Critical Path to Shorten a
Project Schedule
🞂Three main techniques for shortening schedules
◦ Shortening durations of critical activities/tasks by adding
more resources or changing their scope
◦ Crashing activities by obtaining the greatest amount of
schedule compression for the least incremental cost
◦ Fast tracking activities by doing them in parallel or
overlapping them
154
Importance of Updating Critical Path
Data
🞂It is important to update project schedule
information to meet time goals for a project
🞂The critical path may change as you enter actual
start and finish dates
🞂If you know the project completion date will slip,
negotiate with the project sponsor
155
Schedule Control Suggestions
🞂Perform reality checks on schedules
🞂Allow for contingencies
🞂Don’t plan for everyone to work at 100% capacity
all the time
🞂Hold progress meetings with stakeholders and be
clear and honest in communicating schedule
issues
156
Controlling the Schedule
🞂Goals are to know the status of the schedule,
influence factors that cause schedule changes,
determine that the schedule has changed, and
manage changes when they occur
🞂Tools and techniques include
◦ Progress reports
◦ A schedule change control system
◦ Project management software, including schedule
comparison charts like the tracking Gantt chart
◦ Variance analysis, such as analyzing float or slack
◦ Performance management, such as earned value (chapter 7)
157
Reality Checks on Scheduling
🞂First review the draft schedule or estimated
completion date in the project charter
🞂Prepare a more detailed schedule with the project
team
🞂Make sure the schedule is realistic and followed
🞂Alert top management well in advance if there are
schedule problems
158
Working with People Issues
🞂Strong leadership helps projects succeed more
than good PERT charts
🞂Project managers should use
◦ empowerment
◦ incentives
◦ discipline
◦ negotiation
159
Words of Caution on Using Project
Management Software
🞂Many people misuse project management
software because they don’t understand important
concepts and have not had training
🞂You must enter dependencies to have dates
adjust automatically and to determine the critical
path
🞂You must enter actual schedule information to
compare planned and actual progress
160
Chapter Summary
🞂Project time management is often cited as the main
source of conflict on projects, and most IT projects
exceed time estimates
🞂Main processes include
◦ Plan schedule management
◦ Define activities
◦ Sequence activities
◦ Estimate activity resources
◦ Estimate activity durations
◦ Develop schedule
◦ Control schedule
Assignment (Question 3):
a.Compare Project Evolution and Review Technique (PERT)
with Critical Path Method (CPM).
161
Chapter 4:
Project Communication Management
Project Management
Learning Objectives
⚫Understand the importance of good communication
on projects and describe the major components of a
communications management plan
⚫Discuss the elements of project communications
planning, including information distribution,
performance reporting, and administrative closure
⚫Discuss various methods for project information
distribution and the advantages and disadvantages
of each
⚫Understand individual communication needs and
how to determine the number of communications
channels needed for a project
• 163
Learning Objectives
⚫Understand how the main outputs of performance
reporting help stakeholders stay informed about
project resources
⚫Recognize how the main outputs of administrative
closure are used to formally end a project
⚫List various methods for improving project
communications, such as managing conflicts,
running effective meetings, using e-mail effectively,
and using templates
⚫Describe how software can enhance project
communications
• 164
Importance of Good Communications
⚫The greatest threat to many projects is a failure to
communicate
⚫Our culture does not portray IT professionals as
being good communicators
⚫Research shows that IT professionals must be
able to communicate effectively to succeed in their
positions
⚫Strong verbal skills are a key factor in career
advancement for IT professionals
• 165
Project Communications Management
Processes
⚫Communications planning: determining the
information and communications needs of the
stakeholders
⚫Information distribution: making needed
information available in a timely manner
⚫Performance reporting: collecting and
disseminating performance information
⚫Administrative closure: generating, gathering,
and disseminating information to formalize phase
or project completion
• 166
Communications Planning
⚫Every project should include some type of
communications management plan, a document
that guides project communications
⚫Creating a stakeholder analysis for project
communications also aids in communications
planning
• 167
Communications Management Plan
Contents
⚫ A description of a collection and filing structure for
gathering and storing various types of information
⚫ A distribution structure describing what information goes
to whom, when, and how
⚫ A format for communicating key project information
⚫ A project schedule for producing the information
⚫ Access methods for obtaining the information
⚫ A method for updating the communications management
plans as the project progresses and develops
⚫ A stakeholder communications analysis
• 168
Sample Stakeholder Analysis for Project
Communications
• 169
Information Distribution
⚫Getting the right information to the right people
at the right time and in a useful format is just as
important as developing the information in the
first place
⚫Important considerations include
⚫using technology to enhance information
distribution
⚫formal and informal methods for distributing
information
• 170
Media Choice Table
• 171
The Impact of the Number of People on
Communications Channels
• 172
Performance Reporting
⚫Performance reporting keeps stakeholders informed
about how resources are being used to achieve
project objectives
⚫Status reports describe where the project stands at a
specific point in time
⚫Progress reports describe what the project team has
accomplished during a certain period of time
⚫Project forecasting predicts future project status and
progress based on past information and trends
⚫Status review meetings often include performance
reporting
• 173
Administrative Closure
⚫A project or phase of a project requires closure
⚫Administrative closure produces
⚫project archives
⚫formal acceptance
⚫lessons learned
• 174
Suggestions for Improving Project
Communications
⚫Manage conflicts effectively
⚫Develop better communication skills
⚫Run effective meetings
⚫Use e-mail effectively
⚫Use templates for project communications
• 175
Conflict Handling Modes, in Preference Order
⚫Confrontation or problem-solving: directly face a
conflict
⚫Compromise: use a give-and-take approach
⚫Smoothing: de-emphasize areas of differences
and emphasize areas of agreement
⚫Forcing: the win-lose approach
⚫Withdrawal: retreat or withdraw from an actual or
potential disagreement
• 176
Conflict Can Be Good
⚫Conflict often produces important results, such as
new ideas, better alternatives, and motivation to
work harder and more collaboratively
⚫Groupthink can develop if there are no conflicting
viewpoints
⚫Research by Karen Jehn suggests that task-
related conflict often improves team performance,
but emotional conflict often depresses team
performance
• 177
Developing Better Communication Skills
⚫Companies and formal degree programs for IT

professionals often neglect the importance of
developing speaking, writing, and listening skills
⚫As organizations become more global, they
realize they must invest in ways to improve
communication with people from different
countries and cultures
⚫It takes leadership to improve communication
• 178
Running Effective Meetings
⚫Determine if a meeting can be avoided
⚫Define the purpose and intended outcome of the
meeting
⚫Determine who should attend the meeting
⚫Provide an agenda to participants before the
meeting
⚫Prepare handouts, visual aids, and make
logistical arrangements ahead of time
⚫Run the meeting professionally
⚫Build relationships
• 179
Using E-Mail Effectively
⚫Make sure that e-mail is an appropriate medium
for what you want to communicate
⚫Be sure to send the e-mail to the right people
⚫Use meaningful subjects
⚫Limit the content to one main subject, and be as
clear and concise as possible
⚫Limit the number and size of attachments
⚫Delete e-mail you don’t need, and don’t open it if
you question the source
⚫Make sure your virus software is up to date
⚫Respond to and file e-mails quickly
⚫Learn how to use important features
• 180
Using Templates for Project
Communications
⚫Many technical people are afraid to ask for help
⚫Providing examples and templates for project
communications saves time and money
⚫Organizations can develop their own templates,
use some provided by outside organizations, or
use samples from textbooks
⚫Recall that research shows that companies that
excel in project management make effective use
of templates
• 181
Sample Template for a Monthly
Progress Report
• 182
Sample Template for a Letter of Agreement for
a Class Project
• 183
Outline for a Final Project Report
• 184
Final Project Documentation Items
• 185
Gantt Chart Template for a Class Project
• 186
Developing a Communications Infrastructure
⚫ A communications infrastructure is a set of tools,
techniques, and principles that provide a foundation for the
effective transfer of information
⚫ Tools include e-mail, project management software,
groupware, fax machines, telephones, teleconferencing
systems, document management systems, and word
processors
⚫ Techniques include reporting guidelines and templates,
meeting ground rules and procedures, decision-making
processes, problem-solving approaches, and conflict
resolution and negotiation techniques
⚫ Principles include using open dialog and an agreed upon
work ethic
• 187
Using Software to Assist in Project
Communications
⚫There are many software tools to aid in project
communications
⚫Today more than 37 percent of people
telecommute or work remotely at least part-time
⚫Project management software includes new
capabilities to enhance virtual communications
⚫Project 2002’s enterprise edition includes
features for portfolio management, resource
management, and collaboration
• 188
Chapter 4:
Project Human Resource Management
Project Management
Revision
⚫Aras6 Consultant Sdn Bhd is going to design the
user interface for an online Payment System in
four weeks. The project manager allocates RM
60,000 for completing the task. After four weeks,
the team has spent RM 65,000, but only 60% of
job done.
Calculate:
⚫ Earned value (EV)
⚫ Cost variance (CV)
⚫ Schedule variance (SV)
⚫ Cost Performance Index (CPI)
⚫Schedule Performance Index (SPI)
Revision
⚫ You are developing four modules for a system. You
estimate each module has same difficulty, labour costs,
and completion time. You also estimate that the project
will take 4 months. The budget of RM 4,000 per month
includes contingency reserve. At the end of 3 months,
you are asked to prepare an Earned Value calculation in
order to determine how the project progress. You
determine at the end of month 3, total costs incurred are
RM 3,500 and 70 percent of the project is completed.
⚫ Calculate
⚫ Earned value (EV)
⚫ Cost variance (CV)
⚫ Schedule variance (SV)
⚫ Cost Performance Index (CPI)
⚫Schedule Performance Index (SPI)
Learning Objectives
⚫Explain the importance of good human resource
management on projects, including the current state and
future implications of human resource management,
especially on information technology projects.
⚫Define project human resource management and
understand its processes.
• 192
The Importance of Human
Resource Management
⚫ People determine the success and failure of organizations and
projects.
⚫ Recent statistics about IT workforce:
⚫ IT Project Manager in Malaysia earned more than their counterparts
in the Philippines, Indonesia, Vietnam and India but much less than
the ones in United States, United Arab Emirates and Hong Kong. –
PIKOM 2016
⚫ A 2004 ITAA report showed a slight recovery in 2004.
⚫ The total number of IT workers in the Malaysia was more than 10.5
million in early 2004, up from 10.3 million in 2003 and 9.9 million in
2002.
⚫ Eighty-nine percent of new jobs came from non-IT companies, such
as banking, finance, manufacturing, food service, and transportation.
⚫ Hiring managers say interpersonal skills are the most important soft
skill for IT workers.*
• 193
Average Month Salary (PIKOM, 2016)
Average monthly salary of ICT professionals grew by 7.7% in

2014 and is projected to register lower growth at 7.4% in
2015 due to the weakening economy.
Hot ICT Jobs (Malaysia)
• 195
Recruitment Period Overview (Malaysia)
196
Employment Overview (Malaysia)

Employment Overview (Malaysia)
198
Employment Performance (MDEC, 2015)

Employment Performance (MDEC, 2015)
200
Long Hours and Stereotypes of IT
Workers Hurt Recruiting
⚫Many people are struggling with how to increase
and diversify the IT labor pool.
⚫Noted problems include:
⚫The fact that many IT professionals work long
hours and must constantly stay up-to-date of
changes in the field.
⚫Undesirable stereotypes that keep certain people
(for example, women) away from the career field.
⚫The need to improve benefits, redefine work hours
and incentives, and provide better human resource
management.
• 201
What is Project Human Resource
Management?
⚫ Making the most effective use of the people involved with a
project.
⚫ Processes include:
⚫Human resource planning: Identifying and documenting
project roles, responsibilities, and reporting relationships.
⚫Acquiring the project team: Getting the needed personnel
assigned to and working on the project.
⚫Developing the project team: Building individual and group
skills to enhance project performance.
⚫Managing the project team: Tracking team member
performance, motivating team members, providing timely
feedback, resolving issues and conflicts, and coordinating
changes to help enhance project performance.
• 202
Human Resource Planning
⚫Involves identifying, documenting, and assigning

project roles, responsibilities, and reporting
relationships
⚫The Process generates
⚫Organizational chart for the project team
⚫Responsibility assignment matrixes
⚫Staffing management plan
203
Elements of HR Planning
⚫Clearly defining roles and responsibilities
⚫Developing a staff management plan
⚫Creating an organizational chart
⚫Writing detailed job descriptions
204
HR Planning process
⚫Finalizing the project requirements
⚫Defining how to accomplish the task
⚫Breaking down the work into manageable
elements
⚫Assigning work responsibilities
205
Acquiring the project team
⚫ Staff Acquisition
⚫ It is important to define procedures for hiring
subcontractors and recruiting new employees
⚫ Offer existing employees incentive for helping
recruit and retain personnel
206
Resource Loading
⚫Refers to the number of resources the project
requires during specific time periods according to
the existing schedule
⚫Resource histograms show resource loading
⚫Over-allocation means more resources than are
available are assigned to perform work at a given
time
207
Resource Levelling
⚫ is a technique for resolving resource conflicts
by delaying tasks
⚫ The main purpose of resource leveling is to
ensure uniform resource usage in a project
208
Resource Levelling Example
209
Assignment
The table shows an e-voting project with activities A, B, C, D, E, F, G, H
and I.
Activity ID Depend Duration Number of

on (Days) workers
A - 2 2
B A 8 4
C A 6 8
D A 4 6
E A 4 4
F B 12 2
G C,D 4 6
H C,D,E 6 9
I F,G,H 2 2
210
Successful negotiation
⚫ Negotiations can play a major role in staffing
for a project
⚫ Some of the stress can be alleviated by
following these suggestions
⚫ Develop a plan
⚫ Adjust your approach
⚫ Compromise
211
Personnel problems in project
⚫Personnel problems that can arise during a

project
⚫Performance-based problems
⚫Policy-based problems
212
Developing the Project Team
⚫Is an important factor contributing to the success
of a team and that of the team’s project
⚫Helps team members to work together effectively
as a cohesive team to improve project
performance and ensure project success with
minimum interpersonal conflict
⚫Factors affecting team development
⚫ Individual team members
⚫ Stakeholder feedback
⚫ Training programs
213
Factors for successful team development
⚫Team-building activities
⚫Special occasions
⚫Rewards and recognition
⚫Training
⚫Meetings
214
Managing the project team
⚫Several tools and techniques
⚫Observation and conversation
⚫ Hard to assess how your team members are
performing or how they feeling about their work.
⚫Project performance appraisals
⚫Conflict management
⚫Issue log
215
Keys to Managing People
⚫Psychologists and management theorists have to
use into the field of managing people at work.
⚫Important areas related to project management
include:
⚫Motivation theories
⚫Influence and power
⚫Effectiveness
• 216
Intrinsic and Extrinsic Motivation
⚫Intrinsic motivation causes people to participate
in an activity for their own enjoyment.
⚫Extrinsic motivation causes people to do
something for a reward or to avoid a penalty.
⚫For example, some children take piano lessons
for intrinsic motivation (they enjoy it) while others
take them for extrinsic motivation (to get a reward
or avoid punishment).
• 217
Maslow’s Hierarchy of Needs
⚫Abraham Maslow argued that human beings
possess unique qualities that enable them to
make independent choices, thus giving them
control of their destiny.
⚫Maslow developed a hierarchy of needs, which

states that people’s behaviors are guided or
motivated by a sequence of needs.
• 218
Maslow’s Hierarchy of Needs
• 219
Herzberg’s Motivational and Hygiene Factors
⚫Frederick Herzberg wrote several famous books
and articles about worker motivation. He
distinguished between:
⚫Hygiene factors: Larger salaries, more supervision,
and a more attractive work environment. These
factors cause dissatisfaction if not present, but do
not motivate workers to do more.
⚫Motivational factors: Achievement, recognition, the

work itself, responsibility, advancement, and growth.
These factors produce job satisfaction.
• 220
McClelland’s Acquired-Needs Theory
⚫ Specific needs are acquired or learned over time and are
shaped by life experiences. The following are the main
categories of acquired needs:
⚫Achievement (nAch): People with a high need for
achievement like challenging projects with attainable goals
and lots of feedback.
⚫Affiliation (nAff): People with high need for affiliation desire
harmonious relationships and need to feel accepted by others,
so managers should try to create a cooperative work
environment for them.
⚫Power (nPow): People with a need for power desire either
personal power (not good) or institutional power (good for the
organization). Provide institutional power seekers with
management opportunities. • 221
McGregor’s Theory X and Y
⚫ Douglas McGregor popularized the human relations
approach to management in the 1960s.
⚫Theory X: Assumes workers dislike and avoid work, so
managers must use force, threats, and various control
schemes to get workers to meet objectives.
⚫Theory Y: Assumes individuals consider work as natural as
play or rest and enjoy the satisfaction of esteem and self-
actualization needs.
⚫Theory Z: Introduced in 1981 by William Ouchi and is based
on the Japanese approach to motivating workers, which
emphasizes trust, quality, collective decision making, and
cultural values.
• 222
Ways to Influence that Help and Hurt Projects
⚫Projects are more likely to succeed when project

managers influence people using:
⚫Expertise
⚫Work challenge
⚫Projects are more likely to fail when project
managers rely too heavily on:
⚫Authority
⚫Money
⚫Penalty
• 223
Power
⚫ Power is the potential ability to influence behavior to get
people to do things they would not otherwise do.
⚫ Types of power include:
⚫Coercive power
⚫ Punishment, threats, etc.
⚫Legitimate power
⚫Expert power
⚫Reward power
⚫Referent power
• 224
Improving Effectiveness:
Covey’s Seven Habits
⚫Project managers can apply Covey’s seven habits
to improve effectiveness on projects.
⚫Be proactive.
⚫Begin with the end in mind.
⚫Put first things first.
⚫Think win/win.
⚫Seek first to understand, then to be understood.
⚫Synergize.
⚫Sharpen the saw.
• 225
Empathic Listening and Rapport
⚫Good project managers are empathic listeners,
meaning they listen with the intent to
understand.
⚫Before you can communicate with others, you
have to have rapport, which is a relation of
harmony, conformity, accord, or affinity.
⚫Mirroring is the matching of certain behaviors of
the other person, and is a technique used to help
establish rapport.
⚫IT professionals need to develop empathic
listening and other people skills to improve
relationships with users and other stakeholders.
• 226
What Went Right?
⚫Best practices for ensuring partnerships between
people in business and technology areas include:
⚫Requiring business people, not IT people, to take
the lead in determining and justifying investments
in new computer systems.
⚫Having CIOs push their staff to recognize that the
needs of the business must drive all technology
decisions.
⚫Reshaping IT units to look and perform like
consulting firms.
• 227
Building the Team
⚫Building the Team through Trust, Communication,
and Personal Bridges
⚫Building relationship means face to face, shaking
hands, working shoulder by shoulder, sharing a
drink, building trust.
⚫Personal face to face relationship are formed in
kick-off, milestones, and celebratory meetings
Assignment!!!
Can collaborative technologies alone built a true team?

• 228
Building the Dispersed Team
⚫Building Trust
⚫Trust means placing confidence in another’s
character, ability, strength, and reliability.
⚫Trust is essential if people are to depend upon each
other to meet commitments
⚫Trust is a complex thing to develop
⚫It take time to develop
⚫While co-located team members can built trust
through formal and informal face to face interactions
distance is an impediment to building trusting
relationships.
⚫Importantly, different culture develop trust at different
rates
• 229
Chapter 4:
Project Procument Management
Project Management
Learning Objectives
⚫Understand the importance of project procurement
management and the increasing use of
outsourcing for information technology (IT) projects
⚫Describe the work involved in planning
procurements for projects, including determining
the proper type of contract to use and preparing a
procurement management plan, statement of work,
source selection criteria, and make-or-buy analysis
⚫Discuss how to conduct procurements and
strategies for obtaining seller responses, selecting
sellers, and awarding contracts
Importance of Project Procurement
Management
⚫Procurement means acquiring goods and/or
services from an outside source
⚫Other terms include purchasing and outsourcing
⚫Experts predict that global spending on computer
software and services will continue to grow
⚫Garner estimated the value of the global IT
industry in 2014 at $3.8 trillion
⚫People continue to debate whether offshore
outsourcing helps their own country or not
Debates on Outsourcing
⚫Some companies, such as Wal-Mart, prefer to do
no outsourcing at all, while others do a lot of
outsourcing. GM recently announced plans to
switch from outsourcing 90% of IT service to only
10%
⚫Most organizations do some form of outsourcing to
meet their IT needs and spend most money within
their own country
IT Outsourcing Market Continues to Grow
⚫U.S. companies are transferring more work
abroad, especially in the areas of IT
infrastructure, application development and
maintenance, and innovation processes
⚫India, China, and the Philippines are the
preferred locations for outsourcing, and Latin
America is growing in popularity
⚫A shortage of qualified personnel, not cost
savings, is the top reason for global outsourcing
of IT services
Why Outsource?
⚫To access skills and technologies
⚫To reduce both fixed and recurrent costs
⚫To allow the client organization to focus on its
core business
⚫To provide flexibility
⚫To increase accountability
Contracts
⚫A contract is a mutually binding agreement that
obligates the seller to provide the specified
products or services and obligates the buyer to
pay for them
⚫Contracts can clarify responsibilities and sharpen
focus on key deliverables of a project
⚫Because contracts are legally binding, there is
more accountability for delivering the work as
stated in the contract
Project Procurement Management Processes
⚫ Project procurement management: Acquiring
goods and services for a project from outside the
performing organization
⚫ Processes include:
⚫ Planning procurement management: Determining
what to procure and when and how to do it
⚫ Conducting procurements: Obtaining seller
responses, selecting sellers, and awarding contracts
⚫ Controlling procurements: Managing relationships
with sellers, monitoring contract performance, and
making changes as needed
⚫ Closing procurements: Completing and settling
each contract or agreement, including resolving of
any open items
Figure 12-1. Project Procurement
Management Summary
Planning Procurement Management
⚫ Identifying which project needs can best be met
by using products or services outside the
organization
⚫ If there is no need to buy any products or

services from outside the organization, then
there is no need to perform any of the other
procurement management processes
Types of Contracts
⚫ Different types of contracts can be used in different
situations:
⚫ Fixed price or lump sum contracts: Involve a fixed total
price for a well-defined product or service
⚫ Cost reimbursable contracts: Involve payment to the
seller for direct and indirect costs
⚫ Time and material contracts: Hybrid of both fixed price
and cost reimbursable contracts, often used by
consultants
⚫ Unit price contracts: Require the buyer to pay the seller a
predetermined amount per unit of service
⚫ A single contract can actually include all four of these
categories, if it makes sense for that particular
procurement
Contract Clauses
⚫Contracts should include specific clauses to take
into account issues unique to the project
⚫Can require various educational or work
experience for different pay rights
⚫A termination clause is a contract clause that
allows the buyer or supplier to end the contract
Tools and Techniques for Planning Purchases
and Acquisitions
⚫Expert judgment
⚫Market research
⚫Make-or-buy analysis: General management
technique used to determine whether an
organization should make or perform a particular
product or service inside the organization or buy
from someone else
Make-or-Buy Example
⚫ Assume you can lease an item you need for a
project for RM 800/day. To purchase the item,
the cost is RM 16,000 plus a daily operational
cost of RM 400/day
⚫ How long will it take for the purchase cost to be

the same as the lease cost?
Make-or Buy Solution
⚫Set up an equation so both options, purchase and
lease, are equal
⚫In this example, use the following equation. Let d be the
number of days to use the item:
RM 16,000 + RM 400d = RM 800d
Subtracting RM 400d from both sides, you get:
RM 16,000 = RM 400d
Dividing both sides by RM 400, you get:
d = 40
⚫If you need the item for more than 40 days, it is more
economical to purchase it
Procurement Management Plan
⚫Describes how the procurement processes will
be managed, from developing documentation for
making outside purchases or acquisitions to
contract closure
⚫Contents varies based on project needs

Contract Statement of Work (SOW)
⚫A statement of work is a description of the work
required for the procurement
⚫If a SOW is used as part of a contract to describe
only the work required for that particular contract,
it is called a contract statement of work
⚫A SOW is a type of scope statement
⚫A good SOW gives bidders a better understanding
of the buyer’s expectations
Statement of Work (SOW) Template
Procurement Documents
⚫ Request for Proposals: Used to solicit proposals
from prospective sellers
⚫ A proposal is a document prepared by a seller when
there are different approaches for meeting buyer needs
⚫ Requests for Quotes: Used to solicit quotes or
bids from prospective suppliers
⚫ A bid, also called a tender or quote (short for
quotation), is a document prepared by sellers providing
pricing for standard items that have been clearly
defined by the buyer
Request for Proposal (RFP) Template
Source Selection Criteria
⚫It’s important to prepare some form of evaluation
criteria, preferably before issuing a formal RFP or
RFQ
⚫Beware of proposals that look good on paper; be
sure to evaluate factors, such as past
performance and management approach
⚫Can require a technical presentation as part of a
proposal
Conducting Procurements
⚫Deciding whom to ask to do the work
⚫Sending appropriate documentation to potential
sellers
⚫Finding proposals or bids
⚫Selecting a seller
⚫Awarding a contract
Approaches for Procurement
⚫ Organizations can advertise to procure goods and
services in several ways:
⚫ Approaching the preferred vendor
⚫ Approaching several potential vendors
⚫ Advertising to anyone interested
⚫ A bidders’ conference can help clarify the buyer’s
expectations
Sample Proposal Evaluation Sheet

253 Management, Eighth Edition
Seller Selection
⚫Organizations often do an initial evaluation of all
proposals and bids and then develop a short list
of potential sellers for further evaluation
⚫Sellers on the short list often prepare a best and
final offer (BAFO)
⚫Final output is a contract signed by the buyer and
the selected seller
Controlling Procurements
⚫Ensures that the seller’s performance meets
contractual requirements
⚫Contracts are legal relationships, so it is important
that legal and contracting professionals be involved
in writing and administering contracts
⚫It is critical that project managers and team
members watch for constructive change orders,
which are oral or written acts or omissions by
someone with actual or apparent authority that can
be construed to have the same effect as a written
change order
Suggestions for Change Control in Contracts
⚫Changes to any part of the project need to be
reviewed, approved, and documented by the
same people in the same way that the original
part of the plan was approved
⚫Evaluation of any change should include an
impact analysis. How will the change affect the
scope, time, cost, and quality of the goods or
services being provided?
⚫Changes must be documented in writing. Project
team members should also document all
important meetings and telephone phone calls
Suggestions for Change Control in Contracts
(cont’d)
⚫Project managers and teams should stay closely
involved to make sure the new system will meet
business needs and work in an operational
environment
⚫Have backup plans
⚫Use tools and techniques, such as a contract
change control system, buyer-conducted
performance reviews, inspections and audits, and
so on
Closing Procurements
⚫Involves completing and settling contracts and
resolving any open items
⚫The project team should:
🞂Determine if all work was completed correctly and
satisfactorily
🞂Update records to reflect final results
🞂Archive information for future use
⚫The contract itself should include requirements for
formal acceptance and closure
Tools to Assist in Contract Closure
⚫Procurement audits identify lessons learned in
the procurement process
⚫Negotiated settlements help close contracts more
smoothly
⚫A records management system provides the
ability to easily organize, find, and archive
procurement-related documents
Chapter Summary
⚫Project procurement management involves
acquiring goods and services for a project from
outside the performing organization
⚫Processes include:
⚫Plan procurement management
⚫Conduct procurements
⚫Control procurements
⚫Close procurements
Chapter 5:
Project Risk Management
Learning Objectives
🞂 Understand risk and the importance of good project risk
management
🞂 Discuss the elements of planning risk management and
the contents of a risk management plan
🞂 List common sources of risks on information technology
(IT) projects
🞂 Describe the process of identifying risks and create a
risk register
🞂 Discuss qualitative risk analysis
262
Learning Objectives (cont’d)
🞂Explain quantitative risk analysis
🞂Discuss how to control risks

Management, Eighth Edition 263
The Importance of Project Risk Management
🞂Project risk management is the art and science of

identifying, analyzing, and responding to risk
throughout the life of a project and in the best
interests of meeting project objectives
🞂Risk management is often overlooked in projects,

but it can help improve project success by helping
select good projects, determining project scope,
and developing realistic estimates
264
Benefits from Software Risk Management
Practices*
*Source: Kulik and Weber, KLCI Research Group
265
Negative Risk or threat
🞂A dictionary definition of risk is “the
possibility of loss or injury”
🞂Negative risk involves understanding
potential problems that might occur in the
project and how they might block project
success
266
Positive Risk or Opportunities
🞂Positive risks are risks that result in good
things happening; sometimes called
opportunities
🞂A general definition of project risk is an
uncertainty that can have a negative or
positive effect on meeting project
objectives
🞂The goal of project risk management is to
minimize potential negative risks while
maximizing potential positive risks
267
Project Risk Management Processes
🞂Planning risk management : Deciding how to

approach and plan the risk management activities for
the project
🞂Identifying risks: Determining which risks are likely
to affect a project and documenting the
characteristics of each
🞂Performing qualitative risk analysis: Prioritizing
risks based on their probability and impact of
occurrence
268
Project Risk Management Processes
🞂Performing quantitative risk analysis:
Numerically estimating the effects of risks on project
objectives
🞂Planning risk responses: Taking steps to enhance
opportunities and reduce threats to meeting project
objectives
🞂Controlling risk: Monitoring identified and residual
risks, identifying new risks, carrying out risk
response plans, and evaluating the effectiveness of
risk strategies throughout the life of the project

Planning Risk Management
🞂The main output of this process is a risk
management plan—a plan that documents the
procedures for managing risk throughout a
project
🞂The project team should review project
documents and understand the organization’s
and the sponsor’s approaches to risk
🞂The level of detail will differ with the needs of the
project
270
Contingency and Fallback Plans,
Contingency Reserves
🞂 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 into effect
if attempts to reduce the risk are not effective
🞂 Contingency reserves or Contingency allowances are
provisions held by the project sponsor or organization to
reduce the risk of cost or schedule overruns to an
acceptable level;
🞂 Management reserves are funds held for unknown risks
that are NOT part of the cost baseline but ARE part of the
budget and funding requirements
271
Broad Categories of Risk
🞂 Market risk : Will the new service or product be useful to the
organization or marketable to others? Will the users accept it? Will
someone else create a better product?
🞂 Financial risk : Can the organization afford to undertake the

project? Will the project meet NPV, ROI and payback estimates?
🞂 Technology risk : is the project technically feasible? Is it leading

edge or bleeding edge technology?
🞂 People risk : Are people with appropriate skills available to help

complete the project? Does senior management support the
project?
🞂 Structure/process risk : What is the degree of change the new

project will introduce into user areas and business procedures?
With how many other systems does a new project/system need to
interact?
272
Risk Breakdown Structure
🞂A risk breakdown structure is a hierarchy of
potential risk categories for a project
🞂Similar to a work breakdown structure but used to

identify and categorize risks
273
Identifying Risks
🞂Identifying risks is the process of understanding
what potential events might hurt or enhance a
particular project
🞂Risk identification tools and techniques
include:
◦ Brainstorming
◦ The Delphi Technique
◦ Interviewing
◦ SWOT analysis
274
Brainstorming
🞂Brainstorming is a technique by which a group
attempts to generate ideas or find a solution for a
specific problem by amassing ideas spontaneously
and without judgment
🞂An experienced facilitator should run the
brainstorming session
🞂Be careful not to overuse or misuse brainstorming.
◦ Psychology literature shows that individuals produce a
greater number of ideas working alone than they do
through brainstorming in small, face-to-face groups
◦ Group effects often constrain idea generation
275
Delphi Technique
🞂The Delphi Technique is used to derive a
consensus among a panel of experts who make
predictions about future developments
🞂Uses repeated rounds of questioning and written

responses and avoids the biasing effects possible
in oral methods, such as brainstorming
◦ Requires a panel of experts for the particular area in
question
276
Interviewing
🞂Interviewing is a fact-finding technique for collecting
information in face-to-face, phone, e-mail, or instant-
messaging discussions
🞂Interviewing people with similar project experience is

an important tool for identifying potential risks
SWOT Analysis
🞂SWOT analysis (strengths, weaknesses,
opportunities, and threats) can also be used during
risk identification
🞂Helps identify the broad negative and positive risks

that apply to a project
277
Performing Qualitative Risk Analysis
🞂After identifying risks, the next step is to
understand which risks are most important
🞂Assess the probability and impact of identified
risks to determine their size and priority
🞂Risk quantification tools and techniques include:
◦ Probability/impact matrixes
◦ The Top Ten Risk Item Tracking
◦ Expert judgment
278
Probability/Impact Matrix
🞂A probability/impact matrix or chart lists the
relative probability of a risk occurring on one side of
a matrix or axis on a chart and the relative impact of
the risk occurring on the other
🞂List the risks and then label each one as high,
medium, or low in terms of its probability of
occurrence and its impact if it did occur
279
Sample Probability/Impact Matrix

Top Ten Risk Item Tracking
🞂Top Ten Risk Item Tracking is a qualitative risk
analysis tool that helps to identify risks and
maintain an awareness of risks throughout the life
of a project
🞂Establish a periodic review of the top ten project
risk items
🞂List the current ranking, previous ranking, number
of times the risk appears on the list over a period
of time, and a summary of progress made in
resolving the risk item
281
Example of Top Ten Risk Item Tracking

Performing Quantitative Risk Analysis
🞂Often follows qualitative risk analysis, but both
can be done together
🞂Large, complex projects involving leading edge
technologies often require extensive quantitative
risk analysis
🞂Main techniques include:
◦ Decision tree analysis and Expected Monetary Value
(EMV)
◦ Simulation
283
Decision Trees and Expected
Monetary Value (EMV)
🞂A decision tree is a diagramming analysis
technique used to help select the best course of
action in situations in which future outcomes are
uncertain
🞂Estimated monetary value (EMV) is the product of
a risk event probability and the risk event’s
monetary value
🞂You can draw a decision tree to help find the EMV
284
Example
Expected Monetary Value (EMV) Example
287
Simulation
🞂Simulation uses a representation or model of a
system to analyze the expected behavior or
performance of the system
🞂Monte Carlo analysis simulates a model’s
outcome many times to provide a statistical
distribution of the calculated results
🞂To use a Monte Carlo simulation, you must have
three estimates (most likely, pessimistic, and
optimistic) plus an estimate of the likelihood of the
estimate being between the most likely and
optimistic values
289
Response Strategies for Positive Risks
🞂After identifying and quantifying risks, you must
decide how to respond to them
🞂Four main response strategies for negative risks:
◦ Risk avoidance – don’t use h/w or s/w if unfamiliar with
them
◦ Risk acceptance – prepare for risk with backup plan or
contingency reserves
◦ Risk transference – to deal with financial risk exposure, a
company may purchase special insurance for specific h/w
needed for a project. If h/w fails, insurer has to replace it.
◦ Risk mitigation – reduce probability of occurrence e.g., use
proven technology, buy maintenance or service contract
290
Controlling Risks
🞂Involves executing the risk management process to
respond to risk events and ensuring that risk
awareness is an ongoing activity performed by the
entire project team throughout the entire project
🞂Main outputs of risk control are:
◦ Work performance information
◦ change requests
◦ updates to the project management plan, other project
documents, and organizational process assets

Chapter Summary
🞂Project risk management is the art and science of
identifying, analyzing, and responding to risk
throughout the life of a project and in the best
interests of meeting project objectives
🞂Main processes include:
◦ Plan risk management
◦ Identify risks
◦ Perform qualitative risk analysis
◦ Perform quantitative risk analysis
◦ Plan risk responses
◦ Control risks
292
293
Chapter 8:
Project Quality Management
What Is Quality?
294
 The International Organization for Standardization

(ISO) defines quality as the totality of characteristics
of an entity that bear on its ability to satisfy stated or
implied needs
 Other experts define quality based on
 conformance to requirements: meeting written
specifications
 fitness for use: ensuring a product can be used as it was
intended
Project Quality Management* Processes
295
 Quality planning: identifying which quality

standards are relevant to the project and how to
satisfy them
 Quality assurance: evaluating overall project
performance to ensure the project will satisfy the
relevant quality standards
 Quality control: monitoring specific project results
to ensure that they comply with the relevant quality
standards while identifying ways to improve overall
 quality
Is to ensure that the project will satisfy the needs for which it was
undertaken.
Quality Planning
296
 It is important to design in quality and

communicate important factors that directly
contribute to meeting the customer’s requirements
 Design of experiments helps identify which
variables have the most influence on the overall
outcome of a process
 Many scope aspects of IT projects affect quality
like functionality, features, system outputs,
performance, reliability, and maintainability
Quality Assurance
297
 Quality assurance includes all the activities related to

satisfying the relevant quality standards for a project.
 Another goal of quality assurance is continuous quality
improvement.
 Benchmarking can be used to generate ideas for
quality improvements.
 Quality audits help identify lessons learned that can
improve performance on current or future projects.
Quality Assurance Plan
298
Quality Assurance Plan
299
Quality Control
300
 The main outputs of quality control are:

 acceptance decisions
 rework
 process adjustments
 Some tools and techniques include:
 Pareto analysis
 statistical sampling
 Six Sigma
 quality control charts
Pareto Analysis
301
 Pareto analysis involves identifying the vital few

contributors that account for the most quality
problems in a system.
 Also called the 80-20 rule, meaning that 80% of
problems are often due to 20% of the causes.
 Pareto diagrams are histograms that help identify
and prioritize problem areas.
Statistical Sampling and Standard Deviation
302
 Statistical sampling involves choosing part of a

population of interest for inspection.
 The size of a sample depends on how representative
you want the sample to be.
 Sample size formula:
Sample size = .25 x (certainty Factor/acceptable error)2
Commonly Used Certainty Factors
303
95% certainty: Sample size = 0.25 X (1.960/.05) 2 = 384

90% certainty: Sample size = 0.25 X (1.645/.10)2 = 68
80% certainty: Sample size = 0.25 X (1.281/.20)2 = 10
Six Sigma Defined
304
 Six Sigma is “a comprehensive and flexible system

for achieving, sustaining and maximizing business
success. Six Sigma is uniquely driven by close
understanding of customer needs, disciplined use of
facts, data, and statistical analysis, and diligent
attention to managing, improving, and reinventing
business processes.”*
*Pande, Peter S., Robert P. Neuman, and Roland R. Cavanagh, The
Six Sigma Way. New York: McGraw-Hill, 2000, p. xi
Basic Information on Six Sigma
305
 The target for perfection is the achievement of no

more than 3.4 defects per million opportunities.
 The principles can apply to a wide variety of
processes.
 Six Sigma projects normally follow a five-phase
improvement process called DMAIC.
DMAIC*
306
 Define: Define the problem/opportunity, process, and

customer requirements
 Measure: Define measures, collect, compile, and display data
 Analyze: Scrutinize process details to find improvement
opportunities
 Improve: Generate solutions and ideas for improving the
problem
 Control: Track and verify the stability of the improvements
and the predictability of the solution
* ..is a systematic, closed-loop process for continued improvement that is

scientific and fact based.
How is Six Sigma Quality Control Unique?
307
 It requires an organization-wide commitment.

 Six Sigma organizations have the ability and
willingness to adopt contrary objectives, like
reducing errors and getting things done faster.
 It is an operating philosophy that is customer-focused
and strives to drive out waste, raise levels of quality,
and improve financial performance at breakthrough
levels.
Examples of Six Sigma
308 Organizations
 Motorola, Inc. pioneered the adoption of Six Sigma
in the 1980s and saved about $14 billion
 Allied Signal/Honeywell saved more than $600
million a year by reducing the costs of reworking
defects and improving aircraft engine design
processes
 General Electric uses Six Sigma to focus on
achieving customer satisfaction
Testing
309
 Many IT professionals think of testing as a stage

that comes near the end of IT product development.
 Testing should be done during almost every phase
of the IT product development life cycle.
Testing Tasks in the Software Development Life Cycle
310
Types of Tests
311
 A unit test is done to test each individual

component (often a program) to ensure it is as
defect free as possible.
 Integration testing occurs between unit and system
testing to test functionally grouped components.
 System testing tests the entire system as one entity.
 User acceptance testing is an independent test
performed by the end user prior to accepting the
delivered system.
Modern Quality Management
312
 Modern quality management

 requires customer satisfaction
 prefers prevention to inspection
 recognizes management responsibility for quality
 Noteworthy quality experts include Deming, Juran,
Crosby, Ishikawa, Taguchi, and Feigenbaum
Quality Experts
313
 Deming was famous for his work in rebuilding Japan and

his 14 points
 Juran wrote the Quality Control Handbook and 10 steps to
quality improvement
 Crosby wrote Quality is Free and suggested that
organizations strive for zero defects
 Ishikawa developed the concept of quality circles and
pioneered the use of Fishbone diagrams
 Taguchi developed methods for optimizing the process of
engineering experimentation
 Feigenbaum developed the concept of total quality control
Sample Fishbone or Ishikawa Diagram
314
Improving Information Technology Project Quality
315
 Several suggestions for improving quality for IT

projects include:
 Leadership that promotes quality
 Understanding the cost of quality
 Focusing on organizational influences and workplace
factors that affect quality
 Following maturity models to improve quality
Leadership
316
 “It is most important that top management be

quality-minded. In the absence of sincere
manifestation of interest at the top, little will
happen below.” (Juran, 1945)
 A large percentage of quality problems are
associated with management, not technical issues.
The Cost of Quality
317
 The cost of quality is:

 the cost of conformance or delivering products that
meet requirements and fitness for use.
 the cost of nonconformance or taking responsibility for
failures or not meeting quality expectations.
Five Cost Categories Related to Quality
318
 Prevention cost: the cost of planning and executing a project

so it is error-free or within an acceptable error range.
 Appraisal cost: the cost of evaluating processes and their
outputs to ensure quality.
 Internal failure cost: cost incurred to correct an identified
defect before the customer receives the product.
 External failure cost: cost that relates to all errors not
detected and corrected before delivery to the customer.
 Measurement and test equipment costs: capital cost of
equipment used to perform prevention and appraisal activities.
Organization Influences, Workplace Factors, and
Quality
319
 A study by DeMarco and Lister showed that organizational

issues had a much greater influence on programmer
productivity than the technical environment or programming
languages.
 Programmer productivity varied by a factor of one to ten
across organizations, but only by 21% within the same
organization.
 The study found no correlation between productivity and
programming language, years of experience, or salary
 A dedicated workspace and a quiet work environment were
key factors to improving programmer productivity.
Maturity Models
320
 Maturity models are frameworks for helping

organization improve their processes and systems.
Three popular maturity model include:
 Software Quality Function Deployment model focuses on
defining user requirements and planning software projects
 The Software Engineering Institute’s Capability Maturity
Model provides a generic path to process improvement for
software development
 Several groups are working on project management
maturity models, such as PMI’s Organizational Project
Management Maturity Model (OPM3)
Project Management Maturity Model – Levels:
321
1. Ad-Hoc: The project management process is described as disorganized, and

occasionally even chaotic. The organization has not defined systems and
processes, and project success depends on individual effort. There are chronic
cost and schedule problems.
2. Abbreviated: There are some project management processes and systems in
place to track cost, schedule, and scope. Project success is largely
unpredictable and cost and schedule problems are common.
3. Organized: There are standardized, documented project management
processes and systems that are integrated into the rest of the organization.
Project success is more predictable, and cost and schedule performance is
improved.
4. Managed: Management collects and uses detailed measures of the
effectiveness of project management. Project success is more uniform, and
cost and schedule performance conforms to plan.
5. Adaptive: Feedback from the project management process and from piloting
innovative ideas and technologies enables continuous improvement. Project
success is the norm, and cost and schedule performance is continuously
improving.
322
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Chapter 5:

Project Cost Management

3 types of resource assignment

⚫Rough order of magnitude estimate

14 Project Cost Management

⚫It is important to provide supporting details

*Numbers are rounded, so some totals appear to be off.

30 Project Cost Management

PV, AC, RP 10000, 15000, 50%

40 ⚫ Or, enter and collect EV data at summary levels of the WBS

🞂Intangible costs or benefits are costs or benefits

◦ Management reserves allow for future situations that

⚫ It is important to provide supporting details

◦ Bottom-up estimates: involve estimating individual work

◦ Parametric modeling uses project characteristics

PV, AC, RP 10000, 15000, 50%

Information Copyright 2016 75

EARLIEST EARLIEST LATEST LATEST

Information Technology Project

Note: See the text itself for full

3. Continue drawing the project network diagram until all

🞂Many people like to focus on meeting milestones,

1. Using the table below, draw the network diagram

2. Identify the critical path

⚫Companies and formal degree programs for IT

Average monthly salary of ICT professionals grew by 7.7% in

197 Project Cost Management

199 Project Cost Management

⚫Involves identifying, documenting, and assigning

Activity ID Depend Duration Number of

⚫Personnel problems that can arise during a

⚫Maslow developed a hierarchy of needs, which

⚫Motivational factors: Achievement, recognition, the

⚫Projects are more likely to succeed when project

Can collaborative technologies alone built a true team?

⚫ If there is no need to buy any products or

⚫ How long will it take for the purchase cost to be

⚫Contents varies based on project needs

Information Technology Project

Information Technology Project

🞂Project risk management is the art and science of

🞂Risk management is often overlooked in projects,

*Source: Kulik and Weber, KLCI Research Group

🞂Planning risk management : Deciding how to

Information Technology Project

🞂 Financial risk : Can the organization afford to undertake the

🞂 Technology risk : is the project technically feasible? Is it leading

🞂 People risk : Are people with appropriate skills available to help

🞂 Structure/process risk : What is the degree of change the new

🞂Similar to a work breakdown structure but used to

🞂Uses repeated rounds of questioning and written

🞂Interviewing people with similar project experience is

🞂Helps identify the broad negative and positive risks

Information Technology Project

Information Technology Project

Information Technology Project

 The International Organization for Standardization

 Quality planning: identifying which quality

 It is important to design in quality and

 Quality assurance includes all the activities related to

 The main outputs of quality control are:

 Pareto analysis involves identifying the vital few

 Statistical sampling involves choosing part of a