Project Planning: (WEEK 6)

PROJECT PLANNING
(WEEK 6)
3/4/2018 1
Last Updated: 26/8/16
Contact Hours
Total Student
Lecture Tutorial Self – Study Library Search Assignment Exam Learning Time
(hours)
2 2 4 4 2 NIL 14
LLF0916 2
Learning outcomes
 Describe the risk management strategy
 Describe the budget planning
LLF0916 3
Basic processes of project planning

1. Preparing the work breakdown structure - specifies the breakdown
of the project into tasks and sub tasks.
2. Risk management planning - charts the risks, contingency plan and
mitigation strategies.
3. Budget planning - specifies the budgeted cost to be incurred in the
completion of the project.
4. Project schedule development - specifies the entire schedule of the
activities detailing their sequence of execution.
5. Resource planning - specifies who will do what work at which time of
the project and if any special skills are needed to accomplish the project
tasks.
6. Procurement planning - focuses on dealing with vendors outside of
your company
7. Quality planning - for quality assurance to be applied to the project.
8. Communication planning - on the communication strategy with all
project stakeholders.
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Risk management planning
 Risk are uncertain events or conditions that, if occur, have a

positive or negative effect on the project objectives.
 All projects have a certain degree of risk that needs to be
managed.
 Dealing with these uncertainties is known as risk
management.
 Thus, risk management is defined as the systematic
process of identifying, analyzing and responding to
project risk.
 It consists of SEVEN subprocesses.
 The purpose of risk management is to maximize the results
of positive events and minimize the results of adverse
events.
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Risk management subprocesses
1. Risk management planning – deciding how to approach and plan the risk
management activities for a project.
2. Risk identification – determining which risks might affect the project and
documenting their characteristics.
3. Qualitative risk analysis – performing a qualitative analysis of risks and
conditions to prioritize their impacts on project objectives.
4. Quantitative risk analysis – estimating the probability and consequences
of risks and estimating the implications for project objectives.
5. Risk response planning – developing procedures and techniques to
enhance opportunities and reduce threats to the project objectives.
6. Risk monitoring and control – monitoring residual risks, identifying new
risks, executing risk reduction plans and evaluating their effectiveness
throughout the project life cycle.
7. Create and maintain a risk management data bank – a permanent
record of identified risks, methods used to mitigate or resolve them, and
the results of all risk management activities.
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1. Risk management planning
 Need to know the risk involved before selecting a project

 Risk management plan must be carried out before the
project can be formally selected
 At first, focus is on externalities
– Track and estimate project survival
 Project risks take shape during planning
 Often handled by project office
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No Question Response Proposed Action

(Yes, No, Action Complete
 Project Risk Assessment NA)
1 Has a technical reviewer

approved by Regional
Technical Manager carried
out a review and assessment
of the technical risks
involved?
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 Project Risk Assessment
 Pricing
 Has the standard Pricing tool or other acceptable cost
estimating tools been used for budget development?
 Is basis compensation clearly stated in the RFP (Request for
Proposal) and similarly in our proposal (eg lump sum, time &
materials etc.)
 Does our proposal clearly state that the fees proposed are
exclusive of GST or any other local taxes?
 Have we negotiated a price escalation over the duration of
contract?
 Are there any additional salary related expenses such as
superannuation, travel expenses, relocation, other salary
package amounts and on costs etc.?
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 Pricing
 If the compensation is rates based, have we avoided defining
rates by named individuals? (Define position by role not
name etc.)
 Does the compensation allow a service charge mark up on
outside services and company expenses including of travel,
suppliers and sub consultants (try for 5% to 15%)?
 Have tax implications been considered and included in
pricing (including GST, VAT, oversea withholding taxes, cost
of financial audits and expat tax return preparation?
 If multiple currencies involved, has the financial controller
determined FOREX cover requirement?
 If multiple currencies involved, has the financial controller
agreed the current conversion rate been to be used.
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 Pricing
 If the project involve external financing, have the financial
controller assessed and addressed all the financial risks?
 Has the cost budget been independently checked using
appropriate estimating approaches, (e.g Detailed task
breakdown, comparison with previous similar project?
 Does the cost budget including ALL allowances for Health
and Safety requirement?
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 Staffing
 Have Regional Manager and Project Delivery Manager
approved the nominated Project Manager?
 Do we have sufficient suitably trained staff to execute the
project?
 Is the nominated Project Manager available and agreed to
undertake the role?
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 Scope
 Are all Design Interface boundaries clearly identified and a
schedule been prepared? Particularly for detail design work?
 Does the proposal clearly state that the client is to provide a
single set of written, consolidated and consistent review
comments?
 Have any options considered been clearly stated in our
proposal and listed as optional additional services (not
covered by specified fee)?
 Does the proposal clearly state the Client and third party
responsibilities/obligations E.g. to provide all project data (in
an appropriate user friendly format); access to the facilities;
permits; timely review; land, assessment and prompt notice
etc?
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 Scope
 Is the language in the Scope documents clear, easily
understood, and all technical terms adequately defined?
 Does the scope of services clearly define the required
deliverables (including format, number etc?
 Have we clearly defined in the proposal the level of effort
(including quality and accuracy) where possible?
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 Contractual/Commercial
 Does the proposal clearly state all assumptions and clearly
include all scope and contractual qualification?
 Is the contract governed by company standard terms? If yes,
then is there reference to our terms forming part of the
agreement in our proposal?
 Have we clearly nominated the validity period for our tender?
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 Contractual/Commercial
 Do we hold all necessary registrations and permits necessary
to undertake the work both as the business and staff required
to certify/supervise the work?
 Have we used language that does not increase our duty of
care (e.g “expert”)
 Will company have any liability in regards to construction
costs estimates?
 If this is the joint venture, have the Health and Safety Plan
and Project Delivery Plan been approved by the company?
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2. Risk identification
 Risk is dependent on technology and environmental

factors
 Other methods include brainstorming, nominal group

techniques, checklists, and attribute listing
 May also use cause-effect diagrams, flow charts,

influence charts, SWOT analysis
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Cause-effect (fishbone) diagram
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Influence diagram
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SWOT analysis
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2. Risk identification
1. Consider possible sources
Risk category Examples
Technical New breakthrough, design errors or omissions
Administrative Processes, procedures, changes in roles and responsibility
Environmental Culture of the organization, change in management or
priorities
Financial Budget cuts, cash flow problems, corporate
unprofitability, unchecked expenditures, changing
economics conditions
Resource Specialized skills or critical equipment not available
availability
Human Human error, poor worker performance, personality
conflicts, communication breakdown
Logistical Inability to deliver materials to work face-to-face
Governmental Government regulations
Market Product fails in the marketplace, consumer expectations
change, new competitor products.
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Identifying risk
2. Determine likely risks review the WBS, cost estimates, resource
plans
– Consider what might have happen that could cause any aspect of
the project to deviate form the plans.
– Define specific risk events and describe what specifically might go
wrong.
– Describe the effect of each potential event.
– Identify the triggers of the risk to happen
– Describe any conditions or signs that may warn you of the
impending event.
– Consider both internal and external events
– Some risk events can include opportunities with positive outcomes.
3. Risk identification is not a one-time event – conduct ongoing risk

identification
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3. Qualitative risk analysis
 After identification of risk

– Estimate the probability of occurrence
– Determine the impact if the event were to occur
 May wish to give a greater analysis

– To potential risks associated with activities on the critical path
– To points in the network where activities converge because
these tend to have a greater degree of risk
 Estimation of impact
– Qualitative (time and scope of project)
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3. Qualitative risk analysis
 Purpose is to prioritize risks

 A sense of the impact is also needed
 Each objective should be scaled and weighted
 Construct a risk matrix
 Same approach can be used for opportunities
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Risk Matrix
Figure 6-12
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4. Quantitative risk analysis
 A quantitative risk analysis is sometimes conducted

after qualitative risk analysis has identified the critical
risks facing a project.
 To use quantitative method is more precise and

typically more accurate.
 Methods
– Failure Mode and Effect Analysis (FMEA)
– Decision Tree Analysis
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FMEA
1. List ways a project can fail

2. Evaluate severity
3. Estimate likelihood
4. Estimate the ability to detect
5. Find the risk priority number (RPN) (RPN = S  L  D)
6. Consider ways to reduce the S, L, and D for each
cause of failure
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Decision Tree Analysis
Yes (60%)
Good
Weather
(30%)
No (40%)
Office
Picnic
Yes (20%)
Bad
Weather
(70%)
No (80%)
Office picnic will be held if probability is 65%
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5. Risk response planning
 The purpose is to
– Minimize the probability and consequences of negative
events
– Maximize the probability and consequences of positive
events
 Planning responses
– A response plan should be developed before the risk event
occurs.
– If the event occur it is just simply execution of the plan.
– Planning ahead gives time for careful analysis of various
options and the determination of the best course of action.
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 For threats
1. Avoid – eliminate the cause or prevent the risk
from happening. Can be done by giving alternative
strategy for completing the project.
2. Transfer – transfer the risk to a third party at a
premium.
3. Mitigate – steps are taken to lower (softening) the
probability of the risk event happening or reduce the
impact should it occur (mitigation plans).
4. Accepting – if avoid, transfer and mitigate cannot
be done, accept it. This is for low likelihood of a risk
event, low potential impact or when the mitigation
cost is high.
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 For opportunities
1. Exploit – the goal is to increase the probability the
opportunity will occur.
2. Share – involves partnering with another party or
parties who can better capture the value of
opportunity, or at least reduce the cost of exploiting
the opportunity.
3. Enhance – either increasing the probability the
opportunity risk will occur or increasing its impact if it
does.
4. Accept – the project firm is prepared to capitalize
on the opportunity should it occur but is not willing to
invest the resources to improve the probability or
impact of the opportunity occurring.
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 Risk response plans –
– Is a documentation of the procedures that will be used to manage risk
throughout the project.
– It contains the list of potential risk events, the conditions or signs that
may warn you of the impending event
– It contains the specific actions to be taken in response
 Contingency plans – describe the actions to be taken if a risk event
should occur
 Reserves – provisions in the project plan to mitigate the impact of the
risk events.
– Contingency reserves (funds to cover unplanned costs)
– Schedule reserves (extra time to apply to schedule
overruns)
– Management reserves (funds held by general management
to applied to project that overrun)
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6. Risk monitoring and control
 The project management team should monitor the

project throughout its life.
 Look out for triggers and signs.
 When the event take place, take the corrective actions

identified in the risk management plan.
 If unplanned risk event occur – a response must be

developed and implemented – WORKAROUND.
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7. Risk management register
 Environments that may impact projects

 Assumptions made
 Risks identified
 List of categories and key words
 Estimates on risk, states of project’s environment, or on
project assumptions
 Minutes
 Actual outcomes
LLF0916 34
Basic processes of project planning
1. Preparing the work breakdown structure - specifies the breakdown of the

project into tasks and sub tasks.
2. Risk management planning - charts the risks, contingency plan and
mitigation strategies.
3. Budget planning - specifies the budgeted cost to be
incurred in the completion of the project.
4. Project schedule development - specifies the entire schedule of the
activities detailing their sequence of execution.
5. Resource planning - specifies who will do what work at which time of the
project and if any special skills are needed to accomplish the project tasks.
6. Procurement planning - focuses on dealing with vendors outside of your
company
7. Quality planning - for quality assurance to be applied to the project.
8. Communication planning - on the communication strategy with all project
stakeholders.
LLF0916 35
Preparing budget plans
 Budgeting is the process of allocating the cost estimates

to work items.
 This is to establish a cost baseline for measuring project

performance.
 Budget forecast includes some uncertainty
 There is uncertainty regarding usage and price

– especially true for material and labor
 The more standardized the project and components, the
lower the uncertainty
 The more experienced the cost estimator, the lower the
uncertainty
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Preparing budget plans
1. Constraint - it implies that managers will not get

everything they want or need
2. The budget for an activity also implies management

support for that activity
– Higher the budget, relative to cost, higher the
managerial support
3. The budget is also a control mechanism

– Many organizations have controls in place that
prohibit exceeding the budget
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Rules of Thumb
 Some estimates are prepared by rules of thumb

– Construction/fabrication cost by square feet
– Printing cost by number of pages
– Turf care cost by square feet of turf
 These rules of thumb may be adjusted for special

conditions
 However, this is still easier than starting the estimate

from scratch
LLF0916 38
Estimating Budgets is Difficult
 There may not be as much historical data or none at all

 Even with similar projects, there may be significant
differences
 Many people have input to the budget
 Multiple people have some control over the budget
 There is more “flexibility” regarding the estimates of inputs
(material and labor)
 The accounting system may not be set up to track project
data
 Usage of labor and material is very lumpy/uneven over time
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Cost Estimation Methods
TERM DESCRIPTION RANGE
Ball Park Sometimes referred to as order +/- 30%

magnitude or ‘rough order of
magnitude’ (ROM). Used
especially information is limited
Comparative Uses historical data for forward +/- 15%

projection
Feasibility Uses guideline based on real +/- 10%

data gathered from preliminary
project design work
Definitive Uses data gathered from +/- 5%

completion of project design work
and the defining of final
specifications and quotes
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Types of Budgeting
 Top-down
 Bottom-up
 Negotiated
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Top-Down Budgeting
 Top managers estimate/decide on the overall budget for

the project
 These trickle down through the organization where the

estimates are broken down into greater detail at each
lower level
 The process continues to the bottom level
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Advantages/Disadvantages
Advantages
 Overall project budgets can be set/controlled very
accurately
 Management has more control over budgets
 Small tasks need not be identified individually
Disadvantages
 More difficult to get buy in
 Leads to low level competition for larger shares of
budget
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Bottom-Up Budgeting
 Project is broken down into work packages

 Low level managers price out each work package
 Overhead and profits are added to develop the budget
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Advantages/Disadvantages
Advantages
 Greater buy in by low level managers
 More likely to catch unusual expenses
Disadvantages
 People tend to overstate their budget requirements
 Management tends to cut the budget
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An Iterative Budgeting Process–

Negotiation-in-Action
 Most projects use some combination of top-down and

bottom-up budgeting
 Both are prepared and compared
 Any differences are negotiated
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Steps to prepare a simple budget plan

1. Total the personnel costs from each activity estimate
sheet.
2. Total the direct costs from each activity estimate sheet.
3. Total the indirect (overhead) costs such as, Indirect

Burden cost, if it is needed.
4. Calculate the cumulative costs.
5. Determine when expenditures will be made to calculate

the cash flow needed. Cash flow is based on time
interval.
6. Prepare tables, charts or graphs for each activity, for

each functional section and for the project as a whole.
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Terminology: Cost categories

1. Direct or variable cost : Costs that varies with output such
a) Costs
b) Labor Material costs
c) Cost of capital equipment such as machinery
2. General and administrative cost (G&A): The cost of administration:
a) Accounting
b) Human resources
c) Legal
3. Indirect or fixed cost: Costs that associated with output but do not vary with
each unit of output
a) Cost of capital equipment
b) Advertising
c) Distribution
d) Sales
4. Overhead cost: Cost incurred by the firm
a) Cost of building
b) Utilities
c) Security
d) Health insurance and pension plans
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Project cost baseline

3/4/2018
Cumulative costs
•Estimated Cash
Flow
Time
S-curve diagram
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Example
3/4/2018
LLF0916 50
Example
3/4/2018
LLF0916 51
Example
3/4/2018
LLF0916 52
Cost Estimation Problem
 Low Initial Estimates

- Underestimation of scopes or technical complexity
- Desire to win work at any cost
- Corporate culture that rewards over optimization
 Unexpected Technical Difficulties

- Assumption on technical difficulties is minimum
- Not identifying all unknown
 Lack of definition
- Poor scope development from poorly defined features,
goals or purpose
LLF0916 53
Improving The Process of Cost Estimation 3/4/2018
 Inputs from a lot of areas are required to estimate a

project
 May have a professional cost estimator to do the job
 Project manager will work closely with cost estimator
when planning a project
 We are primarily interested in estimating direct costs
 Indirect costs are not a major concern
Problems
 Even with careful planning, estimates are wrong
 Most firms add 5-10 percent for contingencies
LLF0916 54

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PROJECT PLANNING

Basic processes of project planning

Risk management planning

 Risk are uncertain events or conditions that, if occur, have a

Risk management subprocesses

1. Risk management planning

 Need to know the risk involved before selecting a project

1. Risk management planning

No Question Response Proposed Action

1 Has a technical reviewer

1. Risk management planning

1. Risk management planning

1. Risk management planning

 Project Risk Assessment

1. Risk management planning

 Project Risk Assessment

1. Risk management planning

1. Risk management planning

 Project Risk Assessment

1. Risk management planning

 Project Risk Assessment

1. Risk management planning

 Project Risk Assessment

 Risk is dependent on technology and environmental

 Other methods include brainstorming, nominal group

 May also use cause-effect diagrams, flow charts,

Cause-effect (fishbone) diagram

3. Risk identification is not a one-time event – conduct ongoing risk

3. Qualitative risk analysis

 After identification of risk

 May wish to give a greater analysis

3. Qualitative risk analysis

 Purpose is to prioritize risks

4. Quantitative risk analysis

 A quantitative risk analysis is sometimes conducted

 To use quantitative method is more precise and

1. List ways a project can fail

Decision Tree Analysis

Office picnic will be held if probability is 65%

5. Risk response planning

5. Risk response planning

5. Risk response planning

5. Risk response planning

6. Risk monitoring and control

 The project management team should monitor the

 Look out for triggers and signs.

 When the event take place, take the corrective actions

 If unplanned risk event occur – a response must be

7. Risk management register

 Environments that may impact projects

Basic processes of project planning

1. Preparing the work breakdown structure - specifies the breakdown of the

Preparing budget plans

 Budgeting is the process of allocating the cost estimates

 This is to establish a cost baseline for measuring project

 There is uncertainty regarding usage and price

Preparing budget plans

1. Constraint - it implies that managers will not get

2. The budget for an activity also implies management

3. The budget is also a control mechanism

 Some estimates are prepared by rules of thumb

 These rules of thumb may be adjusted for special

 However, this is still easier than starting the estimate