Project Planning and Control

Project Planning and Control
• Planning • Scheduling • Schedule Control • Resource Considerations • Cost Planning and Performance

I – Project Planning

Project Planning • Planning is the systematic arrangement of tasks to achieve the objective. it involves: – Defining the Project Objectives – Developing a work breakdown structure – Developing a network diagram . In the context of a project.

specific. schedule and cost.Project Objective • The 1st step in Project Planning. – The objective must be clear. attainable. . – The objective is usually defined in terms of scope. and measurable.

. • A work package is the lowest-level item. • A work item is one small piece of the project. • A list of all the activities must be developed. • The WBS is a hierarchical tree of end items to be accomplished.Work Breakdown Structure (WBS) • The 2nd step is to determine what activities need to be performed.

. developing a software which will prepare various reports using the survey data. and.Work Breakdown Structure (WBS) • Let us look at a WBS for a Consumer Market Study project. – Consumer Market Study Project involves i) conducting a consumer survey and obtain data.

WBS for Consumer Market Study Project Consumer Market Study Questionnaire Report Design Responses Software Report •Identify target consumers •Develop Draft Questionnaire •Pilot-test Questionnaire •Finalize Questionnaire •Develop Test Data •Print Questionnaire •Prepare Mailing Labels •Mail Questionnaire & Get Responses •Develop Software •Test Software •Input Response Data •Analyze Results •Prepare Reports .

2 General 4. Stand 3 3.1 Management 3.WBS for Samanvay Project Samanvay 1 Entertainment 2 Volunteers list Quizzes 3 4 Accdn & Food 5 Promotion Level 1 1.2. 3 Eting Areas 4.2 Food Level 2 1.2.2. 1 M arketing 3. 2 Adio & Ltg 1.1.1 Lodging 4. 2 Ckng Eqpts .2.2.2.1 Performers 1. 1 Seating 1. 1 Fd Booths 4.2 Stage 3. 2 Finance Level 3 4.1.

and – The level at which you want to monitor and collect cost data during the project.Work Breakdown Structure (WBS) • Criteria for how many levels to put in the WBS? It will be decided by – The level at which single individual or organization can be assigned responsibility. .

• “X” can be used to indicate who is responsible. • “S” indicates who has secondary responsibility.Responsibility Matrix • Displays in tabular format the individuals responsible for the work items. . • “P” indicates who has primary responsibility.

3 Eating Areas .2.1.Responsibility Matrix for Samanvay Anki Reddy Raja Sekhar Gopinath Sanjiv Ghosh Sree Vijay Snigdha Gandhi Mamta Rajesh Ranjita Varsha WBS Item 1 1.1 Food Booths 4.1.2 Finance 3.2 2 3 3.1 Harish Sabita Srinivas S P P Sridhar S P Work Item Samanvay Entertainment Performers Stage Volunteers Quizzes Management P P P S S P P S S S S P S P P P P P P S S P 3.2 General Accommodation & Food Lodging Food 4.1 1.2.1 M arketing 3.1 4.2.2 Cooking Equipments 4.2 4 4.

.Developing the Network Plan • Developing a Network Plan is the next stage of project planning.

.Activities. Defined • An activity is a piece of work that consumes time.

Identify target consumers 2. Finalize Questionnaire 5. Pilot-test Questionnaire 4. Develop Test Data . Example • For Work Package ‘Design Questionnaire’ work package in Consumer Market Survey Project. detailed activities may be identified as 1. Develop Draft Questionnaire 3.Activities.

they are graphically portrayed in a network diagram.Developing the Network Plan • After all activities have been defined. • Two network planning techniques were developed in the 1950’s: – Program evaluation and review technique (PERT) – Critical path method (CPM) .

• Popular due to their simplicity.Gantt Charts • Gantt charts. or bar charts. . – A time scale is shown along the bottom. are planning tools in which: – Activities are listed down the left-hand side.

(for Consumer Market Survey Project) Activity Per Res Srinivas Srinivas Pankaj 0 10 20 30 40 50 60 70 Gantt Chart Identify target consumers Prepare Questionnaire Mailing & getting Response Develop data analysis software Sree Vijay Test software Input Response data Analyze Results Prepare Report Sree Vijay Ganesh Ganesh Ganesh .

it is not obvious how that will affect other activities. • If one activity is delayed. • Most project management software can show interdependencies with arrows.) • Do not display the interrelationships of activities.Gantt Charts (Cont. .

k.Network Principals • Different formats can be used to draw the diagram: – Activity in the box (AIB) • a.a. activity on the node (AON) – Activity on the arrow (AOA) .

• Each box is assigned a unique activity number.Activity in the Box (AIB) • Each activity is represented by a box. • The activity description is written in the box. Get Volunteers 5 .

Activity in the Box (AIB) • Activities have a precedential relationship. • Some activities may be done concurrently. .

Activity on the Arrow (AOA) • Each activity is represented by an arrow. • The activity description is written above the arrow. Collect Data . • The head of the arrow designates the completion of the activity. • The tail of the arrow designates the start of the activity.

• Each event is assigned a unique activity number.) • Activities are linked by circles called events. • Predecessor event and successor event 1 Wash Car 2 Dry Car 3 . • An event represents the finish of activities entering it and the start of activities leaving it.Activity on the Arrow (AOA) (Cont.

Loops • Not allowed because it portrays a path of activities that perpetually repeats itself. A 1 C 3 B 2 .

Painting the room. and 3. Painting each room requires 1. Preparing the room 2.Laddering • Used for projects that have a set of activities that are repeated several times. • . Assume 3 experts are available one for each activity. Cleaning the room 4. Example Consider a project involving painting of 3 rooms.

Laddering ?? How about organising like this? Prepare Room 1 1 Paint Room 1 2 Clean Room 1 3 Prepare Room 2 4 Paint Room 2 5 Clean Room 2 6 Clean Room 3 9 Paint Room 3 8 Prepare Room 3 7 .

Laddering?? How about organising like this? Prepare Room 1 1 Paint Room 1 4 Clean Room 1 7 Start Project Prepare Room 2 2 Paint Room 2 5 Clean Room 2 8 Finish Project Clean Room 3 3 Paint Room 3 6 Prepare Room 3 9 .

Laddering?? How about organising like this? Prepare Room 1 1 Paint Room 1 2 Clean Room 1 4 Prepare Room 2 3 Paint Room 2 5 Clean Room 2 7 Clean Room 3 6 Paint Room 3 8 Prepare Room 3 9 .

Preparing the Network Diagram • Ask the following questions regarding each activity: – Which activities must be finished immediately before this activity can be started? – Which activities can be done concurrently with this activity? – Which activities cannot be started until this activity is finished? .

Preparing the Network Diagram (Cont.) • Should flow from left to right. • Can vary in how detailed the diagram should be. • AIB vs. • AIB is the most common in project management software packages. . AOA is a matter of personal preference. • Not drawn to a time scale.

Network Diagram Prepare Mailing labels 5 Identify target Consumers 1 Develop draft questionnaire 2 Pilot-test Questionnaire 3 Review comments & Finalize 4 questionnaire Print Questionnaire 6 Develop Data Analysis Software 7 Develop Software Test Data 8 Mail Questionnaire & get 9Response Test Software 10 Prepare Report 13 Analyze Results 12 Input Response Data 11 .

II – Project Scheduling .

Introduction • Schedule is a time table for the plan. 4. Determining +ve or -ve slack between time each activity can start or finish and time it must start or finish 6. Estimating duration of each activity 2. Calculating EST and EFT for each activity. Calculating LST and LFT of each activity. Establishing Estimated ST and Required Completion Time for overall project 3. Project scheduling consists of the following: 1. Identifying the critical (longest) path. to complete project by completion time. based on project’s start time. . 5.

• The duration estimate is the total elapsed time for the work to be done + any waiting time. Plastering walls 1 10 (10 is the duration estimate for activity 1 and it includes plastering and curing both) .Step 1: Activity Duration Estimates • The first step in scheduling is to estimate how long each activity will take.

• It is better to be somewhat aggressive than to be overly conservative. . • Activity duration estimate must be based on the quantity of resources expected to be used on the activity.Step 1: Activity Duration Estimates • The person responsible for performing the activity should help make the duration estimate.

Step 1: Network Diagram (with Activity Duration Estimates in Days) Prepare Mailing labels 5 Identify target Consumers 1 3 Develop draft questionnaire 2 10 Pilot-test Questionnaire 3 20 Review comments & Finalize questionnaire 4 5 2 Mail Questionnaire & get Response 9 65 Test Software Print Questionnaire 6 10 Develop Data Analysis Software 7 12 10 5 Develop Software Test Data 8 2 Input Response Data 11 7 Analyze Results Prepare Report 12 8 13 10 .

Step 2: Project Start and Finish Times
• Select an estimated start time and a required completion time for the overall project to establish a basis from which to calculate schedule using duration estimate. • Assume Consumer Market Survey is to be completed in 130 days.

Step 3: Calculating EST & LST
• Calculating EST and LST includes two elements: – 1st - the earliest times at which each activity can start and finish, based on the project's estimated start time. – 2nd - the latest times by which each activity must start and finish in order to complete the project by its required completion time.

Step 3: Earliest Start and Finish Times
• Earliest start time (ES) is the earliest time at which a particular activity can begin. • Earliest finish time (EF) is the earliest time by which a particular activity can be completed. EF = ES + Duration Estimate. • EF and ES are calculated by calculating forward, i.e. by working through the network diagram from beginning of the project to the end of the project.

Step 3: Earliest Start and Finish Times Rule #1 • The earliest start time for an activity must be the same as or later than the latest of all the earliest finish times of all the activities leading directly into that particular activity. 10 35 Get Concrete & special sand 2 25 0 10 Erect Pillars & Beams 1 10 10 20 Roof Casting 5 2 Complete Shuttering 3 10 10 14 Get Concrete Mixer 4 4 .

• Latest start time (LS) is the latest time an activity must be started in order for the entire project to be completed by its completion time: LS = LF – Duration Estimate • LF and LS times are determined by calculating backward – that is working through the network diagram from the end of the project to the beginning .Step 4: Latest Start and Finish Times • 4 th step is calculating the latest finish and latest start times for each activity: • Latest finish time (LF) is the latest time an activity must be finished in order for the entire project to be completed by its completion time.

3 and 1?? .Step 4: Latest Start and Finish Times Rule #2 • The latest finish time for a particular activity must be the same as or earlier than the earliest of all the latest start times of all the activities emerging directly from that particular activity. Distribute Posters Print Posters & Brochures 1 8 20 2 20 10 30 Mail Brochures 3 25 5 30 This project is to be completed by day 30. What is the LS for 2.

Estimated start time is 0. Identify target Consumers 1 3 Develop draft questionnaire 2 Pilot-test Questionnaire 3 Review comments & Finalize questionnaire 4 5 5 2 Print Questionnaire 6 10 Mail Questionnaire & get Response 9 65 10 20 Develop Data Analysis Software 7 12 Test Software 10 5 Develop Software Test Data Input Response Data 11 7 Analyze Results Prepare Report 8 2 12 8 13 10 . Project completion time is 130 days.Step 4: Consumer Market Study Project Prepare Mailing labels Show forward and backward calculation for CSP.

Defined • 5th step is identifying total slack or float: • Total slack (TS) or float is the difference between the calculated earliest finish time of the very last activity and the project’s required completion time.Step 5: Total Slack.ES .EF or LS . or • TS = Required completion time – EF of last activity of the project • Also. Total Slack for an activity = LF .

• What if total slack is negative? – Activities on the path must be accelerated. . • What if the total slack is zero? – Activities on the path do not need to be accelerated but cannot be delayed.Step 5: Total Slack (Cont.) • What if the total slack is positive? – Activities on the path can be delayed maximum by the total slack time.

Consider a network below. Remove Old Wallpaper 1 7 Paint Walls 2 5 Put-up New Wallpaper 3 3 Required completion = 20 days .Step 5: Total Slack (Cont.) • The total slack for a particular path of activities is common to and shared by all the activities on that path.

Step 6: Critical Path • 6th Step is identifying the critical path of activities • The critical path is the longest path in the diagram. • All activities with this value are on the critical path. . • The activities that make up the critical path have the least slack.

• Critical paths have zero or negative values of total slack.Types of Critical Paths • Noncritical paths have positive values of total slack. • The most critical path is the longest critical path. .

EF. Assume start by 0 and required project completion 130 days. Sl No 1 2 3 4 5 6 7 8 9 Duration Estimate. Identify the critical paths. Total Slack Activity Identify target consumers Develop Draft Questionnaire Pilot test Questionnaire Review C omments & Finalize Questionnaire Prepare Mailing Labels Print Questionnaire Develop Data Analysis software Develop Software test data Mail questionnaire & get response ES EF LS LF 10 Test Software 11 Input Response Data 12 Analyze Results 13 Prepare Reports . LS and LF for each activity Keeping the duration estimate as in the network diagram.Project schedule (CSP) For consumer market study project work out ES.

III .Schedule Control .

schedule and budget. collect: – data on actual performance – information on any changes to project scope. a new baseline plan must be established.Project Control Process • An ongoing process during project execution stage. • During each reporting period. . • If changes are incorporated.

Budget) Start Project During each report period Information on any changes to project plan (Scope. Schedule. Budget) Collect Data on Actual Performance (Schedule. Costs) Calculate updated Project Schedule.Project Control Process Wait until next report period Establish Baseline plan (Schedule. Budget) . Budget. and Forecasts Analyze current status Compared to plan (Schedule. Budget) No Are corrective actions needed Yes Establish Baseline plan (Schedule.

• For the job scheduled below – What is the earliest the project can finish ? – What is the total slack. ES and EF of 1. 3 if required completion is 20 days ? Remove Old Wallpaper 1 7 Paint Walls 2 5 Put-up new wallpaper 3 3 . 2.Effects of Actual Schedule Performance • Actual finish times (AFT) of completed activities will determine the earliest start and earliest finish times for the remaining activities.

Effects of Actual Schedule Performance • If activity 1 is actually finished on day 10. what is the ES and EF for 2. and 3? • What is the total slack? Remove Old Wallpaper 1 7 2 Paint Walls 5 Put Up New Wallpaper 3 3 Remove AF=10 Old Wallpaper 1 7 2 Paint Walls 5 Put Up New Wallpaper 3 3 Actual finish of activities have a ripple effect on ES and EF of remaining activities? .

additional costs might need to be charged. or be the result of an unanticipated occurrence. • Any type of change will require a modification to the plan in terms of scope. . • The degree of impact may depend on when the changes are requested. budget. and/or schedule. • When the customer requests a change.Incorporating Project Changes into the Schedule • Changes might be initiated by the customer or the project team.

LF for uncompleted activities) . and hence much easier to update manually than traditional Gantt charts. EF but based on AF times. and effects of any project changes.Updating the Project Schedule • Network Plan (the diagram) and schedule (tabulation) are separate. • What is the methodology? (ES. and LS. • An updated project schedule can be calculated based on actual finish times of completed activities.

3. Review of Pilot-test Questionnaire indicates revision to the questionnaire and hence duration estimate of 4 gets increased from 5 days to 15 days. and 3 on day 30 PC: 1. and a new one to be purchased. Activity duration for “Mail Questionnaire and Get response from the Customers” can be reduced to 55 days by getting less time for the customers to respond. which was ordered on day 23 and will take 21 days to get from supplier. DB outdated.Updating the Project Schedule Started at Day 23 Get New Database for labels 14 21 Prepare Mailing labels 5 2 Identify target Develop draft Pilot-test Review comments Consumers 2 questionnaire 11 Questionnaire & Finalize 30 questionnaire 1 3 2 10 3 20 4 5 Print Questionnaire 6 10 Mail Questionnaire & get Response 9 65 AF: Assume 1 finished on day 2. 2 on day 11. Develop Data Analysis Software 7 12 Test Software 10 5 Develop Software Test Data 8 2 Input Response Data 11 7 12 Analyze Results Prepare Report 8 13 10 . 2.

They are on a separate table Sl No Activity Duration Estimate ES EF LS LF Total Actual Slack Finish 2 11 30 1 Identify target consumers 2 Develop Draft Questionnaire 3 Pilot test Questionnaire 4 Review Comments & Finalize Questionnaire 5 Prepare Mailing Labels 6 Print Questionnaire 7 Develop Data Analysis software 8 Develop Software test data 9 Mail questionnaire & get response 10 Test Software 11 Input Response Data 12 Analyze Results 13 Prepare Reports 14 Order new database for labels . LS and LF are generally not shown on network. EF.ES. LS & LF ES. EF.

Approaches to Schedule Control • Analyze the schedule • Decide what corrective actions should be taken. • Repeat the above steps till planned corrective actions result in acceptable schedule. • Recalculate the schedule to evaluate effects of the planned corrective actions. . if any • Revise the plan to incorporate the chosen corrective actions.

.Approaches to Schedule Control (Cont. focus on: • Activities that are near term – that is either in progress or about to be started in near future • Activities that have long estimated durations. • When a path of activities has negative slack.) • A change in the estimated duration of any activity will cause a corresponding change in the slack for that path.

• Totally eliminate some activities. say more people. • Reduce the scope or requirements for an activity. longer hours etc • Assign a person with greater expertise to perform or help with the activity.Reducing the Estimated Durations • Apply more resources. • Increase productivity through improved methods or technology. .

) • Reducing durations of activities usually results in an increase in costs or a reduction in scope.Approaches to Schedule Control (Cont. .

IV .Resource Considerations .

Introduction • Resource-Constrained Planning • Resource Leveling – Developing Resource Profile from Planned Resource Utilization data • Resource-Limited Scheduling .

• Resource-Limited Scheduling .an iterative method for developing the shortest schedule with limited resources . will extend project completion time if necessary.resources allocated to activities based on least slack. .Resource Profile • Resource Leveling .a trail-and-error method that makes resource application as uniform as possible by delaying non-critical activities beyond their ES without extending the project completion date.Introduction • Resource-Constrained Planning • Planned Resource Utilization .

Resource-Constrained Planning (a) Activity Sequence without Resource Constraints Paint Living Room Start Project Paint Kitchen Finish Project Resource limitations have to be considered when network is planned Paint Bedroom (b) Activity Sequence with Resource Constraints Start Project Paint Living Room Paint Kitchen Paint Bedroom Finish Project .

. • For example. consider the network diagram of a painting project – each activity box showing estimated activity duration as well as number of painters needed to do the activities in the estimated duration.Planned Resource Utilization • One of the requirement of any project activity is uniform utilization of resources.

1 Pai Finish Project Painting Project showing needed resources . 1 Pai Paint Bedrooms 6D. 2 Pai Start Project Paint Basement Rooms 4D. 1 Pai Paint Stairs and Hall 4D. 1 Pai Paint Bathroom 2D.Planned Resource Utilization Paint 1st Floor Rooms 8D.

Planned Resource Utilization
• For the above project let us prepare a Resource utilization chart indicating how many painters are needed each day based on earliest start and finish times for each activity. • The chart shows 4 painters from 1 – 4 days, 3 on 5th and 6th day, 2 on 7th and 10th, and 1 on 11th and 12th day – 32 painter days in total. • Also, the resource profile on the next chart shows uneven utilization of resources, which is undesirable. Why?

Planned Resource Utilization
First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) Painter Days 16 4 2 4 6

Day

1

2 4

3 4

4 4

5 3

6 3

7 2

8 2

9 2

10 2

11 1

12 1 32

Painters 4

Resource Profile for Painters
Painters

4 3 2 1

1

2

3

4

5

6

7

8

9

10

11 12

Days

Resource Leveling • Resource leveling. . or smoothing. is a method for developing a schedule that attempts to minimize the fluctuations in requirements for resources. • It is a trail-and-error method in which noncritical activities are delayed beyond their ES. • This method levels the resources so that they are applied as uniformly as possible without extending the project schedule beyond the required completion time.

• Trace the Critical path and its Value. • For large projects is very complicated and hence computer can generate resource leveled utilization charts and profile.Resource Leveling • Let us apply resource leveling to the Painting project. • Resource level utilization and resource leveled profile is shown in next two Figures. Can you delay this? Why not? Which activities can be delayed by how many days? • Alt 1 – delay the one with the most positive slack by 6 days so that it starts after bedrooms is finished. • Alt 2 – delay bedrooms so that it will start on day 5. . after basement room is completed.

Resource-Leveled Utilization First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Painter Days 16 4 2 Basement rooms (1 Painter) Bedrooms (1 Painter) 4 6 Day 1 2 3 3 3 4 3 5 3 6 3 7 3 8 3 9 3 10 3 11 1 12 1 32 Painters 3 .

Resource-Leveled Profile for Painters Painters 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12 Days .

. • An iterative method .resources allocated to activities based on least slack.Resource-Limited Scheduling • Resource-limited scheduling is a method for developing the shortest schedule when the number or amount of available resources is fixed and cannot be exceeded. • Will extend project completion time if necessary to keep within resource limits.

project completion gets pushed out. .Resource-Limited Scheduling • What happens if you have only 2 painters for the project? • It will take a minimum of 16 days. Why? • When we push down the level of resources.

Effect of Limited Resource Availability 4 3 2 1 Resource Limit Pushed Down 1 2 3 4 5 6 7 8 9 10 11 12 Pushed Out Days Project Completion .

They will be allotted to first floor rooms till completed.e. Let us apply this to the painting project.Resource-Limited Scheduling • When several activities need same limited resources at the same time. i. they will be utilized based on the priority decided by the slack. • Our original painting schedule shows 4 painters being used for 3 activities. Project extended by 2 days . the activities with least slack have first priority. • This can be seen in “First Resource Allocation” chart. • As only 2. up to day 8.

Original Resource Utilization Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 +2 +8 +6 Day 1 2 4 3 4 4 4 5 3 6 3 7 2 8 2 9 2 10 2 11 1 12 1 Painters 4 .

First Resource Allocation Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 2 0 -2 Day 1 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 4 10 4 11 3 12 3 13 14 1 1 Painters 2 .

12.14. • Additionally. project completion has extended from 12 to 14 days. and “Stairs & Hall” from 8 . on days 9 -12 resource requirements have exceeded limit of 2. “Bedrooms” have the least slack . as in “Second Resource Allocation” .Resource-Limited Scheduling • As a result of this iteration. • “Stairs & Hall” and “Basement Rooms” have same least slack – 0. Hence allocate 1 to “Bedrooms”.2 day. Hence allocate remaining 1 painter to “Stairs & Hall” (Why?). One way could be allot to one which was more critical for a longer time. • Hence “Bedrooms” from 8 .

Second Resource Allocation Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 -2 -4 -2 Day 1 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 10 11 2 2 12 2 13 14 15 3 3 1 16 1 Painters 2 .

• This third allocation will finally look as in the chart next • Project completion delayed beyond 12 by 4 days but resources kept within the limit. . No further iteration is required. there is another extension.Resource-Limited Scheduling • As a result of this allocation. hence on 13th one painter be allocated to “Basement Room”. Next time the painter will be available on day 14 and hence bathrooms will have its start delayed after day 14. • Also. “Basement Room” has less slack (-4) than the other. from 14 to 16 because of delay of “Basement Room”. on day 13 and 14 resource requirement has exceeded 2.

Third Resource Allocation Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) 0 0 Bathroom (1 Painter) -4 Basement rooms -4 (1 Painter) -2 Bedrooms (1 Painter) Day 1 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 10 11 2 2 12 2 13 14 2 2 15 2 16 2 Painters 2 .

Cost Planning and Performance .V .

Committed Cost • Cumulative Actual Cost (CAC) • Determining value of work performed • Earned Value (EV ) • Cumulative Earned Value (CEV) • Cost Performance Analysis • Cost Performance Index (CPI).Cost Planning and Performance • Project Budgeting • Allocating Total Budgeted Cost (TBC) • Developing Cumulative Budgeted Cost (CBC) • Determining Actual Cost • Actual Cost. • Cost Variance (CV) • Cost Forecasting • Forecasted Cost at Completion (FCAC) • Cost control • Managing cash flow .

Project Budgeting • Allocating Total Budgeted Cost (TBC) • Developing Cumulative Budgeted Cost (CBC) .1.

. • When all budgets are summed. they cannot exceed the TBC.Allocating the Total Budgeted Cost • Allocating total project costs for the various elements to the appropriate work packages will establish a total budgeted cost (TBC) for each work package.

WBS with Allocated Budgets Project 100 L Contingency 5L 20 L 20 L 5L 10 L 5L 10 L 20 L 5L .

.Allocating the Total Budgeted Cost • Let us look at a Network diagram for a project to make a specialized “Automated packaging machine and install” it at the customer factory • Also let us create a WBS with total budgeted cost for each of the work packages for the above mentioned “Automated packaging machine”.

Network Diagram for Packaging Machine Project Design 1 4 2 Build 6 Install & Test 3 2 Network Diagram for Packaging Machine Project Packaging Machine (100 L) Design (24 L) Build (60 L) Install & Test (16 L) WBS with Budgeted cost for Packaging Machine Project .

• Then you get a cost for each period. .Developing the Cumulative Budgeted Cost • The second step is to distribute TBC over the duration of its work package. • The cumulative budgeted cost (CBC) is the amount that was budgeted to accomplish the work that was scheduled to be performed up to that point in time.

TBC.Developing the Cumulative Budgeted Cost • For Packaging Machine Project. if desired). and Cumulative Budgeted Cost at the end of each period is shown. . period by period budgeted cost. • Now a cumulative budgeted cost (CBC) curve can be drawn showing budgeted expenditure over the entire duration of the project (and for each work package.

Developing the Cumulative Budgeted Cost Week TBC Design Build Install & Test Total Cumulative 24 60 16 100 4 4 4 8 8 16 8 24 8 32 8 40 12 52 12 64 10 10 74 84 1 4 2 4 3 8 4 8 8 8 12 12 10 10 8 8 92 8 8 100 5 6 7 8 9 10 11 12 Budgeted Cost by Period for the Packaging Machine Project .

Cumulative Budgeted Cost curve for Packaging Machine Project Cumulative Budgeted Cost 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 Total Budgeted Cost Weeks .

would you like to compare Actual Cost with the total budgeted cost or with Cumulative Budgeted Cost ? • Why or why not? .Developing the Cumulative Budgeted Cost • If you want to have a correct feel of money being spent of the project.

. work package wise. Determining Actual Cost • Determining Actual Cost – 2 steps • Track actual cost by establishing a system to collect data on funds actually expended.2. • Periodically assign a portion of the total committed cost to actual cost.

Comparing Actual Cost to Budgeted Cost • Total all actual and committed cost by work package.For whole project as well as for individual work packages . • Calculate Cumulative Actual Cost (CAC) • CAC can be drawn on cost curve to provide a good visual comparison .

Comparing Actual Cost to Budgeted Cost Week 1 Design Build Install & Test Total Cumulative 2 5 3 9 4 5 2 5 1 8 6 7 8 Total Expended 22 2 10 14 12 46 0 2 2 5 7 9 16 7 23 9 32 10 42 14 56 12 68 68 68 Actual cost by Period for the Packaging Machine Project .

Cumulative Budgeted and Actual Cost for Packaging Machine Project Cumulative Cost 120 100 80 60 40 20 0 1 2 3 4 5 6 Report Period 4 L overrun Cumulative Budgeted Cost (CBC) Cumulative Actual Cost (CAC) 7 8 9 10 11 12 13 Weeks .

. Determining the Value of Work Performed • Earned Value (EV ). Cumulative Earned Value (CEV) • Earned value is the value of work actually performed.3.

1.Concept of Earned Value Imagine a Project involves developing 20 similar modules in 20 weeks at total budget of Rs 20 L. Are you comfortable? Why? . Assume. 9 Modules been completed at W10E. As a PM. are you comfortable? Why? 2. At end of 10 weeks 10 L have been spent.

• Cumulative percent complete reported during each of 8 weeks. • With CEV values. draw cumulative earned value curve on the same axes as cumulative budgeted cost to provide excellent visual comparison. • Calculate associated CEV.Determining the Value of Work Performed • Collect data on the percent complete for each work package. . • Multiply this to TBC of the work package to get Money value of the work performed (Earned Value). and associated cumulative earned value (CEV) for each work package for PMP as shown in next two slides.

Cumulative Percent Complete by Period for Packaging Machine Project Week 1 Design Build Install & Test 10 0 0 2 25 0 0 3 80 0 0 4 5 6 7 8 90 100 5 0 15 0 100 100 100 25 0 40 0 50 0 .

4 2 6 3 4 5 24 9 6 24 15 7 24 24 8 24 30 19.4 6 19.2 24.6 33 39 48 54 1 2.2 21.Cumulative Earned Value by Period for Packaging Machine Project Week TBC Design Build Install & Test 24 60 16 2.6 3 Cumulative 100 .

and Earned Value for Packaging Machine Project 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 Weeks Cumulative Budgeted Cost (CBC) Cumulative Actual Cost (CAC) Cumulative Earned Value (CEV) Cumulative Cost Report Period . Actual.Cumulative Budgeted.

4. • TBC (Total Budgeted Cost) • CBC (Cumulative Budgeted Cost) • CAC (Cumulative Actual Cost) • CEV (Cumulative Earned Value) • Tell two things – • Whether project is being performed within budget • Whether value of the work performed is in line with the actual cost. Cost Performance • Following four cost related measures are used to analyze project cost performance. .

Cost Performance • PMP example .64 L budgeted to perform all tasks till the first 8 weeks. why all this financial jugglery? To know: • Is project being performed within budget ? • No. actual cost exceeding budget • Is value of work performed in line with actual cost? • No. • 68 L was actually expended by end week 8 • 54 L was the value of work performed till week 8 • So. value of work is not keeping with actual cost. .

and Earned Value for Packaging Machine Project Cumulative Cost 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 Weeks Cumulative Budgeted Cost (CBC) Cumulative Actual Cost (CAC) Cumulative Earned Value (CEV) Report Period .Cumulative Budgeted. Actual.

Percent 100 90 80 70 60 50 Packaging Machine Project Status as of Week 8 68% 54% 64% 40 30 20 10 Percent Budgeted to Have Been Spent Percent Actually Spent Percent of Work Completed .

.Cost Performance Index (CPI) • A measure of the cost efficiency with which the project is being performed. corrective action be taken. What does it say? • CPI = 54/68 = 0. CPI = CEV/CAC • What is the CPI for PMP as of week 8.79 (For every 1 rupee spent only 79 paisa of earned value was received) • Trend in CPI should carefully be watched. If it goes below 1. • Cost performance index = Cumulative Earned Value/Cumulative Actual Cost) • Or.

• CV is the difference between cumulative earned value of the work performed and the cumulative actual cost. Or • CV = CEV – CAC • In packaging machine project. what is the CV as of week 8? What does is say? • For PMP. .Cost Variance (CV) • CV is another indicator of cost performance. CV = 54 L – 68 L = -14 L • Value of the work performed till week 8 is 14 L less than the amount actually expended.

Cost Forcasting • 3 methods for determining Forecasted Cost At Completion (FCAC) • Method 1 assumes remaining work will be done at the same efficiency as done till now.58 L for PMP • Method 2 assumes remaining work will be done according to its budget. – Hence.5. FCAC = Total budgeted cost / Cost Performance Index = 100 L/0. irrespective of efficiency till now – Hence.79 = 125. FCAC = Cumulative Actual Cost + (Total Budgeted Cost – Cumulative Earned Value) = 68 L + (100 L – 54 L) = 114 L for PMP .

Cost Forcasting • Method 3: Third method says re-estimate the cost of remaining work and then add this re-estimate to Cumulative Actual Cost to arrive at FCAC Hence. FCAC = CAC + Re-estimate of remaining work to be performed .

• Identify cost variances and inefficiencies early. • Deciding what corrective action should be taken. • The above involves the following: • Analyzing cost performance to determine which work packages may require corrective action.6. Cost Control • The key is to analyze cost performance on a regular and timely basis. . • Revising the project plan.

Ways to Reduce Costs of Activities • Substitute less expensive materials. • Reduce the scope or requirements. • Increase productivity through improved methods or technology. • Assign a person with greater expertise to perform or help with the activity. .

• The key to managing cash flow is to ensure that cash comes in faster than it goes out. Managing Cash Flow • Make sure that sufficient payments are received from the customer in time for you to cover the costs of performing the project.7. .

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