PROJECT

MANAGEMENT
INTRODUCTION
 Project and Operations
Organisational works involve either project or
operations which may overlap.
Common Characteristics :
 Performed by people
 Constrained by limited resources
 Planned,executed and controlled

Operations: Ongoing and repetitive work

Projects :Temporary and unique

 Projects
 Undertaken at all levels of organisation
 Involve single person or thousands
 Duration : few weeks to five years
 Single unit or across boundaries of
organisation
 Means by which organisations strategy are
implemented
 Examples of Project
 Developing new product or service
 Change in structure or style of organisation
 Developing new information system
 Constructing a building /facility
 Constructing a road/power project/dam
 Running a political campaign
 Implementing a new business procedure or
process
 Economic development social project
 Temporary
 Definite beginning and end
 Opportunity or market window is usually
temporary
 Team is disbanded when project is completed
 End is reached when projects objectives are
achieved/needs no longer exists/terminated
 Temporary does not mean short term, it may for
years
 Duration is finite-it is not ongoing efforts
 Series of projects and complementary projects to
achieve strategic objective(e.g. missile project)
 Unique

 Doing something that is not done earlier

hence unique
 Even for thousands of buildings different
owners,contarctors
 Presence of repetitive elements does not
change fundamental uniqueness of the project
 e.g a new drug to market required thousands
of doses of drug to support clinical trial
 Progressive Elaboration
 Progressive : proceeding in steps,contnuing
steadily by increment
 Elaborated : Worked out with care and detail,
developed thoroughly
 Distinguishing characteristics :are broadly
defined early in the project and made more
explicit and detailed as project team develops
better and more complete understanding of
project
 Carefully coordinated with project scope if it is
done under contract
 Project Management Definition
 Application of knowledge,skills,tools and
techniques to project activities to meet project
requirement
 Accomplished through processes such as
initiating,planning,executing,controlling and
closing
The works involves
Competing demand for scope,time,cost,risk and
quality
Stakeholders with different needs and
expectations
Identified requirements
 Management by Projects
 Organisational approach to the management
of ongoing operations
 Treats many aspects of ongoing operations as
projects to apply project management
techniques to them
 Program
 Group of projects managed in a coordinated way
 To obtain benefits not available from managing them
individually
 E.g. Airplane program include both the project or
projects to design and develop aircraft as well as
ongoing manufacturing and support of that craft in the
field
 Program consist of series of repetitive work e.g.
construction program, fundraising program, news
paper publication
 In some cases program and project management are
synonymous ,in other cases project management is
part of project management
 Project Portfolio Management

 Selection and support of project or program

investments
 Guided by organisation’s strategic plan and
available resources
PROJECT MANAGEMENT
CONTEXT
 Project phase and project Life cycle

 Due to uniqueness projects involve a degree

of uncertainty
 Organisations divide each project into several
projects phases to improve management
control and provide for links to ongoing
operations
 Collectively project phases are known as
project life cycle
 Each phase is marked by one or more
deliverables
 Deliverable

Tangible,verfiable work product such as

Feasibility study
Detail design
Working prototype
Part of sequential logic designed to ensure
proper definition of the product of the project
 Project Life Cycle
 Serves to define beginning and end of project
 E.g. feasibility study will be treated as first
project phase or standalone project
 PLC definition determine which transitional
actions at the beginning and at the end of
project are included
 PLC define what technical work should be done
in each phase and who should be involved
 Project of introducing new desktop in phase of
product life cycle
 Construction project life cycle
Feasibility : project formulation,feasibilty
study, strategy design and approval,e.g.G0-
NoGo decision at the end of this phase
Planning and design : Base design, cost and
schedule,contarct terms and conditions,
detailed planning
Construction :manufacturing,delivery,civil
works, installation testing
Turnover and startup : Final testing and
maintenance
 Pharmaceutical project life cycle
Discovery and Screening: Basic and applied
research to identify candidates for preclinical
testing
Preclinical Development, laboratory and animal
testing to determine safety and efficacy, Filing
of Investigational new drug (IND) application
Registration workup :Clinical phase I,II,III tests
as well as preparation and filing of a new drug
application(NDA)
Post submission activity :additional work
required to support FDA review of NDA
 Spiral model for software development
Proof of concept Cycle: Capture business requirements,
define goals for proof of concept, produce conceptual
system and logic design, construct proof of concept,
produce acceptance test plan, conduct risk analysis, make
recommendations
First Build cycle :derive system requirements, define goals
for first build, produce logical system design, design and
construct first build,and make recommendations
Second Build cycle :Derive subsystem requirement, define
goal for second build, produce subsystem test plans,
evaluate second build, build,and make recommendations
Final Cycle :Complete unit requirements and final design,
construct final build and perform unit,subsystem,system
and acceptance tests
 Project Stakeholders
 Project manager
 Customer(user)
 Performing organisation
 Project team members
 Sponsor
 Owners and funders
 Sellers and contractors
 Government
 Media
 Society as large
Managing stakeholder having different objectives and
conflict of objectives e.g. HOD want low cost, Engineer
wants technical superiority and contract want profit
 Organizational Influences

 Organizational structure

 Culture

 Style
 Organisational systems
Two categories
Organisations deriving revenue from performing
projects for others e.g.
architect,engineer,consultantconstruction
contractor,government contractor
Organisations that have adopted management by
projects
They have their management systems in place to
facilitate project management.
Non project based organisations lack such system
which makes project management difficult
 Organisational structure
Ranging from functional to projectized with a
variety of matrix structures in between
• Functional Organisation :Hierarchy where
each employee has one clear superior. Staff
members are grouped by specialty such as
production , marketing ,finance etc.
• Projectized organisation : Team members are
collocated, most of orgnisations resources are
involved in project work, project manager has
a great independence and authority
 Matrix organisation
• Blend of functional and projectized
• Weak matrix maintain many characteristics of
functional organisation and project manager
work as a coordinator than a manager
• Strong matrix have characteristics of
projectized structure if strong project
manager
• Functional organisation can create a special
project team to handle critical project
 Skills of project Manager
Leading: establishing direction, aligning
people, motivating and inspiring
Communicating
Negotiating
Problem Solving :Problem definition and
decision making
Influencing the organisation : Getting things
done(power and politics)
 Social-Economic-Environmental
influences
 Standard and regulations, compliances
 Internationalization (Time zone difference,
holidays etc.)
 Cultural influences(practice ,belief, attitude of
people)
 Social- economical-environmental
sustainability
PROJECT MANAGEMENT
PROCESSES
 Project processes
Process : Series of actions bringing about a
result
Project management processes
:Describe,organise,and complete work of a
project
Product oriented process : Specify and create
project’s product defined by project life cycle
Both processes overlap and interact
throughout the project e.g. scope of project
can not be defined in absence of basing
understanding of how to create the product
 Process Groups
 Initiating processes
 Planning processes
 Executing processes
 Controlling processes
 Closing processes
Result of one may become input for other
Overlapping activities
 PROJECT
MANAGEMENT
KNOWLEDGE
AREAS
PROJECT INTERGARTION
MANAGEMENT
 PROJECT INTERGARTION MANAGEMENT

 Processes required to ensure that the various elements of

project are properly coordinated
 Making tradeoffs among competing objectives and
alternatives to meet or exceed stakeholder’s need and
expectation
Major processes:
Project plan development: integrating and coordinating all
project plans to create a consustent,coherent document
Project Plan Execution : Carrying out project plan by
performing the activities
Integrated Change Control : coordinating changes across
entire projects
 Project Plan Development
• Use output of strategic planning to create
document that can guide project execution and
control
• The process is iterated several times
• Eg initial plan include generic resources and
undated sequence of activities while subsequent
version of plan contains specific resource and
explicit dates.
• Project scope of work is an iterative process that
is done by project team using WBS allowing team
to capture and then decompose all of the project
work.
 Inputs to Project plan development
 Other planning outputs
 Historical information(databases , records)
 Organisational policies(Quality management,
personal, admin,financial control)
 Constraints (budget,time,people,scope)
 Assumptions(involve a risk)
 Tools and techniques for Project plan
development
• 1. Project planning methodology : Structured approach used
to guide project team for project plan devlopment,can be
simple using templates or complex using monte carlo
analysis of scheduled risk
• 2.Stakeholder skill or knowledge: eg professional cost
engineer will be useful when contract amount is finalised
• 3.Project Management information system : tool and
technique to integrate output of project mgt processes
• 4.Earned value management : a technique used to integrate
project’s scope,schedule,and resources and to measure and
report project performance from inititaion to closeout.
 Outputs from project plan Development
• Project Plan
• Supporting details
 Project Plan
• Formal approved document used to manage
project execution
• Project schedule lists planned dates for performing
activities and meeting milestones identified in
project plan
• A clear distinction should be made between
project plan and project performance baseline.
• A projects plan changes as and when data becomes
available
• project performance baseline changes only in
response to approved scope of work or deliverable
changes
 Project Plan consist of
• Project Charter
• Description of project management strategy
• Scope statement which includes objectives
and deliverables
• WBS
• Cost estimates, schedule start and finish dates
• Performance measurement baselines for
technical scope, schedule and cost
• Major milestones and their dates
 Project Plan consist of
• Key or required staff, their cost and efforts
• Risk management plan
• Subsidiary management plans
(scope,schedule,cost,quality,staffings,commun
ications,Procurement,risk response)
• Open issues and pending decisions
• Project organisation chart
 Supporting details
• Additional documents generated during
development of project plan
• Technical
documentation,specifications,conceptual
designs
• Documentation of relevant standards
• Specifications from early project development
planning
 Project plan execution
• Process for carrying out project plan
• Majority of project budget expended
• Performance against project baseline must be
monitored continuously so that corrective
actions can be taken
• Periodic forecast of final cost and schedule
results will be made to support the analysis
 Inputs to Project plan execution
 Project plan
 Supporting details
 Organizational policies
 Preventive action
 Corrective action
 Tools and techniques to Project plan
execution
• General management skills
(leadership,communication,negotiation)
• Product Skills and knowledge
• Work authorization system
• Status review meetings
• PMIS (Project management information
system)
• Organizational procedures
 Outputs from Project plan execution

1. Work results : Outcomes of activities

performed which are further fed to
performance reporting process

2.Change requests : e.g. to expand contract

project scope, to modify budget, schedules etc.
 Integrated change Control
1)Influencing the factors that create changes to ensure
that changes are agreed upon
2)Determining that change has occurred
3)Managing actual changes when they occur
It requires
Maintaining integrity of performance measurement
baseline
Ensuring that changes in project scope are reflected
in definition of project scope
Coordinating changes across knowledge areas
e.g.proposed schedule change will affect
cost,risk,quality
 Inputs to Integrated change Control

• Project plan
• Performance reports
• Change requests
Tools and techniques to Integrated change
Control
• Change control system : formal documented
procedure which define how project documents to
be changed. Includes paperwork, tracking system,
processes and approval levels for authorizing
changes.
• Configuration Management :documented
procedure used to apply technical and admin
direction
• Performance measurement
• Additional planning
• PMIS
Outputs from Integrated change Control

1.project plan updates: modification to project

plan
2.Corrective action
3. Lessons learned :
Causes of variances
Reasoning behind corrective action chosen
Become part of historical documents useful
for future projects
PROJECT SCOPE
MANAGEMENT
 PROJECT SCOPE MANAGEMENT

 Includes processes required to ensure that the project

includes all the work required and only the work required
to complete project successfully.
 Concerned with defining and controlling what is or what
not included in the project.
Includes:
Initiation
Scope Planning: Developing written scope statement as
basis for future project decisions
Scope Definition : Subdividing major project deliverables
into smaller more manageable components
Scope Verification: Formalizing acceptance of project scope
Scope Change Control: Controlling changes to project scope
 Product and project Scope
Product Scope : Features and functions that
characterize a product or service
Project Scope :work that must be done to deliver a
product with the specified features and functions
Completion of project scope is measured against
project plan
Completion of product scope is measured against
product requirement
Both should be integrated to ensure delivery of
specified product
INITIATION
 INITIATION
• Process of formally authorizing a new project
or that an existing project should continue its
next phase
• This formal initiation links project to ongoing
work of performing organisation
• In some organisations project is initiated after
completion of need assessment, feasibility
stydy,preliminary plan which is initiated
separately
• Internal service and new project development
projects are initiated informally
Project are authorized because of
Market demand
Business need
Customer Request
Technological advance
Legal requirement
Social needs
• These are problems, opportunities or business
requirements on which management must
respond and take a decision
 Inputs to INITIATION
• 1.Product description
• 2.Strategic Plan
• 3.Project selection Criterion
• 4.Historical Information
 Tools and Techniques of INITIATION
1. Project Selection Method
Involves measuring value or attractiveness to project
owner.
Considering decision criterion and means to calculate
value under uncertainty
Choosing alternative ways of doing project
Two methods (Decision Models)
1.Benefit Measurement methods :Comparative
approaches, scoping models, benefit contribution or
economic models
Constraint Optimization Models :Mathematical models
using linear ,nonlinear,dynamic,integer and multi
objective programming algorithms.
 Decision Models
Include generalized technique such as
Decision Trees
Forced Choice
Specialized technique such as
Analytical hierarchy Process
Logical Framework Analysis
 2.Expert Judgement
• Required to assess inputs to this process
• Expertise provided by any individual or group
with specialized knowledge or training
Sources
Other units within performing organisations
Consultants
Stakeholders
Professional or technical association
Industry groups
 Outputs from Initiation
1.Prject Charter:
• Document that formally authorizes the project
• Include business need that project was
undertaken to address
• Include product description
• Issued by manager outside the project
• Provide project manager authority to use
resources to project activities
• When project is performed under contract,
signed contract served as a project charter for
the seller
 Outputs from Initiation
2.Project Manager identified/assigned : prior to
start of project execution and before much
project planning is done

3.Constraints: factors that limit the options e.g.

budget, environment sustainability, contractual
provisions

4. Assumptions
 Scope Planning
• Process of progressively elaborating and
documenting project work(scope) that produces
the product of project
• Start with initial inputs of product description,
project charter, initial definitions of constrains
and assumptions
• Outputs are scope statement and scope
management plan with the supporting detail
• Forms the basis of agreement between project
and project customer by identifying both project
objectives and deliverables
 Inputs to Scope Planning
1. Product description
2.Project Charter
3. Constraints
4. Assumptions
 Tools and Techniques of Scope Planning

1. Product Analysis: includes product breakdown

analysis, systems engineering, value engineering,
value analysis, function analysis, quality function
development
2.Benefit/Cost Analysis: Estimating tangible and
intangible cost and benefits using financial measures
such as ROI or Payback period to assess desirability of
identified alternatives
3.Alternatives Identification: brainstorming and lateral
thinking
4.Expert judgement
 Outputs from Scope Planning
1.Scope Statement:
 Provides document basis for making future
project decisions and developing common
understanding of project scope among
stakeholders
 It includes project justification, project's
product description, project deliverables and
project objectives
 Outputs from Scope Planning
2.Supporting Details: additional details

3.Scope Management Plan : Describe how

project scope will be managed and scope
changes will be integrated into the project.
How changes will be identified and classified .
 Scope Definition
Involves subdividing major project deliverables
into smaller, more manageable components to:
 Improve accuracy of cost,duration,resource
estimation
 Define baseline for performance measurement
and control
 Facilitate clear responsibility assignments
Poor project scope definition results in rework
increase in time and cost, lower productivity
and morale of workforce
 Inputs to Scope Definition
1.Scope Statement
2.Constraints
3.Assumptions
4.Other planning outputs
5.Historical information
Tools and Techniques of Scope Definition
1. WBS templates : from previous project due to
similarities
2.Decomposition : Subdividing project
deliverables into smaller manageable
components. It includes
Identify major deliverables of project
Decide adequate cost and time estimate
Identify constituent components of deliverable
Verify correctness of decomposition
 Outputs from Scope Definition
1. WBS : Deliverable oriented grouping of
project components that organises and
defines total scope of project

2. Scope Statement Updates:

 Scope Verification
• Process of obtaining formal acceptance of
project scope by stakeholders
• It requires reviewing deliverables and work
results to ensure all were completed correctly
• If project is terminated early, scope
verification process should establish and
document the level and extent of completion
 Inputs to Scope Verification
1. Scope Statement
2.Work Results(Which deliverables fully or
partially completed)
3. Product Documentation(plans , specifications,
technical documentation, drawings)
4.WBS (used to verify the work of project)
5.Project plan
 Tools and Techniques of Scope Verification

Inspection:
• Includes activities such as
measuring,examining,and testing undertaken
to determine whether results confirm to
requirements
• Also called as reviews,product
reviews,audits,walkthroughs
Outputs from of Scope Verification
Formal Acceptance:
 Documentation that client or sponsor has
accepted the product of the project phase or
major deliverables
 Must be prepared and distributed
 Such acceptance may be conditional especially
at the end of phase
 Scope Change Control
Concerned with :
a)Influencing the factors that create scope
changes to ensure that changes are agreed upon

b) Determining that scope change has occurred

c) Managing changes when they occur

 It should be integrated with schedule

control,cost control, quality control etc.
 Inputs to Scope Change Control
1. WBS

2. Performance Reports

3.Change requests(Because of external event,

error or omission in defining scope, value adding
change,contigency plan to respond to risk)

4.Scope management plan

 Tools and Techniques of Scope Change Control

1.Scope change control (defines procedure by

which project scope changed and include paper
work, tracking systems, approval levels
necessary for authorizing change

2. Performance Measurement(determining what

is causing variance to baseline)

3. Additional Planning: Modification to WBS or

analysis of alternative approaches
 Output of Scope Change Control
1.Scope changes: adjustment to
cost,time,quality
2.Corrective Action
3.Lessons Learned: causes of variances,
reasoning behind corrective action chosen
4.Adjusted Baselines: depending upon nature of
change corresponding baseline document may
be revised and reissued to reflect approved
change and form the new baseline for future
changes
PROJECT TIME
MANAGEMENT
 PROJECT TIME MANAGEMENT
Processes required to ensure timely
completion of project
Major processes in developing project time
schedule:
Activity Definition
Activity Sequencing
Activity Duration Estimating
Schedule development
Schedule Control
 Activity Definition

• Involves identifying and documenting the

specific activities that must be performed to
produce deliverables and sub deliverables
identified in WBS.

• Implicit in this process is need to define

activities such that the project activities will
be met.
 Inputs to Activity Definition
1. WBS
2.Scope Statement
3. Historical information
4.Constraints
5.Assumptions
6.Expert judgement
Tools and Techniques of Activity Definition
1.Decomposition:
Subdividing project work packages into smaller, more
manageable components to provide better
management control
Final output are described as activities rather than
deliverables
WBS and activity list are developed sequentially with
WBS being basis for development of final activity list
2.Templates : activity list from previous project, contain
a list of resource skills and their required hours of
efforts, identification of risks ,expected deliverables and
other descriptive information
 Output from Activity Definition
1 Activity List : include all activities to be
performed in the project, description of each
activity to ensure that project team member
will understand how the work is to be done

2.Supporting Details : documentation of all

identified assumptions and constraints

3. WBS Updates (refinements):Identifying and

documenting missing deliverables
 Activity Sequencing
• Involves identifying and documenting
interactivity logical relationships.
• Activities must be sequenced accurately to
support later development of realistic and
achievable schedule
• It can be done manually or using computer or
combination of both
 Inputs to Activity Sequencing
1.Activity List
2.Product description
3.Mandatory dependencies (hard logic):Physical
limitations e.g. base is required before building
super structure
4. Discretionary dependencies (preferred or soft
logic)
5. External dependencies : e.g. software testing
requires hardware
6.Milestones events
 Tools and Techniques of Activity
Sequencing
1.Precedence Diagram Method(PDM)
 Method of constructing a project network
diagram that uses boxes or rectangles to
represent the activities and
 Connects them with arrows that shows
dependencies.
 This technique is called Activity on node.
 Used by most project Management software.
Four types of dependencies or precedence
relationships in PDM
1.Finish to Start : The initiation of the work of the
successor depends upon completion of the work of the
predecessor
2. Finish to Finish : The completion of the work of the
successor depends upon completion of the work of the
predecessor
3. Start to Start : The initiation of the work of the successor
depends upon initiation of the work of the predecessor
4. Start to Finish : The completion of the work of the
successor depends upon initiation of the work of the
predecessor
Four types of dependencies or precedence
relationships in PDM
• In PDM Finish to Start is most commonly used
type of logical relationship.
• Start to Finish relationships are rarely used and
mostly be professional scheduling engineer
• Using Start to Start , Finish to Finish or Start to
Finish relationships with project Management
software can produce unexpected results,
since these types of relationships are have not
been consistently implemented.
 Arrow Diagramming Method(ADM)
• Uses arrows to represent the activities and
connect them at nodes to show their
dependencies
• Called Activity on Arrow
• Less prevalent than PDM is still technique of
choice in some application areas
• ADM uses only Finish to Start dependencies
and may require dummy activities to define
all logical relationships correctly
• Can be done manually or using computer
Conditional Diagramming method
• Diagramming techniques such as Graphical
evaluation and review technique (GERT) and
System dynamics models allow for non
sequential activities such as loops or
conditional branches
• Neither PDM nor ADM allows loops or
conditional branches
 Network Templates
• Standardised Networks can be used to
expedite preparation of project network
diagram
• They can use entire project or part of it
• Portion of networks are called subnets or
fragnets
• Subnets are useful when project includes
several identical features such as floors on a
high rise office building
 Outputs from Activity Sequencing
1. Project Network Diagram
They are schematic displays of the project’s activities
and the logical relation ships (Dependencies)among
them
It may include full project details or have one or
more summary activities(Hammocks)
Diagram should be accompanied by a summary
narrative that describes the basic sequencing
approach
Any unusual sequences should be fully described
2. Activity List updates ( where activity should be
divided or redesigned)
 Activity Duration Estimation
 Process of taking information on project scope and
resources and then developing durations for inputs to
schedules
 The inputs for estimates of duration originate from person
or group on the project team who is most familiar with
nature of specific activity
 The estimate is always progressively elaborated. The
processes considers the quality and availability of the input
data
 Thus estimate can be assumed to be progressively more
accurate and of known quality
 Person or group on the project team who is most familiar
with nature of specific activity should make or at least
approve the estimate.
 Activity Duration Estimation
 Estimating number of work periods required to complete
an activity often require consideration of elapsed time as
well
 Eg if concrete curing will reqired four days of elapsed time
, it may require from two to four work periods based on
a)Which day of the week it begins
b)Whether or not weekend days are treated as work periods
Most computerized scheduling softwares handle this
problem by using alternative work period calendars.
The project team can consider project duration as a
probability distribution using probabilistic techniques or
a single point estimate using deterministic techniques
 Inputs to Activity Duration Estimation
1.Activity List
2.Constraints
3.Assumptions
4.Resource requirements
5.Resource capabilities (full time and senior
person)
6.Historical information(previous project files
and records, commercial duration estimating
databases, Project team knowledge)
7. Identified risks
 Tools and Techniques of Activity Duration
Estimation
1.Expert Judgment
2.Analogous Estimation : also called top down
estimation using actual duration of previous
similar activity for estimating future activity
3.Quantitatively based durations : e.g. number
of drawings, meters of cables, tons of steels
defined by engineer/design efforts
4.Reserve Time (Contingencies): buffer that can
be added to activity duration as recognition of
schedule risk
Outputs from Activity Duration Estimation
1 Activity duration estimates : e.g. 2 weeks+/- 2
days or 85% probability that activity will take
three weeks or less

2. Basis of estimates

3. Activity list updates

 Schedule Development
• Determining start and finish dates for project
activities

• Must be integrated with processes

• that provide inputs especially duration and

cost estimation prior to determining project
schedule
 Inputs to Schedule Development
1.Project network diagram
2.Activity duration estimate
3.Resource requirement
4.Resource pool description(resource will be available at
what time and what pattern and shared critical resources)
5. Calendars(identifying periods when work is allowed)
6.Constraints(imposed dates and key events or major
milestones)
7.assumptions
8.Leads or lags(two weeks required to get ordered machine)
9.Risk management plan
10.Activity Attributes(activity type, geographical area ,who
will do it
 Tools and Techniques of Schedule
Development
1.Mathematical Analysis
• Involves calculating theoretical early and late
start and finish dates for all project activities
without regard for any resource pool limitations
• Resulting dates are not the schedule but rather
indicate the time period within which the
activity could be scheduled given resource
limits and other known constraints
• Most widely known mathematical analysis
techniques are CPM,PERT,GERT
 CPM
• Calculates a single deterministic early and late
start and finish date for each activity based on
specified ,sequential network logic and single
duration estimate

• Focus of CPM is calculating float to determine

which activities have the least scheduling
flexibility
 GERT
• Allows for probabilistic treatment of both
network logic and activity duration estimates

• i.e. some activities may not be performed at

all, some may be performed only in part, some
may be performed more than once
 PERT
• Uses a weighted average duration estimate to
calculate activity durations

• It uses the distribution mean (expected

value)instead of the most likely estimate
originally used in CPM

• PERT is seldom used today

 Duration compression
Special case of mathematical analysis that looks
for ways to shorten the project schedule without
changing project schedule using techniques
• 1.Crashing : Cost and schedule tradeoffs are
analyzed to determine how if at all to obtain
greatest amount of compression for least
incremental cost. It does not always produce a
viable alternative and often results in increased
cost
• 2. Fast Tracking : Doing activities in parallel that
would normally done in sequence .Fast tracking
often results in rework and usually increase risk.
 Simulation
• Involves calculating multiple project duration with
different sets of activity assumptions
• Most common is Montecarlo analysis in which a
distribution of probable results is defined for each
activity and used to calculate a distribution of
probable results for the total project
• What if analysis can be made using the logic
network to simulate different scenarios such as
delivering a major component delivery ,extending
specific engineering durations or introducing
external factor such as strike. The output is used to
make contingency plan.
 Resource Leveling Heuristics
• Mathematical analysis often produces a
preliminary early start schedule that require more
resources during certain time periods than are
available or require changes in resource levels
that are not manageable
• Heuristics such as , “Allocate scarce resources to
critical path first” can be applied to develop a
schedule that reflect such constraints.
• Resource Leveling often results in project duration
that is longer than preliminary scheduling
• Resource allocation from non critical to critical is
common to bring schedule back
 Project Management Software
• Widely used to assist with schedule
development
• It automates calculation of mathematical
analysis and resource leveling
• Allows for rapid consideration of many
schedule alternatives
• Use to print and display output of schedule
development
 Coding Structure
Activities should have coding structure that will
allow sorting or extensions based on different
attributes assigned to activities
 Such as :
Responsibility
Geographic area of building
Project phase
Schedule level
Actvity type
WBS Classification
Outputs from Schedule Development
1.Project schedule :
 Includes at least planned start and expected finish dates
for each activity
 Presented in summary form(master schedule) or in detail
 Presented in tabular form and most widely graphically
with following format:
Project Network diagram with dates added which shows
project logic and critical path activities
Bar or Gantt charts show activity start and end dates as
well as expected duration
Milestone charts: display major deliverables and key
external interfaces
 2. Supporting details
• Documentation of all identified assumptions
and constraints
• E.g. for construction project resource
histograms, cash flow projections, order and
delivery schedules
3. Schedule Management Plan : Defines how
changes to project will be managed

4.Resource Requirement updates

 Schedule Control
Concerned with:
A)Influencing factors that create schedule
changes to ensure that changes are agreed upon

B)Determining that schedule has changed

C) Managing actual changes when and as they

occur.
 Inputs to Schedule Control
1. Project Schedule (approved schedule called
project schedule baseline)
2. Performance Reports : (information on
schedule performance such as which planned
dates have been met and which not)
3. Change Requests (oral/written ,
direct/indirect/externally or internally
generated)
4.Schedule Management Plan
 Tools and Techniques of Schedule Control
• 1.Schedule change control system(Defines procedure by which project
schedule is changed)
• 2. performance Measurement(schedule variation and corrective
actions)
• 3.additional Planning(New or revised activity duration estimates,
modified activity sequences, analysis of alternative schedules)
• 4. project management software(ability to track planned dates versus
actual dates and forecast effects of schedule changes makes it useful
tools for schedule control
• 5. Variance Analysis(comparing target dates with actual start and finish
dates provide useful information for detection of deviation and
implementing corrective solution in case of delay. Float variance is
essential to evaluate project time performance)
 Outputs from Schedule Control
• 1.Schedules updates (eg revisions to schedule start
and finish dates in response to scope
changes,Rebaslining)
• 2.Corrective actions(Done to bring expected future
schedule performance in line with project plan,
special actions taken to ensure completion of any
activity on time)
• 3.Lessons learned (causes of variance, reasoning
behind corrective action chosen-it shouls
documented)
PROJECT COST
MANAGEMENT
 Project Cost Management
 Includes processes required to ensure that
project is completed in approved budget

Major processes:
Resource Planning
Cost estimating
Cost budgeting
Cost control
 Project Cost Management
• It also considers effect of project decisions on the
cost of using project’s product
• E.g. limiting number of design reviews may reduce
cost of project at expense of increase in customer’s
operating cost
• Broader view of project cost is called “Life cycle
costing”
• Life cycle costing together with value engineering
used to reduce cost and time, improve quality and
performance and optimize decision making
• Use various management techniques such as
ROI,payback period,DCF
 Project Cost Management
• Project cost is measured in different ways and
different times e.g. cost of procurement item
may be measured when
committed,ordered,delivered,incurred,or
recorded for accounting purpose
• When Project costs are used as component of
reward and recognition system ,controllable
and uncontrollable costs should be estimated
and budgeted separately to ensure that
reward reflect actual performance.
 Resource Planning
• Involves determining what physical resources
(people equipment, material) and what quantities
of each should be used and when they would be
needed to perform project activities
• It must be closely coordinated with cost estimating
• E.g. an automotive design team should be familiar
with latest in automated assembly technique. The
requisite knowledge can be obtain by hiring a
consultant, by sending a designer for seminar on
robotics, including someone from manufacturing
as a member of a team.
 Inputs to Resource Planning
1.WBS(Identifies project deliverables and
processes that will need resources and is
primary input to resource planning)
2. Historical Information
3.Scope statement (project objectives and
justifications)
4.Resource pool description (what resources are
available)
5.Organisational policies
6.Activity duration estimates
Tools and Techniques of Resource Planning

1.Expert judgement

2.Alternative Identification

3. Project management software

 Outputs from Resource Planning
1.Resource requirements
• Description of what types of resources are
required and in what quantities for each
element at the lowest level of WBS
• Resource requirements for higher levels within
WBS can be calculated based on lower level
values
• These resources will be obtained through
staff acquisition or procurement.
 Cost Estimating
• Involves developing an approximation(estimate) of the
cost of resources needed to complete project activities.
• In approximating cost, the estimator considers the
causes of variation of the final estimate for purpose of
better managing projects.
• When project is performed under contract, care should
be taken to distinguish cost estimating from pricing.
• It involves developing an assessment of the likely
quantitative result – how much will it cost the
performing organisation to provide the product or
service.
• Cost estimation is essential for pricing a product.
 Inputs to Cost Estimating
1.WBS
2.Resource requirements
3.Resource rates (staff cost per hour)
4.Activity duration estimates
5.Estimating publications
6.Historical information
7.Chart of accounts
8.Risks
 Tools and Techniques of Cost Estimating
1.Analogous estimating :
 Also called top down estimating
 Use actual cost of previous similar project as
basis for estimating cost of current project
 Used when limited amount of information
available in early phase of a project
 Form of expert judgement
 Less costly but less accurate
 2.Parametric Modeling
• Uses project parameters(characteristics)in a
mathematical model to predict project cost
• Model may be simple (construction sq. ft.) or
complex (software model that uses 13
separate adjustment factors each of which has
5/7 point on it)
• Reliable when having accurate historical
information,parameters in the model are
readily quantifiable and model is scalable
 Tools and Techniques of Cost Estimating
3.Bottom up estimating (estimating cost of
individual activities or work packages, then
summarising the individual estimates to get total
project cost)
4. Computerized tools(such as project
management s/w, spreadsheets,
simulation/statistical tools are used to assist
with cost estimating
5.Other cost estimating methods(e.g. vendor bid
analysis)
 Outputs of Cost Estimating
1.Cost estimates
 Quantitative assessment of the likely cost of
the resources required to complete project
activity
 Cost include labour,material,supplies,inflation
allowance
 It include appropriate risk response planning
such as contingency plan
 Outputs of Cost Estimating
2.Supporting details

3.Cost management plan

 describe how cost variances will be managed.
 It may be formal/ informal, detailed/broadly
framed, based on needs of project
stakeholders
 Cost Budgeting
• Involves allocating the overall cost estimates
to individual activities or work packages to
establish a cost baseline for measuring project
performance

• Reality may dictate that Estimates are done

after budgetary approval is provided

• but estimates should be done prior to budget

request wherever possible
 Inputs to Cost Budgeting
1.Cost estimates
2.WBS
3.Project schedule
 Planned start and expected finish dates for the
project components to which costs will be
allocated
4.Risk Management Plan
 Includes cost contingency which can be
determined on the basis of the expected
accuracy of the estimate
 Outputs from Cost Budgeting
Cost baseline :
 Time phased budget that will be used to
measure and monitor cost performance of the
project
 It is developed by summing estimated costs by
period and is usually displayed in the form of
S-Curve
 Large projects have multiple cost baselines to
measure different aspects of cost performance
e.g. a spending plan or cash flow forecast is a
cost baseline for measuring disbursements
 Cost Control
Concerned with :
A)Influencing the factors that create changes to
the cost baseline to ensure that changes are
agreed upon

B)Determine that the cost baseline has changed

C)Managing the actual changes when and as

they occur
 Cost Control includes
 Monitoring cost performance to detect and
understand variances from plan
 Ensuring that all appropriate changes are
recorded accurately in the cost baseline
 Preventing incorrect, inappropriate or
unauthorized changes from being included in
the cost baseline
 Informing appropriate stakeholders of
authorized changes
 Acting to bring expected costs within
acceptable limits
 Cost Control includes
• Searching out “why's of both positive and
negative variances
• Must be integrated with scope change
control,schedule control and quality control
• E.g. inappropriate responses to cost variance
can cause quality or schedule problems e.g.
produce an unacceptable level of risk later in
the project
 Inputs to Cost Control
• 1. Cost baseline
• 2.Performance reports(which budget have
met and which not)
• 3.Change requests
• 4. Cost management plan
 Tools and Techniques of Cost Control
1.Cost change control system(defines procedure
by which cost baseline may be changed.Includes
paper work, tracking system, and approval levels
necessary for authorizing changes)
2.Performance Measurement : Helps to assess
the magnitude of any variations that do occur
3.addditional planning
4.Computerzied tools : such as project
management software and spreadsheets used to
track planned cost versus actual cost and to
forecast the effects of cost changes
5.Earned earned value management(EVM)
• All EVM control account plans must measure project
performance by relating three independent variables
• 1.The planned value ,the physical work scheduled to
be performed, including the estimated value of this
work scheduled to be performed (previously called
Budgeted costs for work scheduled-BCWS) as
compared against the
• 2. Earned value ,physical work actually accomplished
including the estimated value of this work
(previously called Budgeted costs for work
performed-BCWP)
5.Earned earned value management(EVM)
3)Actual cost incurred to accomplish the earned
value
The relationship of 2)Earned value less
1)Planned value----constitutes the schedule
variance (SV)

The relationship of 2)earned value less 3)actual

costs constitutes the cost variance (CV) for the
project
 Outputs from Cost Control
1. Revised cost estimates
2.Budget updates(changes to approved cost
baseline. These numbers are generally revised
only in response to scope changes. In severe
cost variance cases rebase lining is needed to
provide a realistic measure of performance
3.Corrective Action(anything done to bring
expected future project performance in line with
project plan)
 4. Estimates at completion(EAC)
Forecast of most likely total project cost based on
project performance and risk quantification
Most common forecasting techniques are :
1.EAC=AC+ETC Actuals to date plus a new estimate for all
remaining work. Used when past performance shows
that original estimating assumptions were fundamentally
flawed or they are no longer relevant to a change in
conditions
2. EAC=AC+BAC-EV Actuals to date plus remaining
budget (BAC-EV). Used when current variances are seen
as a typical and the project management team
expectations are that similar variances will not occur in
the future
 4. Estimates at completion(EAC)
3. EAC=AC+(BAC-EV)/CPI {this CPI is cumulative
CPI) Actuals to date plus remaining project
budget (BAC-EV) modified by performance
factor ,often the Cumulative cost performance
index(CPI).
• This approach is most often used when
current variances are seen as typical of future
variances
Each of these approaches may be the correct
approach for any given project
 Outputs from Cost Control
5. Project closeout :
Processes and procedures should be developed
for the closing or canceling of the project e.g. all
the cost of failed IT project be written off in the
quarter that the project is canceled.

• 6. Lessons learned
PROJECT QUALITY
MANAGEMENT
 Project Quality Management
• Includes processes required to ensure that
project will satisfy needs for which it is
undertaken
• It includes all activities of the overall
management function that determines the
quality policy, objectives and responsibilities
• And implement them by means such as
quality planning, quality assurance, quality
control and quality improvement within the
quality system
Quality planning, quality assurance, quality
control
1.Quality planning – Identifying which quality
standards are relevant to the project and
determining how to satisfy them
2. Quality assurance – Evaluating overall project
performance on a regular basis to provide
confidence that the project will satisfy the relevant
quality standards
3. Quality control : Monitoring specific project
results to determine if they comply with relevant
quality standards and identifying ways to eliminate
causes of unsatisfactory performance
 Quality Management
• The basic approach to quality management
should be compatible with ISO 9000 and
10000 series of standards and guidelines
• The generalized approach should be
compatible with
• a)Proprietary approaches to quality
management such as those recommended by
Deming,Juran,Crosby.
• b)Nonproprietary approaches such
TQM,Continuous improvement etc.
 Quality Management
Project quality management must address both
management of project and product of project
 Failure to meet quality requirements in either
dimensions can have negative consequences for
any or all of the project stakeholders e.g.
Meeting customer requirements by overworking
the project team may produced negative
consequences in the form of increased employee
attrition
Meeting project schedule objectives by rushing
planned quality inspections may produce negative
consequences when errors go undetected.
 Quality
• Quality is “the totality of characteristics of an
entity that bear on its ability to stated or
implied needs”
• Stated or implied needs are the inputs to
developing project requirements
• A critical aspect of quality management in the
project context is the necessity to turn implied
needs into requirements through project
scope management
 Grade
Project management team should not confuse
quality with grade.
• Grade is category or rank given to entities having
same functional use but different technical
characteristics
• Low quality is always a problem ,low grade may not
be
• E.g. a software product may be of high quality (no
bugs) and low grade (limited features) or of low
quality (many bugs) and high grade (many features)
• Determining and delivering the required levels of
both quality and grade are the responsibility of the
 Project management team should be aware that modern
quality management compliments project management
 Both disciplines recognize importance of :
Customer satisfaction: Combination of conformance to
requirements(project must produce what it said it will
produce) and fitness for use (product or service
produced must satisfy real needs)
Prevention over inspection (Cost of preventing mistake
is less than correcting them)
Management responsibility(to provide resources
required for success)
Processes within phases (repeated PDCA cycle
described by Deming is highly similar to combination of
phases and processes in project management
 Quality Planning
• Involves identifying which quality standards
are relevant to project and determining how
to satisfy them
• Should be performed regularly and in parallel
with other project processes
• E.g. changes in product of the project required
to meet identified quality standards may
require cost or schedule adjustments
• Or the desired product quality may require a
detailed risk analysis of an identified problem
 Inputs to Quality Planning
1. Quality Policy:
 Overall intensions and directions of an
organisation with regard to quality as formally
expressed by top management
 Quality policy of performing organisation can
be adopted “as is ” for project management
 In case of JV, the project management team
should develop quality policy
 Project stakeholder should aware of it through
information distribution
 Inputs to Quality Planning
2. Scope statement

3. Product description

4. Standards and regulations

5.Other process outputs

e.g. procurement planning may identify
contractor quality requirements that should be
reflected in overall quality management plan
 Tools and Techniques of Quality Planning
1.Benefit/cost analysis :
Its primary benefit is less rework which means higher
productivity, lower cost and increased stakeholder
satisfaction
Primary cost of meeting quality requirements is the
expenses associated with project quality management
activities
2. Benchmarking :
 Involves comparing actual or planned project
practices to those of other projects to generate
ideas for improvement and to provide a standard by
which to measure performance
 Tools and Techniques of Quality Planning
3. Flowcharting :
 Diagram that shows how various elements of a
system relate.
 Flowcharting techniques used are :
Cause and effect diagram : also called Ishikawa or
fishbone diagram which illustrates how various
factors might be linked to potential problems or
effects
System or Process flow charts : show how various
elements of system interrelate
Flowcharting can help the project team anticipate
what and where quality problems might occur and
thus can develop approaches for dealing with them
 Tools and Techniques of Quality Planning
4.Design of experiments :
Statistical method that help identify which
factors might affect specific variables
E.g. automotive designers might wish to
determine which combination of suspension
and tyres will produce most desirable ride
characteristics at reasonable cost
E.g. computing project cost and durations for
various combinations of senior and junior
engineers
 Tools and Techniques of Quality Planning
5.Cost of quality :
 Refers to total cost of all efforts to achieve
product /service quality
 Includes all work to ensure conformance to
requirements as well as work resulting from
nonconformance to requirements
 Three types of costs are
prevention,apparisal,failure costs where the
latter is broken down into internal and
external costs
 Output from Quality Planning
1.Quality management Plan
 It should describe how project management team will
implement quality policy
 Project quality system( Organisational
structure,responsibilities,procedures,processes,and
resources needed to implement quality management)
 Quality management plan provides input to overall
project plan and must address quality control, assurance
and improvement for the project
 Quality management plan may be formal/informal,
detailed/broadly framed, based on requirement of the
project
 Output from Quality Planning
2.Operational Definitions :
• Describes in very specific terms what
something is and how it is measured by
quality control process
• Whether individual activities will be measured
or only certain deliverables and if so which
one
• They are also called metrics in some
application area
 Output from Quality Planning
3.Checklist :
 A structured tool usually item specific used to verify
that a set of required steps has been performed
 They may be simple or complex
 Usually phrased as imperatives(Do this!!) or
interrogatories(have you done this)
 Used to ensure consistency in frequently performed
tasks
 Also available from professional associations or
commercial service providers
4. Inputs to other processes
 Quality Assurance
 All the planned and systematic activities
implemented within quality system to provide
confidence that the project will satisfy the
relevant quality standards
 Should be performed through the project
 Assurance may be provided to the project
management team and to the management of
Performing organization (internal quality
assurance ) or it may be provided to the
customer (external quality assurance)
 Inputs to Quality Assurance
1. Quality management plan

2. Results of quality control

measurements(Records of quality control testing
and measurement in a format for comparison
and analysis)

3.Operational definitions
Tools and techniques of Quality Assurance
1.Quality planning Tools and techniques
2.Quality Audits
 Structured review of other quality management
activities.
 The objective is to identify lessons learned that
can improve performance of this project or other
projects within the performing organization
 Audits may be scheduled or random or may be
carried by properly trained in-house auditors or by
third parties such as quality system registration
agencies
 Outputs from Quality Assurance
Quality Improvement:
• Includes taking actions to increase the
effectiveness and efficiency of the project to
provide added benefits to project stakeholders
• It require preparation of change requests or
taking of corrective action
• And will be handled according to procedures
for integrated change control
 Quality Control
• Involves monitoring specific project results to
determine if they comply with relevant quality
standards and identifying ways to eliminate
causes of unsatisfactory results
• It should be performed throughout the project
• Project results includes both product results
such as deliverables and project management
results such as cost and schedule performance
• Done by quality control department
 Quality Control
Project management team should have working
knowledge of statistical quality control especially sampling
and probability to help it evaluate quality control outputs
Team should know difference between:
Prevention and inspection
Attribute sampling(the result confirm or it does not) and
variable sampling(the result is rated on a continuous scale
that measures degree of conformity)
Special causes (unusual events) and random
causes(normal process variation)
Tolerances(result is acceptable if it falls within the range
specified by tolerance) and control limits(process is in
control if results fall within the control limits)
 Inputs to Quality Control
1. Work results (both process and product
results, planned vs actual results)

2. Quality management plan

3. Operational definitions

4.Checklists
 Tools and techniques of Quality Control
1. Inspection :
• Includes activities such as measuring,
examining, and testing undertaken to
determine whether results conform to
requirements
• Conducted at any level(from single activity to
final project product)
In some application areas called as reviews,
audits or walkthroughs)
 Control Charts
• Graphic displays of results, over time of a process
• Used to determine if process is in control(if differences
in results created by random variations or are unusual
events occurring whose causes must be identified and
corrected)
• When a process is in control , it should not be adjusted
• Used to monitor any type of output variable
• Used to track repetitive activities such as manufactured
lots
• Also used to monitor cost and schedule variances,
volume and frequency of scope changes, errors in
project documents or other management results to
determine if the project management process in control
 Pareto diagrams
• A histogram ordered by frequency of occurrence
that shows how many results were generated by
type or category of identified cause.
• Rank ordering is used to take corrective action
• Project team should take actions to fix the
problems that are causing the greatest number of
defects first
• Pareto’s law: hold that a relatively small number of
causes will provide a large number of problems or
defects
 This is referred as 80-20 principle where 80%
problems are due to 20% causes
 Statistical Sampling
• Involves choosing part of population of
interest for inspection (e.g. selecting 10 engg
drawings out of 75 )
• Appropriate sampling can often reduce cost of
quality control
• Project management team should be aware of
various types of sampling techniques
 Tools and techniques of Quality Control
5. Flowcharting (used in quality control to
analyze how problems occur)
6. Trend analysis : Involves using mathematical
techniques to forecast future outcomes based
on historical results
 It is used to monitor technical performance
(How many errors or defects have been
identified, how many remains uncorrected)
 It is used to monitor cost and schedule
performance(how many activities per period
were completed with significant variances)
 Outputs from Quality Control
1. Quality improvement
2.Acceptance decision(inspected items may be
selected or rejected, rejected require rework)
3.Rework (Action taken to bring a defective or
nonconforming item into compliance with
requirements or specifications. Project team should
put effort to minimize rework)
4.Completed Checklist
5.Process adjustments(involve immediate corrective or
preventing action as a result of quality control
measurement)
PROJECT HUMAN RESOURCE
MANGEMENT
 Project Human Resources Management
• Includes processes required to make most
effective use of people involved with the
project
• Includes all project stakeholders –
sponsors,customers,partners,individual
contributors
 Major processes
Organisational planning :
 Identifying, documenting and assigning project
roles,responsibilities and reporting
relationships
Staff Acquisition
 Getting human resources needed assigned to
and working on the project
Team Development
 Developing individual and group competencies
to enhance project performance
 Organisational Planning
• Involves Identifying, documenting and assigning
project roles,responsibilities and reporting
relationships to individual and groups
• Individual and groups may be part of performing
organisation or they may be external
• Internal groups associated with a specific
functional department such as engineering,
marketing or accounts
• Most of the planning is done in the earliest phase
and reviewed regularly throughout the project
 Inputs to Organisational Planning
1. Project Interfaces: three categories
A) Organisational interfaces (formal and informal
reporting relationships among different
organizational units)
B)Technical Interfaces (formal and informal
reporting relationships among different
technical disciplines)
C) Interpersonal Interfaces(formal and informal
reporting relationships among different
individuals working on the project)
 Inputs to Organisational Planning
2. Staffing Requirement(what kind of competencies
required from what kind of individuals or groups and
in what time frames)
3. Constraints
 Organisational structure of performing organisation
e.g. strong or weak matrix
 Contractual agreements with unions or other
employee groups may require certain roles or
reporting relationships
 Preferences of project management team e.g.
same structure that of previous successful project
 Competencies of specific individuals
 Tools and techniques of Organisational
planning
1. Templates

2. HR practices

3.Organisational theory

4.Stakeholder analysis
Outputs from Organisational Planning
1.Roles and responsibility assignment:
 Project roles(who does what) and responsibilities(who
decides what) must be assigned to appropriate project
stakeholder
 Project Roles and responsibility should be closely linked
to project scope definition
 A responsibility assignment matrix(RAM) is often used
for this purpose
 A high level RAM define which unit or group is
responsible for each component of WBS and lower level
RAMs are used within the groups to assign Roles and
responsibility for specific activities to particular
individual.
Outputs from Organisational Planning
2.Staffing management Plan
 Describes which when and how human resources
will be brought onto and taken off the project
team
3. Organisational Chart
 Graphic display of project reporting relationships.
 Organisational breakdown structure(OBS) is
specific chart that shows which units are
responsible for which work packages
4. Supporting details (what alternatives, job
descriptions ,training needs)
 Staff Acquisition
• Involves getting the needed human resources
assigned and working on the project

• In most environment BEST resources may not

be available

• Project management team must ensure that

the resources that are available will meet
project requirements
 Inputs to Staff Acquisition
1. Staff Management Plan

2. Staffing Pool description:

 Characteristics of potentially available staff like
previous experience, personal
interests,availability,competencies and
proficiency

3. Recruitment practices
 Tools and techniques of Staff Acquisition
1. Negotiations
 Project management team may need to negotiate
with responsible functional managers to ensure
that project receives appropriately competent staff
in the necessary time frame
 Project management team may need to negotiate
with other project teams within organisation to
assign scarce or specialised resources appropriately
2. Preassignments (staff assignments defined within
project charter)
3.procurenment (obtaining services of specific
individuals)
 Outputs from Staff Acquisition
1. Project staff assigned (full or part time)

2.Project team directory (Lists all project team

members and stakeholders.
 Team Development
• Enhancing ability of individuals and teams to
work

• Effective management of dual reporting

(functional and project)by project manager is
critical success factor of the project
 Inputs to Team Development

1. Project staff
2. Project plan
3. Staffing management plan
4. Performance report
5. External feedback (Measuring against the
expectations of those outside the projects)
 Tools and techniques of Team
Development
1. Team building activities
2. general management skill
3. Reward and recognition system
4. Collocation (Placing all active project tam
members in the same physical location to
enhance their ability to perform as a team)
5. Training
 Output from Team Development
1. performance improvements

2. Inputs to performance appraisal

PROJECT COMMUNICATION
MANAGEMENT
 Project Communication Management
• Includes processes required to ensure timely
and appropriate generation
,collection,disssemination,storage and
ultimate disposition of project information
• It provides critical links among
people,ideas,information that are necessary
for success.
• Everyone involved in project must be prepared
to send and receive communications
 Major processes
1. Communications Planning
 Determining the information and communications needs
of the stakeholders, who needs what information, when
they will need it and how it will be given to them
2. Information Distribution
 Making needed information available to project
stakeholders in a timely manner.
3.Performance Reporting:
 Collecting and disseminating performance information.
This includes status reporting ,progress measurement and
forecasting
4.Adminstrative Closure :
 Generating gathering,and disseminating information to
formalize a phase or project completion
 Communication requires
1.Sender receiver models (feedback loops,
barriers to communication)
2.Choice of media (written vs oral, formal report
vs informal memo)
3.Writing Style (active vs passive voice, sentence
structure, word choice etc.)
4.Presentation Techniques (body language,
design of visual aids)
5.Meetings(preparing an agenda, dealing with
conflict )
 Communication Planning
• Involves determining the information and
communications needs of the stakeholders
• Who needs what information, when they will
need it and how it will be given to them
• Tightly linked with project’s organisation
planning as project’s organisational structure
will have a major effect on project’s
communication requirements
Inputs to Communication Planning
1. Communication requirements
 Information about project organisation and
stakeholder responsibility relationships
 Disciplines, departments, and specialties
involved in the project
 Logistics of how many individuals will be
involved with the project and at which
locations
 External Information needs
 Inputs to Communication Planning
2. Communication technology
 Technologies and methods used to transfer
information back and forth among project
stakeholders
 From brief conversation to extended meetings,
simple documents to online schedules and
databases
 Factors that affect projects are immediacy of the
need for information ,availability of technology,
expected project staffing, length of project
3. Constraints (handling contract information)
4.Assumptions
 Tools and techniques of Communication
Planning
Stakeholder Analysis
 Information needs of the various stakeholders
should be analysed to develop a methodical and
logical view of their information needs and
sources to meet those needs
 Analysis should consider methods and
technologies suited to the project that will
provide the information needed
 Care should be taken to avoid wasting resources
on unnecessary information or inappropriate
technology
 Outputs from Communication Planning
1. Communication management plan: document that provides;
• Collection and filing structure that details what methods will
be used to gather and store various types of information
• Distribution structure that details to whom information will
flow and what methods(written reports, meetings)
• Description of information to be distributed including
format,contect,level of detail and conventions/definitions to
be used)
• Production schedules showing when each type of
communication will be produced
• Methods for accessing information between scheduled
communications
• Method for updating and refining communications
management plan as the project progresses and develops
 Information Distribution
• Involves making needed information available
to project stakeholders in a timely manner

• Includes implementing communications

management plan

• As well as responding to unexpected requests

for information
 Inputs to Information Distribution
1. Work Results

2.Communications management plan

3. Project Plan
 Tools and techniques of Information
Distribution
1.Communication Skills
 Used to exchange information
 Information should be
clear,unambiguous,complete so that receiver
can receive it correctly and understood
properly
 Vertical communication(up and down the
organisation) and horizontal
communication(peer to peer)
 Tools and techniques of Information
Distribution
Information Retrieval system
• Information can be shared by team members and
stakeholders through a variety of methods including
manual filing system, electronic database, project
management software, and systems that allow to
technical documentation such as engg. drawings,
design specifications, test plans etc.
Information Distribution methods
• Project information distributed using methods like
project meetings, hard copy distribution, shared
access to electronic database, fax email, voice
mail,project intranet
 Outputs from Information Distribution
1.Project Records : includes
correspondence,memos,documents describing
projects maintained in organized fashion

2. project Reports On project status/issues)

3.project presentations (to stakeholders)

 Performance Reporting
Involves collecting and disseminating
performance information to provide
stakeholders with information about how
resources are being used to achieve project
objectives and includes
 Status reporting
 Progress reporting
 Forecasting
 Should provide information on
scope,schedule,cost and quality.
 Inputs to Performance Reporting
1. project plan

2.Work results

3.Other project records

 Tools and techniques of Performance
reporting
1. Performance Reviews(meetings held to assess
project status)

2.Variances analysis(comparing actual with planned

results)

3.Trend analysis (examining project reports over

time)

4. Earned value analysis

 4. Earned value analysis

Method of performance measurement

 It integrate scope ,cost and schedule measures to help
project management team access project
performance
 EV involves calculating three values for each activity:
Planned value(PV) {Previously called BCWS)—That
portion of approved cost estimate planned to be spent
on activity during a given period
Actual Cost(AC)(Previously called ACWP)—total cost
incurred in accomplishing work on activity during a
given period.
EV(Previously called BCWP) is the value of work
actually completed.
 4. Earned value analysis
The three values are used in combination to
provide measure whether or not work is being
accomplished as planned.
 Most commonly used measures are :
The cost variance (CV=EV-AC)
The schedule variance(SV=EV-PV)
These two values CV and SV can be converted
to efficiency indicators to reflect the cost and
schedule performance of any project
 4. Earned value analysis
• The cost performance index(CPI=EV/AC) is
most commonly used cost efficiency indicator
• Cumulative CPI (Sum of all individual EV
budgets divided by sum of all individual ACs) is
widely used to forecast project cast at
completion.
• Schedule performance index (SPI=EV/PV) is
sometimes used in conjunction with CPI to
forecast project completion estimates
• 5.Information distribution tools and techniques
Outputs from performance reporting
1. Performance reports
• Common formats for performance reports
include bar charts(also called Gant chart),S
curves, Histograms and tables
2. Change requests
• Analysis of project performance generate a
request for a change to some aspect of
project. They are handled in various change
control processes e.g. scope change
management ,schedule control etc.
 Administrative Closure
• Project or phase after either achieving its objectives or
being terminated for other reasons requires closure.
• It consist of documenting project results to formalise
acceptance of the product of the project by the sponsor or
customer.
• It includes collecting project reports ensuring that they
reflect final specifications ,analyzing project success,
effectiveness, lessons learned and archiving such
information for future use.
• It should delay till project completion. Each phase of the
project should be properly closed to ensure that important
and useful information is not lost.
• In addition employee skills in the staff pool database should
be updated to reflect new skills and proficiency increses.
 Inputs to Administrative Closure
 Performance Measurement
Documentation(must be available for review
during Administrative Closure)
2. Product Documentation
 Plans,specifications,technical
documentation,drawings,electronic files)

3. Other project records

 Tools and techniques of Administrative
Closure
1. Performance reporting Tools and techniques

2. Project reports

3. Project presentations
 Outputs from Administrative Closure
1.Project archives
 A complete set of indexed project records
should be prepared for archiving by the
appropriate parties
2. Project Closure
 Confirmation that project has met all
customer requirements for the product of the
project and customer has formally accepted
the project results and deliverables
3. Lessons learned
PROJECT RISK
MANAGEMENT
 Project Risk Management
• Risk Management is systematic process of
identifying,analyzing and responding to
project risk

• It includes maximizing the probability and

consequences of positive events

• And minimizing the probability and

consequences of adverse events to project
objectives
 Project Risk Management
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
project and documenting their characteristics)
3.Qualitative risk Analysis(Performing Qualitative analysis of risk
and conditions to prioritize their effects on project objectives)
4.Quantitative risk Analysis (Measuring probability and
consequences of risk and estimating their implications for
project objectives
5. Risk Response Planning (Developing procedures and
techniques to enhance opportunities and reducing threats to
project objectives
6.Risk Monitoring and control (monitoring residual risks,
identifying new risks, executing risk reduction plan and
evaluating their effectiveness throughout the project life cycle
 Project Risk Management
• Project risk is an uncertain event or condition that if it
occurs has a positive or negative effect on a project
objective.
• A risk has a cause and if occurs has a consequence
• Eg cause may be requiring permit or having limited
personnel assigned to the project
• The risk event is that the permit may take longer than
planned pr personnel may not be adequate for the
task
• If either of these uncertain events occur, there will be
a consequence on a project cost, schedule or quality
• Uncertainty is present in all the projects
 Project Risk Management
• Known risks are those that have been identified and
analysed and it may be possible to plan for them
• Unknown risks cannot be management although project
manager may address them up by applying a general
contingency base on past experience with similar projects
• Risks that are threats to project may be accepted if they
are in balance with the reward that may be gained by
taking the risk
• E.g. adopting a fast track schedule that may be overrun is
a risk taken to achieve an earlier completion date.
• Should be done throughout the project by gathering high
quality data on project risk and its characteristics
 Risk Management Planning

• Deciding how to approach and plan the risk

management activities for a project

• It is important to plan for risk management

processes that follow to ensure that

• level, type and visibility of risk management

are commensurate with both risk and
importance of project to the organisation
 Inputs to Risk Management Planning

1. project Charter
2.Organisation’s risk management policies
3. Defined roles and responsibilities
4. Stakeholder risk tolerances
5. Template for organisation’s Risk Management
Plan.
6. WBS
Tools and techniques of Risk Management
Planning
Planning meetings:
 Project teams hold planning meetings to
develop risk management plan
 Attendees include project manager, project
team leaders, key stakeholders and others as
needed
 They use risk management templates and
other inputs as appropriate
 Output from Risk Management Planning
1. Risk Management plan :
• Describes how Risk Identification, Qualitative and
Quantitative risk Analysis,response
planning,monitoring,and control will be structured and
performed during project life cycle. It include :
Methodology:
 Defines the approaches, tools and data sources that may
be used to perform risk management on this project.
 Different types of assessments may be appropriate
depending upon project stage, amount of information
available and flexibility remaining in risk management
Budgeting : Establishes a budget for risk management of
a project
 Risk Management plan
Roles and Responsibilities :
 Defines the lead, support and risk management team
membership for each type of action in the risk management
plan
 Risk management teams organized outside project office may
be able to perform more independent unbiased risk analysis
of project than those from the sponsoring project team
Timing
 Defines how often project risk management process will be
performed throughout the project life cycle
 Results should be developed early enough to affect decisions
 Decisions should be revisited during project execution
 Risk Management plan
Scoring and interpretation : appropriate for type and time of
qualitative and quantitative risk analysis being performed.
Methods and scoring must be determined in advance to
ensure consistency
Thresholds: Project owner,customer,or sponsor may have
different risk thresholds. Acceptable thresholds forms a
target against which project team will measure effectiveness
of risk response plan execution.
Reporting formats :(how results of risk management process
will be documented analysed and communicated to
stakeholders
Tracking : Documents how all facets of risk activities will be
recorded for the benefit of current project ,future needs and
lessons learned .Documents if and how risk processes will
be audited
 Risk Identification
• Involves determining which risk might affect
the project and documenting their
characteristics
• It is an iterative process.
• First iteration may performed by part of
project or risk management team
• Entire project team and primary stakeholders
may make a second iteration
• Persons not involved in project may perform
final iteration
 Inputs to Risk Identification
• 1. Project planning outputs:
• Risk identification requires understanding of
project’s mission, scope ,objectives of
ownwer,sponsor or stakeholders
• Outputs of other processes should be reviewed to
identify possible risk across entire project which
include project charter,WBS,Product description,
Schedule and cost estimates, resource plan,
procurement plan ,assumptions and constraints list
 Inputs to Risk Identification
2.Risk Categories
 Technical ,quality and performance risk(unproven or
complex )
 Technology, unrealistic performance goals, changes to
technology or industry standards during project
 Project management risk (poor allocation of time and
resources, inadequate quality of project plan)
 Organizational risks(cost , time ,scope objectives that are
internally inconsistent, inadequate funding and resource
conflicts)
 External Risks (shifting legal or regulatory
environment,labour issues, country risk, weather, force
majeure risks such as earthquake,floods,civil unrest)
 Inputs to Risk Identification
3.Historical Information(From project files and
published information)

4. Risk management plan

Tools and techniques of Risk Identification
1.Documentation reviews
 Structured review of project plans and
assumptions both at total project and detailed
scope levels ,prior project files and other
information is generally initial step taken by
project teams
2.Checklists
 Developed based on historical information and
knowledge accumulated from previous similar
projects and other sources of information
 Advantage is that quick and simple and impossible
to build exhaustic checklist
Tools and techniques of Risk Identification
3. Information Gathering techniques
Brainstorming(under leadership of facilitator,project
team members generates idea about project risk)
Delphi Technique(facilitator uses a questionnaire to
solicit ideas about important project risk. The
responses are submitted and then circulated to experts
for further comments. Consensus on main project risk
may be reached in a few rounds of this process. Delphi
technique help reduce bias in the data and keeps any
person from having any undue influence on outcome.
Interviewing: Risk is identified by interview of
experience project manager or subject matter expert
SWOT analysis
 Tools and techniques of Risk Identification
4.Assumption Analysis
 Technique that explore assumption’s validity. It
identifies risk to the project from inaccuracy,
inconsistency or incompleteness of project
5.Diagrammatic techniques
Cause and effect diagram(Ishikawa diagram)
System or process flowchart
Influence diagram(a graphical representation
of problem showing causal influences, time
ordering of events, and other relationships
among variables and outcome)
 Outputs Risk Identification
1. Risk

2. Triggers (risk symptoms or warning signs)

3. Input to other processes (identify a need for

further action in another area)
 Qualitative risk analysis
• Process of assessing impact and likelihood of
identified risks

• This process prioritize risk according to their

potential effect on project objectives

• Requires that the probability and

consequences of risk to be evaluated using
established qualitative analysis methods and
tools
 Inputs to Qualitative risk analysis
1.Risk management plan
2.Identified risks
3.Project status(early in the project many risk do
not surface, the design for the is immature and
changes can occur making it likely that more risks
will be discovered)
4.Project type(more complex project have more
uncertainty)
5.Data precision and reliability
6. Scales of probability and impact
7. Assumptions
 Tools and techniques of Qualitative risk
analysis
1.Risk probability and impact
 Described in qualitative terms such as very high,
high ,moderate, low and very low
Risk probability is likelihood that a risk may occur
Risk consequences is the effect on project
objectives if the risk event occur
 These two dimensions of risk are applied to
specific risk event not to overall project
 It helps identify those risks that should be
managed aggressively
 Tools and techniques of Qualitative Risk
analysis
2. Probability /Impact risk rating matrix
 Matrix may be conducted that assigns risk
ratings(very high, high ,moderate, low and very
low) to risks and conditions based on
combining probability and impact scales
 Risks with high probability and high impact are
likely to require further analysis including
quantification and aggressive risk management
 The Risk rating is accomplished using a matrix
and risk scale for each risk
 Tools and techniques of Qualitative Risk
analysis
2. probability /Impact risk rating matrix
 A risk’s probability scale naturally falls between
0.0(no probability) and 1.0(certainty)
 Assessing risk probability may be difficult because
expert judgement is used often without benefit of
historical data
 An ordinal scale representing relative probability
values from very unlikely to almost certain could
be used
 Alternative specific probabilities could be assigned
by using a general scale(e.g. 0.1/0.3/0.5/0/7/0.9)
Tools and techniques of Qualitative Risk analysis
2. Probability /Impact risk rating matrix
• The risk’s impact scale reflects severity of its effect on
project objective
• Impact can be ordinal or cardinal depending upon culture
of organization conducting analysis
• Ordinal scales are simply rank ordered values such as very
high, high ,moderate, low and very low
• Cardinal scales assign value to these impacts(0.2/0.3/0.5)
representing organizations desire to avoid high impact
risks
• Probability impact (PI) matrix : Does simple multiplication
of the scale values assigned to estimates of probability
and impact ,a common way to combine these two
dimensions to determine if risk is low, moderate or high
 Tools and techniques of Qualitative Risk
analysis
3.Project assumptions testing (two criterion
:assumption stability and consequences on the
project if assumption is false
4.Data precision ranking
 Evaluating degree to which data about risk is
useful for risk management. It examine:
 Extend of understanding of risk
 Data available about risk
 Quality of data
 Reliability and integrity of data
 Output from Qualitative risk analysis
1. Overall risk ranking of project

2.List of prioritized risk

3.List of risks for additional analysis and

management

4.Trends in qualitative risk analysis results

 Quantitative risk analysis
Process aims to analyze numerically the probability of each
risk and its consequences on project objectives
 The process used Monte Carlo simulation and decision
analysis to:
 Determine probability of achieving a specific project
objective
 Quantify risk exposure for the project and determine size of
cost and schedule contingency reserves that may be needed
 Identify risk requiring more attention by quantifying their
relative contribution to project risk
 Identify realistic and achievable cost, schedule or scope
targets
Generally follows qualitative risk analysis
Can be used separately or together
 Inputs to Quantitative risk analysis
1.Risk management plan
2.Identified risks
3.List of prioritized risk
4.List of risks for additional analysis and
management
5.Historical Information
6.Expert Judgement
7.Other planning outputs
 Tools and techniques of Quantitative risk
analysis
1.Interviewing(of project stakeholders and
experts)

2.Sensutivity analysis(examines extent to which

uncertainty of each project element affects
objective being examined when all other
uncertain elements are held at their baseline
values
 Tools and techniques of Quantitative risk
analysis
3.Decision tree analysis
 Decision tree is structured as decision tree
 Diagram that describes a decision under consideration and
implications of choosing one or another of the available
alternative
 Solving decision tree indicates which decision yields greatest
expected value to decision maker when all the uncertain
implications, costs ,rewards and subsequent decisions are
quantified
4.Simulation
 Uses a model that translate the uncertainties specified at a
detailed level into their potential impact on objectives that are
expressed at the level of total project ,performed using
montecarlo simulation.
 Outputs from Quantitative risk analysis
1.Prioritized list of quantified risk

2.Probabilistic analysis of project

3.Probability of achieving cost and time

objective

4.Trends in qualitative risk analysis results

 Risk Response Planning
• Process of developing options and
determining options to enhance opportunities
and reduce threats to project’s objectives

• Includes identification and assignments of

individuals and parties to take responsibility
for each agreed risk response
 Inputs to Risk Response Planning
1.Risk management plan
2.List of prioritized risks
3.Risk ranking of project
4.Prioritized list of quantified risk
5.Probabilistic analysis of the project
6.Probability of achieving cost and time objective
7.List of potential responses
8.risk thresholds
9.Risk owners
10.Commom risk causes
11 trends in qualitative and quantitative risk analysis results
 Tools and techniques of Risk Response
Planning
1.Avoidance
• Changing the project plan
• Reducing scope to Avoid high risk activities
• Adding resources or time
2.Transference
• Shifting consequence of risk to third party
together with ownership of response e.g.
insurance, performance bonds ,warranties and
guarantees ,fixed price contract.
 Tools and techniques of Risk Response
Planning
3.Mitigation
 Reducing probability/consequences of an
adverse risk event to an acceptable threshold
 Taking early actions
 Adopting less complex processes
 Adding resources or time to schedule
4.Acceptance
Active acceptance include developing
contingency plan
 Output from Risk Response Planning
1.Risk Response plan
 Written to level of detail at which actions will be
taken. It include :
Identified risks,description,causes
Risk owners and assigned responsibilities
Results from qualitative and quantitative analysis
Agreed response including avoidance ,transference
etc.
Specific action to implement chosen response
strategy
Budget and time for responses
Contigency and fallback plans
 Output from Risk Response Planning
2. Residual risks
 Those that remain after avoidance, transfer or
mitigation
 Minor risks that have been addressed and
accepted eg adding contingency amount to
cost or time allowed
3. Secondary Risk
 Risks that arises as a direct result of
implementing a risk response
 Output from Risk Response Planning

4. Contractual agreements

5. Contingency reserve amount needed

6.Inputs to other processes

7.Inputs to revised project plan

 Risk Monitoring and control
• Process of keeping track of identified risks,
monitoring residual risks and identifying new
risk
• Ensuring execution of risk plans and evaluating
their effectiveness in reducing risk
• Ongoing process throughout life of the project
• Risk changes as project matures, new risk
develops, or anticipated risk disappears
• Provide information that assist with making
effective decisions in advance of risk occurring
 Risk Monitoring and control
Purpose of risk monitoring is to determine if :
Risk response implemented as planned
Risk response are as effective as expected
Project assumptions are still valid
Risk exposure has changed from its prior state
with analysis of trends
A risk trigger has occurred
Proper policies and procedures are followed
Risk have occurred that have not previously
occurred
 Risk Monitoring and control
Risk control involve:
 Choosing alternative strategy
 Implementing contingency plan
 Taking corrective action
 Preplanning the project
Risk response owner should report
periodically to project manager and risk team
leader on effectiveness of plan, any
unanticipated effects and any mid-course
correction needed to mitigate the risk
 Inputs to Risk Monitoring and control
1.Risk management plan
2. Risk response plan
3.Project communication(using issue logs,
Action-Item list, jeopardy warning, escalation
notices
4.Additional risk identification and analysis
5.Scope changes
Tools and techniques Risk Monitoring and
control
1. Project risk response audit

2. Periodic project risk review

3. Earned value analysis

4.Technical performance measurement

5. Additional risk response planning

Outputs from Risk Monitoring and control

• 1. workout plans
• 2.corrective action
• 3.Project change requests
• 4.Updates to risk response plans
• 5.Risk database
• 6. Updates to risk identification techniques
 PROJECT
PROCUREMENT
MANAGEMENT
 Procurement planning
• Identifying which project needs can be satisfied by
outside supplier
• Make or buy analysis
• Contract type selection (Fixed price /cost plus
profit/time and material contract)
• Statement of work(describing procurement item in
sufficient detail to allow prospective seller to
determine if they are capable of providing the item)
• Solicitation : Obtaining responses(bids and
proposals) from prospective sellers
• Qualified sellers list
• Bidders /contractor conferences
 Procurement documents
 Bid and quotation (price)
 Proposal (technical details)
 Invitation for Bid (IFB)
 Request for proposal(RFP)
 Request for quotation (RFQ)
 Invitation for negotiation
 Contractor initial response
 Evaluation Criterion
Price (Cost)
Overall /life cycle cost
Technical capability
Management approach of seller
Financial capacity
 Source selection
 Receipt of bid or proposal and application of
evaluation criterion to select provider

 Contract Negotiation

 Weighting system

 Screening system
 Contract administration
Contract is mutually binding agreement that obligates
the seller to provide specified product and buyer to
pay for it
• Legal relationship subject to remedy in the courts
• Also called purchase order or MOU
• Project team should be acutely aware of legal
implications of actions taken when administering the
contract
• Dispute resolution procedures
• Should maintain written documents such as warning
of unsatisfactory performance/contract changes or
clarifications
 Contract closeout

• Involves product verification (Was all work completely

correctly and satisfactorily)
• And administrative closeout(Updating of records to
reflect final results and achieving of such information
for future use
• A complete set of indexed records should be prepared
for inclusion with final project report
• A person responsible for contract administration
should provide seller with formal written notice that
the contract has been completed
• Requirements for formal acceptance and closure are
defined in the contract
Earned Value
Analysis and
Management
 Earned Value Analysis (EVA)
Industry standard method of measuring a
project's progress at any given point in time .
Forecasting its completion date and final cost.
Analyzing variances in schedule and budget as
the project proceeds.
 Compares planned amount of work with what
has actually been completed, to determine if
the cost, schedule, and work accomplished are
progressing in accordance with the plan.
 As work is completed, it is considered
"earned".
 Earned Value Analysis (EVA)
• EVA is a snapshot in time, which can be used as a
management tool as early warning system to detect
deficient or endangered progress.
• Ensures clear definition of work prior to beginning
that work.
• Provides objective measure of accomplishments and
early and accurate picture of contract status.
• Can be as simple as tracking elemental cost estimate
breakdown as design progresses from concept
through to 100% construction documents
• Or it can be calculated and tracked using a series of
mathematical formulae.
 Earned Value Analysis (EVA)
Provides basis for course correction.
It answers two key questions:

At the end of the project, is it likely that the

cost will be less than, equal to or greater than
the original estimate?

Will the project likely be completed on time?

 Calculating Earned value
Earned Value Management measures progress
against baseline.
 It involves calculating three key values for
each activity in the WBS
Planned Value (PV), (formerly known as the
budgeted cost of work scheduled or BCWS)
Portion of approved cost estimate planned to
be spent on the given activity during a given
period.
 Calculating Earned value
 Actual Cost (AC), (formerly known as actual
cost of work performed or ACWP)— total of
the costs incurred in accomplishing work on
the activity in a given period.
 This Actual Cost must correspond to whatever
was budgeted for Planned Value and Earned
Value (e.g. all labor, material, equipment, and
indirect costs).
 Earned Value (EV), (formerly known as budget
cost of work performed or BCWP)— value of
the work actually completed.
 Calculating Earned value
These three values are combined to
determine at that point in time whether or not
work is being accomplished as planned.
 Most commonly used measures are cost
variance:

 Cost Variance (CV) = EV - AC

 Schedule variance: (SV) = EV - PV

 Efficiency indicators
These two values can be converted to efficiency
indicators to reflect cost and schedule performance
of the project.
Most commonly used cost-efficiency indicator is the
Cost performance index (CPI).
 It is calculated as:

CPI = EV / AC

Sum of all individual EV budgets divided by sum of

all individual AC's is known as cumulative CPI, and is
generally used to forecast cost to complete a project.
 Schedule Performance Index
Schedule performance index (SPI), calculated
as:

 SPI = EV / PV

 is often used with CPI to forecast overall

project completion estimates
 Negative schedule variance
A negative schedule variance (SV) calculated
at a given point in time means

 the project is behind schedule,

 while a negative cost variance (CV) means the

project is over budget.
Earned Value Management System (EVMS)
 Methodical, organized, thorough, and
complete WBS
 Baseline schedule
 Baseline budget, organized into control
accounts
 Measurement of the work by control account
(e.g. units in place, man-hours, etc.)
Earned Value Management System (EVMS)
 Scheduling authorized work is similar to large
construction project—it is a necessary activity
for success of the project.
 In an EVMS schedule integrate all of the
technical, cost, and schedule aspects of the
work, resulting in expected sequence of work.
 Interdependencies are established that result
in the total work time
 and reveal the critical path
Earned Value Management System (EVMS)
Within each task it is then necessary to
identify objective interim measures to allow
for accurate performance assessment each
month.
Sufficient number of these interim measures
will be defined after the detailed schedule is
established
to ensure the performance is measured as
accurately as possible.
 Performance Measurement Baseline
 Time-phased budget baseline, at the control
account level must also be established and
maintained.
 Assignment of budgets to work activities or
tasks results in a plan against which actual
performance can be measured.
 Referred as performance measurement
baseline (PMB)
 Should be established as early as possible
after notice to proceed has been issued.
 Monthly performance report must include

Budget, earned value, and actual costs

(reconcilable with accounting system)
 Cost Variance (CV)
 Schedule Variance (SV)
 Variance at Completion (VAR)
 Variance analysis narrative (root causes,
impacts at completion, and management
actions)
 Earned value management (EVM)

Project management technique for measuring

project performance and progress. It has
ability to combine measurements of project
management triangle:
Scope
Time
Costs
Provide accurate forecasts of project
performance problems, which is important
contribution for project management.
 Earned value management (EVM)
Early EVM research showed that areas of planning
and control are significantly impacted by its use; and
using methodology improves both scope definition as
well as the analysis of overall project performance.
More recent research studies have shown that
principles of EVM are positive predictors of project
success.
Popularity of EVM has grown in recent years beyond
government contracting, a sector in which its
importance continues to rise, in part because EVM
can also surface in and help substantiate contract
disputes.
Essential features of EVM implementation
Project plan that identifies work to be accomplished
Valuation of planned work, called Planned Value (PV) or
Budgeted Cost of Work Scheduled (BCWS)
Pre-defined “earning rules” (also called metrics) to
quantify accomplishment of work, called Earned Value
(EV) or Budgeted Cost of Work Performed (BCWP).
o EVM implementations for large or complex projects
include many more features, such as indicators and
forecasts of cost performance (over budget or under
budget) and schedule performance (behind schedule or
ahead of schedule).
o Most basic requirement of EVM system is that it
quantifies progress using PV and EV.
 Application example

 Project A has been approved for a duration of

1 year and with the budget of X.
 It was also planned that project spends 50%
of approved budget in first 6 months.
 If now 6 months after start of the project a
Project Manager would report that he has
spent 50% of budget, one can initially think,
that project is perfectly on plan.
 However, in reality provided information is
not sufficient to come to such a conclusion.
 Application example

• Project can spend 50% of the budget, whilst

finishing only 25% of the work, which would
mean project is not doing well;
• Or project can spend 50% of the budget,
whilst completing 75% of the work, which
would mean that project is doing better than
planned.
• EVM is meant to address such and similar
issues.
 History

• EVM emerged as a financial analysis specialty

in United States Government programs in
1960s, but it has since become a significant
branch of project management and cost
engineering.
• Project management research investigating
contribution of EVM to project success
suggests a moderately strong positive
relationship.
• Implementations of EVM can be scaled to fit
projects of all sizes and complexities.
 History

• EVM occurred in industrial manufacturing at

turn of 20th century, based on principle of
"earned time" popularized by Frank and Lillian
Gilbreth, but concept took root in United
States Department of Defense in the 1960s.
• Original concept was called PERT/COST, but it
was considered overly burdensome (not very
adaptable) by contractors who were
mandated to use it
• Many variations of it began to proliferate
among various procurement programs.
 History

• In 1967,DoD established a criterion-based

approach, using a set of 35 criteria, called
Cost/Schedule Control Systems Criteria
(C/SCSC).
• In 1970s and early 1980s, subculture of
C/SCSC analysis grew, but technique was often
ignored or even actively resisted by project
managers in both government and industry.
• C/SCSC was often considered a financial
control tool that could be delegated to
analytical specialists.
 History

• In 1979, EVM was introduced to architecture

and engineering industry in a "Public Works
Magazine" article by David Burstein, a project
manager with a national engineering firm.
• Technique has been taught ever since as part
of project management training program
presented by PSMJ Resources--International
training and consulting firm that specializes in
engineering and architecture industry.
 History

• In late 1980s and early 1990s, EVM emerged

as a project management methodology to be
understood and used by managers and
executives, not just EVM specialists.
• In 1989, EVM leadership was elevated to
Undersecretary of Defense for Acquisition,
thus making EVM an element of program
management and procurement.
• In 1991, Secretary of Defense Dick Cheney
canceled Navy A-12 Avenger II Program
because of performance problems detected by
EVM.
 History

• This demonstrated conclusively that EVM

mattered to secretary-level leadership.
• In 1990s, many U.S. Government regulations
were eliminated or streamlined. However,
EVM not only survived the acquisition reform
movement, but became strongly associated
with acquisition reform movement itself.
• From 1995 to 1998, ownership of EVM criteria
(reduced to 32) was transferred to industry by
adoption of ANSI EIA 748-A standard.
 History

• Use of EVM expanded beyond U.S. Department of

Defense. It was adopted by National Aeronautics and
Space Administration, United States Department of
Energy and other technology-related agencies.
• Many industrialized nations also began to utilize EVM
in their own procurement programs.
• Overview of EVM was included in Project
Management Institute's first PMBOK Guide in 1987
and was expanded in subsequent editions.
• In most recent edition of PMBOK guide, EVM is
listed among general tools and techniques for
processes to control project costs.
 History

• Construction industry was early commercial adopter of

EVM. Closer integration of EVM with practice of project
management accelerated in 1990s.
• In 1999, Performance Management Association merged
with Project Management Institute (PMI) to become
PMI’s first college, College of Performance Management.
• United States Office of Management and Budget began to
mandate use of EVM across all government agencies, and,
for first time, for certain internally managed projects (not
just for contractors). EVM also received greater attention
by publicly traded companies in response to Sarbanes-
Oxley Act of 2002.
• In Australia EVM has been codified as standards AS 4817-
2003 and AS 4817-2006.
 Project Tracking

 Consider a project that has been planned in

detail, including a time-phased spend plan for
all elements of work.
 Figure shows the cumulative budget (cost) for
this project as a function of time (the blue
line, labeled PV).
 It also shows the cumulative actual cost of the
project (red line, labeled AC) through week 8.
 Project tracking
 It might appear that this project was over
budget through week 4 and then under
budget from week 6 through week 8.

 However, what is missing from this chart is

any understanding of how much work has
been accomplished during the project.
 Project tracking
• If the project was actually completed at week
8, then the project would actually be well
under budget and well ahead of schedule.
• If, on the other hand, the project is only 10%
complete at week 8, the project is significantly
over budget and behind schedule.
• A method is needed to measure technical
performance objectively and quantitatively
• That is what EVM accomplishes.
 Earned value (EV)

EV= E (SUMMATION – FROM START TO

CURRENT) PV completed

Or

• EV=Budget at completion (BAC) * Actual%

complete.
 Earned value (EV)

 Figure shows EV curve (in green) along with

PV curve from earlier Figure
 Chart indicates that technical performance
(i.e., progress) started more rapidly than
planned, but slowed significantly and fell
behind schedule at week 7 and 8.
 This chart illustrates schedule performance
aspect of EVM.
 It is complementary to critical path or critical
chain schedule management
 Earned value (EV)

 Figure 3 shows the same EV curve (green) with

actual cost data from Figure 1 (in red).

 It can be seen that the project was actually

under budget, relative to the amount of work
accomplished, since the start of the project.

 This is a much better conclusion than might

be derived from Figure 1.
 EVM line chart

• Figure 4 shows all three curves together –

which is a typical EVM line chart.
• Best way to read these three-line charts is to
identify EV curve first, then compare it to PV
(for schedule performance) and AC (for cost
performance).
• It can be seen from this illustration that a true
understanding of cost performance and
schedule performance relies first on
measuring technical performance objectively.
This is the foundational principle of EVM
 Scaling EVM from simple to advanced implementations

 Foundational principle of EVM does not

depend on size or complexity of the project.
However, implementations of EVM can vary
significantly depending on circumstances.
 In many cases, organizations establish an all-
or-nothing threshold; projects above threshold
require a full-featured (complex) EVM system
and projects below threshold are exempted.
 Another approach that is gaining favor is to
scale EVM implementation according to
project at hand and skill level of project team.
 Simple implementations (emphasizing only technical performance)

 There are many small and simple projects than

large and complex ones
 Yet historically only largest and most complex
have enjoyed benefits of EVM.
 Still lightweight implementations of EVM are
achievable by any person who has basic
spreadsheet skills.
 Spreadsheet implementations are excellent
way to learn basic EVM skills.
 Defining the work

 First step is to define the work.

 Done in a hierarchical arrangement called a work
breakdown structure (WBS) although simplest
projects may use a simple list of tasks.
 It is important that WBS or list be comprehensive.
 It is also important that the elements be mutually
exclusive, so that work is easily categorized in one
and only one element of work.
 Most detailed elements of a WBS hierarchy (or the
items in a list) are called activities (or tasks).
 Assigning a value

 Second step is to assign a value, called

planned value (PV) to each activity.
 For large projects, PV is almost always an
allocation of the total project budget, and may
be in units of currency (e.g., dollar, euro or
INR) or in labor hours, or both.
 However, in very simple projects, each activity
may be assigned a weighted “point value"
which might not be a budget number.
 Assigning weighted values

 Assigning weighted values and achieving

consensus on all PV quantities yields important
benefit of EVM, because it exposes
misunderstandings and miscommunications
about scope of the project
 Resolving these differences should always
occur as early as possible.
 Some terminal elements can not be known
(planned) in great detail in advance
 That is expected, because they can be further
refined at a later time.
 Defining “earning rules”

 Third step is to define “earning rules” for each

activity.
 Simplest method is to apply just one earning
rule, such as the 0/100 rule, to all activities.
 Using 0/100 rule, no credit is earned for an
element of work until it is finished.
 Related rule is called the 50/50 rule, which
means 50% credit is earned when an element
of work is started, and remaining 50% is
earned upon completion.
 Defining “earning rules”

 Third step is to define “earning rules” for each

activity.
 Simplest method is to apply just one earning
rule, such as the 0/100 rule, to all activities.
 Using 0/100 rule, no credit is earned for an
element of work until it is finished.
 Related rule is called the 50/50 rule, which
means 50% credit is earned when an element
of work is started, and remaining 50% is
earned upon completion.
 25/75 rule or 20/80 rule
• Other fixed earning rules such as a 25/75 rule
or 20/80 rule are gaining favor, because they
assign more weight to finishing work than for
starting it.
• But they also motivate project team to
identify when an element of work is started,
which can improve awareness of work-in-
progress.
• These simple earning rules work well for small
or simple projects because generally each
activity tends to be fairly short in duration.
 Final step

 These initial three steps define minimal amount

of planning for simplified EVM.
 Final step is to execute the project according to
plan and measure progress.
 When activities are started or finished, EV is
accumulated according to earning rule.
 This is typically done at regular intervals (e.g.,
weekly or monthly),
 but there is no reason why EV cannot be
accumulated in near real-time, when work
elements are started/completed.
 Technical performance scoreboard
• Waiting to update EV only once per month
(simply because that is when cost data are
available) only detracts from a primary benefit
of using EVM

 which is to create a technical performance

scoreboard for the project team.
 Managing large projects
 In a lightweight implementation project
manager has not accumulated cost nor
defined a detailed project schedule network
(i.e., using a critical path or critical chain
methodology).
 While such omissions are inappropriate for
managing large projects, they are a common
and reasonable occurrence in many very small
or simple projects.
 Any project can benefit from using EV alone as
a real-time score of progress.
 Comparing EV curves of similar projects
 Useful result of this very simple approach
(without schedule models and actual cost
accumulation) is to compare EV curves of
similar projects, as illustrated in Figure 5.
 In this example, progress of three residential
construction projects are compared by
aligning starting dates.
 If these three home construction projects
were measured with same PV valuations,
relative schedule performance of projects can
be easily compared.
 Limitations
Proponents of EVM note a number of issues
with implementing it and further limitations
may be inherent to the concept itself.
Because EVM requires quantification of a
project plan, it is often perceived to be
inapplicable to discovery-driven or Agile
software development projects.
 For example, it may be impossible to plan
certain research projects far in advance, because
research itself uncovers some opportunities
(research paths) and actively eliminates others.
 Limitations

Another school of thought holds that all work

can be planned, even if in weekly timeboxes
or other short increments.
Challenge is to create agile or discovery-driven
implementations of EVM principle, and not
simply to reject notion of measuring technical
performance objectively.
 Applying EVM in fast-changing work
environments is an area of project
management research.
 Limitations
• Traditional EVM is not intended for non-
discrete (continuous) effort.
• In traditional EVM standards, non-discrete
effort is called “level of effort" (LOE).
• If a project plan contains a significant portion
of LOE, and the LOE is intermixed with discrete
effort, EVM results will be contaminated.
• This is another area of EVM research.
 Limitations

• Traditional definitions of EVM assume that

project accounting and project network
schedule management are prerequisites to
achieving any benefit from EVM.
• Many small projects don't satisfy either of
these prerequisites, but they too can benefit
from EVM, as described for simple
implementations above.
• Other projects can be planned with a project
network, but do not have access to true and
timely actual cost data.
 Limitations

• Systems that feed the data required by earned

value management are usually in silos rather
than interfaced and integrated.
• In practice, collection of true and timely actual
cost data can be the most difficult aspect of
EVM.
• Such projects can benefit from EVM, as
described for intermediate implementations
and Earned Schedule.
 Risk profiles

• As a means of overcoming objections to EVM's

lack of connection to qualitative performance
issues, Naval Air Systems Command (NAVAIR)
PEO(A) organization initiated a project in late
1990s to integrate true technical achievement
into EVM projections by utilizing risk profiles.
• These risk profiles anticipate opportunities
that may be revealed and possibly be
exploited as development and testing
proceeds.
 Technical Performance Management (TPM)
methodology
• Published research resulted in a Technical
Performance Management (TPM)
methodology and software application that is
still used by many DoD agencies in informing
EVM estimates with technical achievement.
• The research was peer-reviewed and was the
recipient of the Defense Acquisition University
Acquisition Research Symposium 1997 Acker
Award for excellence in the exchange of
information in the field of acquisition research.
 Difficulty inherent…

• There is difficulty inherent for any periodic

monitoring of synchronizing data timing:
 actual deliveries, actual invoicing, and date EVM
analysis is done are all independent, so that
some items have arrived but their invoicing has
not and by the time analysis is delivered the
data will likely be weeks behind events.
 This may limit EVM to a less tactical or less
definitive role where use is combined with other
forms to explain why or add recent news and
manage future expectations.
 Measurement limitation

• There is a measurement limitation for how

precisely EVM can be used, stemming from
classic conflict between accuracy and
precision, as the mathematics can calculate
deceptively far beyond the precision of the
measurements of data and the approximation
that is the plan estimation.
• Limitation on estimation is commonly
understood (such as the ninety-ninety rule in
software) but is not visible in any margin of
error.
 Measurement limitation
• Limitations on measurement are largely a form of
digitization error as EVM measurements ultimately
can be no finer than by item, which may be Work
Breakdown Structure terminal element size
• To the scale of reporting period, typically end
summary of a month, and by means of delivery
measure.
• (The delivery measure may be actual deliveries,
may include estimates of partial work done at the
end of month subject to estimation limits, and
typically does not include QC check or risk offsets.)
 Earned Value Analysis

 Method that allows project manager to measure

amount of work actually performed on a project
beyond basic review of cost and schedule
reports.
 EVA provides a method that permits project to
be measured by progress achieved.
 Project manager is then able, using progress
measured, to forecast a project’s total cost and
date of completion, based on trend analysis or
application of the project’s “burn rate”.
 This method relies on a key measure known as
the project’s earned value.
• Term “earned value” is defined as “budgeted
cost of worked performed” or BCWP.
• This budgeted cost of work performed measure
enables project manager to compute
performance indices or burn rates for cost and
schedule performance, which provides
information on how well project is doing or
performing relative to its original plans.
• These indices, when applied to future work,
allow project manager to forecast how project
will do in future, assuming burn rates will not
fluctuate, which oftentimes is a large
assumption.
 Earned Value Analysis Requirements

• In order for Earned Value Analysis to be accurate, a

good solid project plan must be created.
• Project plan, especially Scope Statement is foundation
to solid earned value practice.
• Project Management Institute’s Guide to Project
Management Body of Knowledge (PMBOK Guide)
defines Scope Statement as :
• “Narrative description of project scope, including major
deliverables, project objectives, project assumptions,
project constraints, and statement of work, that
provides documented basis for making future project
decisions and for confirming or developing common
understanding of project scope among stakeholders.
(PMI, 2004, p. 370)
• In order to develop common understanding of
project work, another key project deliverable
should be created: Work Breakdown Structure
(WBS).
• WBS is defined in PMBOK® Guide as:
“Deliverable-oriented hierarchical
decomposition of work to be executed by
project team to accomplish project objectives
and create required deliverables.
• It organizes and defines total scope of project.
• Each descending level represents an
increasingly detailed definition of project work.
• There is saying in project management that “if it’s not
included in the WBS, it’s not included in the project!”
WBS is a direct representation of work scope in the
project, documenting hierarchy and description of
tasks to be performed and relationship to product
deliverables.
• WBS breaks down all authorized work scope into
appropriate elements for planning, budgeting,
scheduling, cost accounting, work authorization,
measuring progress, and management control.
• WBS must be extended to level necessary for
management action and control based on complexity
of the work.
• Project planning is a necessity for project success and
incorporation of earned value analysis on your project.
 EVM Foundational Concepts

Earned Value Management Systems allow project manager

to answer following three questions, as they relate to the
project:
Where have we been?
Where are we now?
Where are we going?
 In Earned Value Management, unlike in traditional
management, there are three data sources:
 Budget (or planned) value of work scheduled
 Actual value of work completed
 “Earned value” of physical work completed
 Earned Value takes these three data sources and is able to
compare budgeted value of work scheduled with “earned
value of physical work completed” and actual value of work
completed.
 Planned Value

• Planned Value describes how far along project work is

supposed to be at any given point in project schedule and
cost estimate.
• Cost and Schedule baseline refers to physical work
scheduled and approved budget to accomplish
scheduled work.
• Together, they result in important value: Planned Value
(PV). PV can be looked at in two ways: cumulative and
current.
• Cumulative PV is sum of approved budget for activities
scheduled to be performed to date.
• Current PV is approved budget for activities scheduled to
be performed during a given period.
• This period could represent days, weeks, months, etc.
PV, also known as Budget Cost of Work Scheduled
(BCWS), can be defined as:
• Define Scope: What you are tasked to do (Scope
Statement)
• Assign Scope: Breakdown scope into manageable
parts (WBS)
• Schedule Scope: Time-phased, logic driven with
critical path (Project Schedule)
• Budget Scope: develop cost (budget) for all
approved scope (Performance Measurement
Baseline)
• Baseline: Snap-shot in time, frozen. What
performance measurement will be based upon.
 Actual Costs

• Actual Cost (AC), also called actual expenditures,

is cost incurred for executing work on a project.
• This figure tells you what you have spent and, as
with Planned Value, can be looked at in terms of
cumulative and current.
• Cumulative AC is sum of actual cost for activities
performed to date. Current AC is e actual costs of
activities performed during a given period.
• This period could represent days, weeks, months,
etc. AC is also called Actual Cost of Work
Performed (ACWP).
 Earned Value

• To report accomplishments of project, you must apply

Earned Value (EV) to figures and calculations in the
project. EV is quantification of “worth” of work done to
date.
• EV tells you, in physical terms, what project has
accomplished. As with PV and AC, EV can be presented in
a Cumulative and Current fashion. Cumulative EV is sum
of budget for activities accomplished to date. Current
EV is sum of budget for activities accomplished in a
given period. Earned Value is also called Budgeted Cost
of Work Performed (BCWP).
• Planned Value (PV) is determined by cost and schedule
baseline. Actual Cost (AC) is determined by actual cost
incurred on project. Earned Value (EV) tells you, in
physical terms, what project accomplished.
 Variance Analysis

• PMI’s PMBOK® Guide defines a variance as “a

quantifiable deviation, departure, or divergence
away from a known baseline or expected value”
(PMI, 2004, p. 379).
• As project planning components become
known, scope and quality, schedule, and cost
estimate.
• Project manager will review with project’s
sponsor or client to seek approval.
• When approval is granted project has
established a planning baseline or time-phased
cost plan.
• Project manager will be provided with
financial information from accounting that will
expressed actual cost incurred on project
work is performed,
• then the project manager will seek
information from the team that will state the
budgeted cost of work performed on the
project, or earned value.
• After those three values are established, a
variance analysis can be performed.
• There are two basic expressions of variance,
schedule variance and cost variance.
 Schedule variance

• Schedule Variance status does indicate value difference

between work that is ahead or behind plan and reflects a
given measurement method
• Schedule Variance status does not address impact of work
sequence, address importance of work, reflect critical
path assessment, indicate amount of time it will slip,
identify source (labor & material) of difference, indicate
time ahead/behind (or regain) schedule, nor indicate cost
needed to regain schedule.
• Formula utilized to express schedule variance is project
earned value minus project planned value as of date of
examination. (SV = EV – PV)
• If variance is equal to 0, project is on schedule. If negative
variance is determined, project is behind schedule and if
variance is positive project is ahead of schedule.
 Cost Variance

• Cost variance is defined as “difference between

earned value and actual costs. (CV = EV – AC)”
(PMI, 2004, p. 357)
• Sometimes this formula is expressed as the
difference between budgeted cost of work
performed and actual cost work performed.
• If the variance is equal to 0, the project is on
budget.
• If a negative variance is determined, the project
is over budget
• and if the variance is positive the project is
under budget.
 Performance Indexes
• Another analysis that can be done by using
EVMS is that of Performance or establishing
the project’s burn rate.
• Two examination of performance are
available to the project manager:
 Schedule Performance Index (SPI)
Cost Performance Index (CPI).
 Schedule Performance Index
• SPI is defined by PMI’s PMBOK® Guide as “a measure of
schedule efficiency on a project.
• It is ratio of earned value (EV) to planned value (PV).
• SPI is equal to earned value divided by planned value, SPI
= EV/PV.
• SPI equal to or greater than one indicates a favorable
condition and a value of lass than one indicates an
unfavorable condition.” (PMI, 2004, p. 374 )
• For example, should your calculation show a SPI of 1.1,
that translate to your project recognizing $1.10 for every
$1.00 spent to date on your project.
• Assuming your SPI efficiency remains through out the
reminder of work; your project will finish ahead of
schedule.
 Cost Performance Index

• CPI is defined by PMI’s PMBOK® Guide as a “measure

of cost efficiency on a project.
• It is ratio of earned value (EV) to actual costs (AC).
• CPI is equal to earned value divided by actual costs,
CPI = EV – AC.” (PMI, 2004, p. 356)
• CPI equal to or greater than one indicates a favorable
condition and a value of less than one indicates an
unfavorable condition.
• For example, should your calculation show a CPI of
$0.90, which translates to your project recognizing
$0.90 for every $1.00 spent to date on your project.
• Assuming your CPI efficiency remains the same
throughout the reminder of work; your project will be
over budget.
Potential Causes of Favorable Cost Performance

• Efficiencies being realized

• Work less complex than anticipated
• Fewer revisions and rework
• Favorable Market Fluctuations in the Cost of
Labor or Material
• Overhead Rate Decreases
Potential Causes of Unfavorable Cost Performance

• Work more complex than anticipated

• Design review comments extensive
• Rework
• Unclear Requirements
• Scope Creep
• Unfavorable Market Fluctuations in the Cost
Labor or Material
• Overhead Rate Increases
 Estimates to Complete

• Anticipating future progress requires determining when

project will be completed and how much it will cost to
complete it.
• To complete analysis, look at Estimate at Completion
(EAC) and Budget at Completion (BAC).
• Estimate at Completion (EAC) is actual cost to date plus an
objective estimate of costs for remaining authorized work.
• Objective in preparing EAC is to provide accurate
projection of cost at completion of project. Budget at
Completion (BAC) is sum of all budgets allocated to a
project scope.
• Project BAC must always equal Project Total PV.
• If they are not equal, earned value calculations and
analysis will be inaccurate.
 Item             Questions

Planned Value (PV) How much work should be

done?

Earned Value (EV) How much work was done?

Actual Cost (AC) How much did the work cost?

Budget at Completion (BAC) What is the total job budgeted

to cost?

Estimate at Completion (EAC) What do we expect the total job

to cost?
• EAC is best estimate of total cost at the
completion of project. EAC is periodic evaluation
of project status, usually on monthly basis or
when a significant change happens to project.
• EACs are developed with varying degrees of
detail and supporting documents.
Comprehensive EAC is usually prepared annually
or if there are any major changes in project.
• EAC should be reviewed on monthly basis by
Control Account Manager (CAM) or those
responsible. EAC is developed for projects as well
as Control Accounts and Work Packages.
• There are multiple ways to develop an EAC.
Technique selected is based upon value of
project, risk, accounting system available and
accuracy of estimates.
• Common formula for determining EAC is
expressed as budget at completion divided by
current CPI of project. (EAC = BAC/CPI)
• Above formulas are foundation to performing
Earned Value Analysis and utilizing Earned
Value Management System.
• In summary, five basic ground rules for
effective Earned Value Management:
Organize project team and scope of work,
using a work breakdown structure. Each task
should have a single WBS number and
organizational code.
• Common formula for determining EAC is
expressed as budget at completion divided by
current CPI of project. (EAC = BAC/CPI)
• Above formulas are foundation to performing
Earned Value Analysis and utilizing Earned
Value Management System.
• In summary, five basic ground rules for
effective Earned Value Management:
Organize project team and scope of work,
using a work breakdown structure. Each task
should have a single WBS number and
organizational code.
Schedule tasks in a logical manner so that
lower level schedule elements support
subsequent elements and top level
milestones.
Allocate total budget resources to time-
phased control accounts.
Establish objective means for measuring work
accomplishment. Budget should be earned in
the same way that it was planned.
Control the project by analyzing cost and
performance variances, assessing final costs,
developing corrective actions, and controlling
changes to the integrated baseline.
S curve
 S-curves
• S-curves are great graphical project
management tools for planning, monitoring,
controlling, analyzing, and forecasting
project’s status, progress, & performance.
• They show the progress of work over time and
form a historical record of project trends and
variations.
• S-curves are used for different purposes.
Front-Loaded S-Curves
 Front-Loaded S-Curves
• Front loaded curves have a rapid start.
• More resources assumed to be consumed
early in the project.
• This may happen for repetitive projects that
need little planning and preparation time.
• Other examples of front loaded curves are for
projects that have been accelerated from the
beginning, or projects that need urgent repair
of damage early on.
• Mobilization costs and deposits will also lean
toward a front-loading s-curve.
Back-Loaded S-Curves
 Back-Loaded S-Curves
• Curves that start out with a lower slope and
increasingly steep towards the end of the project
are typically back-loaded.

• In the back-loaded curves, most resources

assumed to be consumed late in the project.

• A back loaded s-curve could indicate a large

planning or design in the beginning and a
reduced construction time.
S-curves
 Progress and Performance Evaluation

• Most common uses of S-curves is in evaluating project’s

progress and performance, especially with use of Earned Value
Management (EVM).
• S-curves were generated traditionally within EVMS process and
are basis for evaluating project’s progress and performance.
• Comparing planned S-curve, known as Performance
Measurement Baseline (PMB) or “Planned Value”, with “Earned
Value” curve and “Actual Cost” curve reveals great information
about project’s current status and future forecasts.
• For example, above graph reveals that project is overrunning its
budget and is behind schedule. If you draw forecast S-curve on
above graph, you will also be able to see project’s growth &
slippage
• S-curve quickly reveals any divergence from baseline plan and
allows progress of project to be monitored effectively.
S-curves developed for monitoring
project’s overall progress
 Cash Flow Forecasts

• Another common use of S-curves is in

developing and forecasting Cash Flow curves.
• Cash flow is the movement and timing of cash
with respect to the events in a project.
• Drawing a cash flow curve has several
benefits for the stakeholders.
• One of the primary benefits is to evaluate the
need for cash and the timing of payment
obligations.
• An example of a cash flow curve is shown
below:
 Quantity Output Comparison

• Another common use of S-curves is the

quantity s-curves, which can typically be found
in the construction and manufacturing
industries.
• The planned quantity vs. the scheduled time is
plotted and is tracked along with actual
quantities.

• An example of a quantity S-curve is illustrated

here:
 Schedule Range of Possibilities (Banana Curves)

• Most scheduling software can generate S-curves

from a resource-loaded schedule according to
cost, man-hours, and/or quantity.
• Software can provide two types of S-curves; one
according to schedule early dates and another
according to schedule late dates. These two S-
curves overlap at the beginning and end of the
project, producing a banana shape curve, known
as “Banana Curves”.
• Banana shape envelope of early and late curves
represent range of possibilities that project can
expect if it is to be completed on time.
 Schedule Range of Possibilities (Banana
Curves)
• The late curve, which is the lower range of the
banana curve, represents project’s progress if
every single activity uses its maximum available
float and is performed at its last available date.
This means that if any single activity on late
curve slips, entire project will slip.
• Therefore, you should keep an eye on the
position of the project’s planned or actual curve.
• If it gets too close to the late date curve, it may
impose a risk of late completion.
 Example
A project report shows at the end of the 24 weeks the following
EVM data. The project is scheduled to be completed in 52 weeks
and budgeted project cost for 52 weeks – INR 125 million
Actual value(ACWP)= INR 60 million
Earned value(BCWP)=INR 40 million
Planned value(BCWS)=INR 50 million
Determine
 Cost and schedule variance
 Cost performance index
 Estimate at completion of project
 The balance estimated amount to complete the project based on
current CPI
 Variance at completion
 Schedule Performance Index
 Solution
(i) Cost Variance (CV)%=BCWP-ACWP/BCWP
=EV-AV/EV=40-60/40=-0.5=50%
It means that the work performed is over budget
at the end of 24 weeks.

Schedule Variance %= BCWP-BCWS/BCWP=EV-

AV/EV= 40-50/50*100=20%
It means the project is behind schedule at the
end of 24 weeks.
 Solution

(ii)CPI=BCWP/ACWP=40/60=0.67

(iii) Estimate at the completion of project

( EAC)=Original Estimate (BAC)*ACWP/BCWP
125*60/40= INR187.5 million

(iv) Balance estimated amount to complete

the project(ETC) = EAC-ACWP=187.50-60=INR
127.7 Million
 Solution
(v) Variance at completion (VAC) = BAC-
EAC=125-187.5=INR 62.5 million i. expected
additional amount to be planned for
completion of the project in 52 weeks based
on 24 weeks data.
Schedule Performance Index(SPI)=
BCWP/BCWS=EV/PV=40/50=0.8
 Since the value is < 1 , the project is behind
the schedule at the end of 24 weeks
BASIC SCHEDULING
CALCULATION
 Basic Scheduling Calculations
• The Initial schedule with no constraints is
calculated by using the network diagram

• Duration of each work task to determine the

start and finish dates for each task and for the
entire project
 Schedule data
Early Start(ES): The earliest date a task can
begin, given the tasks preceding it.ES is
known as “Forward Pass”
Early Finish(EF) : The earliest date a task can
finish, given the task preceding it
Late Start(LS): The latest date a task can begin
without delaying the finish date of the project
Late Finish (LF): The latest date a task can
finish without delaying the finish date of the
project.LF is also known as “backward Pass”.
 Schedule data
Out of the above time estimates only ES and LF
are shown in the AOA network diagram.
EF of activity= ES of activity + Duration
LS of activity = LF of an activity-duration
Note: In AOA Network:
 In forward pass, if two or more arrows meet at
an event, then always take the maximum to
determine the ES of the succeeding activity
 In backward pass, if two or more arrows meet
at an event, then always take the minimum to
determine the LF of the preceding activity
 Durations
Activity (days) D 7
A 3 C 5
A 3
B 5 5 10 10 17
0 3 FINISH
C 5 10 17
2 5 5 10
D 7
0
2 0

START

Durations B 5
Activity (days)
ES EF 0 5
LS LF 0 5
FL 0
 Forward pass
• Consider activity A which has duration of 3 days.
Assuming that it starts at time=0,it can finish as
early as 3 days later. Thus we can enter 3 in the cell
labeled “EF” for activity A
• Activity B which has duration of 5 days. Assuming
that it starts at time=0,it can finish as early as 5
days later. Thus we can enter 5 in the cell labeled
“EF” for activity B
• Activity C is dependent on Activity A and B. Hence
both these tasks must be completed before we
began activity C.
• Activity A is completed in 3 days while B completed
in 5 days hence the earliest activity C can start in
five days, longest of the preceding activities.
 Forward pass
• ES of activity C would be 5 days and as activity
C duration is 5 days, it can finish as early as 10
days
• Thus we can enter 5 in the cell labelled ES and
enter 10 in the cell labelled EF for activity C
• Following this rule we can fill ES and EF times
for activity D which is 10 days and 17 days
respectively
• Therefore the earliest this project consisting
of four activities can be completed in 17 days.
 Backward Pass
• A backward pass is made through the network to
complete the latest start and latest finish times for each
activity in the network.
• To do that we must decide how late the project can finish
• Let the finish time of the project be same as earliest
completion od project which is 17 days
• If activity D has a late finish of 17 days, if we subtract 7
from 17, we have 10 days which is the latest start for
activity D
• This we enter 10 in the cell LS and 17 in the cell LF for
activity D
 Backward Pass
• Proceeding in this manner we can get the cell
labelled LS and LF for other activities A,B and
C
• Therefor we are doing backward pass
calculation, the latest finish for a preceding
task will always be smallest of the latest start
times for the subsequent task(That is always
use the smallest number)
FLOAT
 FLOAT
• Some tasks have flexibility in which they can
be performed in the schedule and others have
no flexibility
• The term used for this schedule flexibility is
Float
• Another term for float is Slack
• Float is calculated by subtracting ES from LS or
EF from LF
 FLOAT
• Float refers to an activity and is a spare time
available in a non-critical activity which can be
utilized either by delaying the activity or by
extending its duration
• Float is utilized for smoothening of manpower
resources and equipment
• Float is measured in units of time
• A critical activity has zero float
• A non critical activity will have a float
• If TF=0 then rest of the floats are zero
 FLOAT
 Independent Float<=Free Float<=Total Float
 An activity is critical if and only if its total float
is zero
 Four types of floats
Total Float
Free Float
Interfering float
Independent Float
Total Float
 Total Float
• Refer to diagram
• Consider an activity B
• ES of B is 7 and LF=18 So maximum time available is
18-7 = 11
• Duration of B is 5 days
• Spare Time=11-5=6 days
• This spare time of 6 days is for activity B.If absorbed,
then neither it changes the critical path nor the
project duration. This is called total float of B
• Thus Total Float (TF) of an activity is : TF=LF-ES-
Duration of the activity
Free Float
 Free Float
Total Float of C = LFT-ES-duration of activity
= 18-7-5=6
Total float of H = LFT-ES-duration of activity= 23-17-
5=1
Free Float= ES of the succeeding activity-ES of the
preceding activity(Whose free Float we are finding)-
Duration of the preceding activity under
consideration
FF of activity C =17-7-5= 5 days
Free float is spare time available in a preceding
activity if observed then it will not delay the start of
succeeding activity
 Interfering Float
• Interfering Float = Total Float –Free Float
• Interfering Float of C = 6 days-5 days = 1 day
The part of the total float which causes
reduction in the float of the successor
activities is called Interfering Float
It indicates the portion of activity float which
can not be consumed without affecting
adversely the float of the subsequent activity
or activities
 Independent Float
• Independent Float of an activity = ES of the
succeeding activity - LF of the preceding
activity(whose independent float we are
finding)- Its duration
• Independent Float of an activity C =17-13-5
=-1=0
• Independent Float is always either equal to or
less than the free float of an activity.
• If negative value is obtained, the independent
float is taken to be zero.
Example : find all four Time estimates

Activity A B C D E F G
Duration of activity in days 6 4 3 2 10 5 4
Preceding activity ____ A A B B C,D E,F
Forward and backward pass- ES,EF
Forward Pass Backward pass
 Four time estimates of each activity

Activity ES EF=ES+Duration LS=LF-Duration LF

A 0 6 0 6
B 6 10 6 10
C 6 9 12 15
D 10 12 13 15
E 10 20 10 20
F 12 17 15 20
G 20 24 20 24
 Finding Critical Path(Path I)

Path Number Paths Duration Total Duration

I 1-2-3-5-6 6+4+10+4 24
II 1-2-3-4-5-6 6+4+2+5+4 21
III 1-2-4-5-6 6+3+5+4 18
 Critical Path
• Critical path defines the duration of the project
and is the longest path in the project consisting
of critical activities
• A project can have more than one critical path
• Critical activities are those activities which must
be completed on time for the project to be
completed within schedule duration.
• Any delay in the critical activity will delay the
project
• Float is zero for critical activities
 Calculating Float
Activity Total Float Free Float Interfering float Independent Float
A 0 0 0 0
B 0 0 0 0
C 6(15-6-3) 3(12-6-3) 3(6-3) 3(12-6-3)
D 3(15-10-2) 0(12-10-2) 3(3-0) 0(12-10-2)
E 0 0 0 0
F 3(20-12-5) 3(20-12-5) 0(3-3) 0(20-15-5)
G 0 0 0 0
 Project Evaluation and
Review Technique (PERT)
Program Evaluation and Review Technique
(PERT)
 CPM uses a fixed time estimate for each project
activity. While easy to understand and use, it
does not take account of time variations that can
impact on completion time of a complex project.
 Program Evaluation and Review Technique (PERT)
is a network model that allows for variations in
activity completion times.
 In PERT network model, each activity is
represented by a line (or arc), and each milestone
(i.e. the completion of an activity) is represented
by a node. A simple example is shown below.
 PERT
• PERT is a probabilistic tool used where activity
duration is not known with certainty

• PERT is more suitable for R&D projects which

are one off in nature

• Variations in project are inherent in PERT

• PERT assumes that activity durations are

probabilistic random variables
Program Evaluation and Review Technique
(PERT)
 Milestones are numbered so that the end
node of an activity has a higher number than
the start node.
 Incrementing the numbers by 10 allows for
additional nodes to be inserted without
modifying the numbering of the entire
network.
 Activities are labelled alphabetically, and the
expected time required for each activity is also
indicated.
Program Evaluation and Review Technique
(PERT)
• Critical path is the pathway through the
project network that takes the longest to
complete and will determine the overall time
required to complete the project.

• For a complex project with many activities and

task dependencies, there can be more than
one critical path through the network

• Critical path can change.

 Steps in PERT
 Identify activities and milestones - tasks required to
complete the project and the events that mark
beginning and end of each activity, are listed in a table.
 Determine proper sequence of activities - this step may
be combined with step 1, if the order in which activities
must be performed is relatively easy to determine.
 Construct a network diagram - using the results of steps
1 and 2, network diagram is drawn which shows
activities as arrowed lines, and milestones as circles.
 Software packages are available that can automatically
produce a network diagram from tabular information.
 Steps in PERT
• Estimate the time required for each activity - any
consistent unit of time can be used, although days and
weeks are a common.
• Determine the critical path - the critical path is
determined by adding the activity times for each
sequence and determining the longest path in the
project. If the activity time for activities in other paths is
significantly extended, the critical path may change.
• The amount of time that a non-critical path activity can
be extended without delaying the project is referred to
as its slack time.
• Update the PERT chart as the project progresses - as the
project progresses, estimated times can be replaced with
actual times.
• Because critical path determines completion
date of project, project can be completed
earlier by allocating additional resources to
activities on critical path.
• PERT also identifies activities that have slack
time and which can therefore lend resources to
critical path activities.
• One drawback of model is that if there is little
experience in performing an activity, activity
time estimate may simply be a guess.
• Another more serious problem is that, because
another path may become critical path if one or
more of its associated activities are delayed
 PERT incorporates uncertainty by making it
possible to schedule a project while not knowing
precise details and durations of all activities.
 Time shown for each project activity when
creating network diagram is time that task is
expected to take based on range of possibilities
that can be defined as:
The optimistic time - the minimum time
required to complete a task
The pessimistic time - the maximum time
required to complete a task
The most likely time - an estimate of how long
the task will actually take
 The expected time formula
• The expected time (the time that will appear
on the network diagram) is defined as average
time the task would require if it were repeated
a number of times over a period of time, and
can be calculated using following formula:
Expected time = (optimistic time + (4 x
most likely time) + pessimistic time) / 6
 PERT
• Information included on the network diagram
for each activity include
Activity name
Expected duration
Earliest start (ES)
Earliest finish (EF)
Latest start (LS)
Latest finish (LF)
Slack
• In order to determine these parameters,
project activities must have been identified
and expected duration of each calculated.
• Earliest start (ES) for any activity will depend
on the maximum earliest finish (EF) of all
predecessor activities (unless the activity is
the first activity, in which case the ES is zero).
• Earliest finish for the activity is the earliest
start plus the expected duration.
• Latest start (LS) for an activity will be equal to
the maximum earliest finish of all predecessor
activities.
• Latest finish (LF) is the latest start plus the
expected duration.
• Slack in any activity is defined as difference
between the earliest finish and latest finish,
and represents the amount of time that a task
could be delayed without causing a delay in
subsequent tasks or the project completion
date.
• Activities on the critical path by definition
have zero slack.
 PERT
• PERT chart provides a realistic estimate of
time required to complete a project, identifies
activities on critical path and makes
dependencies (precedence relationships)
visible.
• It can also identify earliest and latest start and
finish dates for a task, and any slack available.
• Resources can thus be diverted from non-
critical activities to those that lie on the critical
path should the need arise, in order to
prevent project slippage.
 PERT
• Variance in project completion time can be calculated
by summing variances in completion times of
activities in critical path, allowing probability of the
project being completed by a certain date to be
determined
• This will depend on number of activities in critical path
being great enough to allow a meaningful normal
distribution to be derived.
• PERT charts can become unwieldy if number of tasks
is too great.
• Accuracy of task duration estimates will depend on
experience and judgment of individual or group that
make them.
 Example of PERT
The data for PERT network is displayed in the table.
Determine the critical path and the expected duration of
completion of the entire project. Give answers to the
following :
What is the probability that the project duration will exceed
60 days?
What is the chance of completing the project between 45
days and 54 days?
If it becomes known later that the duration of the three
time estimates for activity 4-6 has to be revised to 14-20-32,
what impact does this have on project completion time?
What is the probability that the project can now be
completed before 46 days?
Activity Nodes Time duration in Days
a m b
1--2 2 4 6
1--3 6 6 6
1--4 6 12 24
2--3 2 5 8
2--5 11 14 23
3--4 15 24 45
3--6 3 6 9
4--6 9 15 27
5--6 4 10 16
a = Optimistic Time
m=Most likely time
b=pessimistic time
 Solution
• Using values of a,m and b , we calculate the
values of

Te = a+4m+b/6
• = b-a/6
Activity Nodes Time duration in Days Te  σ²
a m b
1--2 2 4 6 4 2//3 4//9
1--3 6 6 6 6 0 0
1--4 6 12 24 13 3 _____
2--3 2 5 8 5 1 1
2--5 11 14 23 15 2 ____
3--4 15 24 45 26 5 25
3--6 3 6 9 6 1 ____
4--6 9 15 27 16 3 9
5--6 4 10 16 10 2 ____
a = Optimistic Time σ² only for critical actvities
m=Most likely time b-a/6
b=pessimistic time
 All paths

Path Number Paths Duration Total Duration in days

1 1-2-3-4-6 4+5+26+16 51
2 1-3-4-6 6+26+16 48
3 1-2-5-6 4+15+10 29
4 1--4---6 13+16 29
5 1--3--6 6+6 12
 Critical Path
• Critical Path is 1-2-3-4-6

• Critical activities are = A,D,F,H

• The mean duration of project = μ =51 days

 Variance and Standard Deviation
Variances of Critical activities A,D,F and H
=4/9+1+25+9
=319/9
Standard Deviation of project duration=  σt=
= √ 319/9 = 5.95
 Project duration being normally distributed,
 Normal variate z = X- μ/ σt
 In this case; X =60 days μ=51 days and
σt = 5.95
Substituting we get z= 60-51/5.95= 1.51
For a value of z=1.51 as per the normal distribution
table, we see that the area between 51 and 60 days is
equal to 0.4345
The probability that the project duration will exceed
60 days = 1-0.5-0.4345
=0.0655
=6.55%
To find the chance of competing the project
between 45 and 54 days ,we calculate the
area under the normal curve between 45 and
51 days and then between 51 and 54 days and
add it up. Area between 45 and 51 days
 Z= X- μ/ σt
=45-51/5.95=-1.008
 For the value of z=1.008,area under the
normal curve is found from normal
distribution table to be equal to 0.3438
=34.38%
Area between 51 and 54 days
Z= X- μ/ σt=51-54/5.95=0.504
 For the value of z=0.504,area under the
normal curve is found from normal
distribution table to be equal to 0.1915
 The chance of completing the project between
45 days and 54 days is equal to
0.3438+0.1915=0.5353=53.53%
• If the three time estimates of activity H(4-6) are
revised to 14-20-32, then the expected duration
of activity H is equal to 21 days with σ of the
activity completion remaining the same as
before i.e. 3 days.
• With the revised estimated activity duration of H
being 21 days instead of 16 days earlier, the
revised mean deviation of the project will be 56
days. The critical path and the critical activities
remain the same as before.
• Since σ of activity H remains the same, standard
deviation of the project duration also remains
the same i.e. 5.95
To find the probability that project can be
completed in 46 days ,we use normal variate
Z= X- μ/ σt
=46-56/5.95=-1.68
 For the value of z=1.68,area under the normal
curve between mean and 46 days is found
equal to 0.4535
 The probability that the project can be
completed in 46 days=0.5-0.4535=4.65%
CRASHING A
PROJECT
 Crashing a project
• After scheduling project work, you may discover
the schedule needs to be “crashed.”
• Crashing a project means shortening project
schedule by compressing critical path without
changing sequence of work.
• Critical path is longest sequence of activities that
must be completed for project to be finished on its
due date.
• Because it is the minimum time it will take to
complete an entire project—if something impacts
duration of work packages on this path, it will
directly impact finish date.
 Crashing a project
• Crashing involves a trade-off: shorter work
durations require higher costs to meet
shorter schedule with additional resources.
• Before crashing, ensure that reducing project
duration is worth increased costs or other
consequences.
• For example, if a penalty associated with
project delay greater than the increased costs
or compromised quality of shortening the
duration?
 Crashing a project
• Project managers often need to crash a project
to meet a deadline set by someone else.
• As they consider ways to compress critical
path—overtime, additional resources, splitting
into concurrent work packages—resources can
become so strained that overall success is
threatened.
• Crashing a project can put a strain on other
projects within an organization as resources
are redirected from other project work thereby
delaying their important deadlines.
 Crashing a project
• Successfully crashing a project relies on having a
good project plan.
• In projects, the work is broken into components
—the various achievements and objectives that
must be delivered during a project (deliverables).
• Deliverables are grouped into manageable work
packages that allow a reasonable estimation of
the time and resources needed to get this portion
of the work done.
• Adjusting work packages on the critical path can
make it possible to shorten the project timeline.
 To crash a project review project plan and ask these questions:

Which work package durations on critical path can be shortened? How?

Which work packages can be divided to run concurrently?

How can relationship or order of work packages on critical path be

altered to shorten schedule?

How can slack time be used to complete additional work or reallocated

resources on critical path?

What is the most likely potential problem posed by chosen crash

strategy? What three things can be done to prevent these from
happening? What actions will you take if this problem happens
anyway?
 Crashing and project success
• While crashing a project can be risky and expensive,
when a shorter timeframe is essential, good project
planning pays off.
• A successful project plan maps out exactly who is going
to do what, when they are going to do it in calendar
time, and how to mitigate any risks to the plan.
• Crashing a project relies on working with an accurate
and comprehensive project plan and ups the stakes for
project success throughout the life of the project.
 Example
• The following table gives normal and crash
times cost for the activities of the project
• Draw the network diagram and find the critical
path.
• In case the project duration is required to be
crashed by 2 days,which activity will get
priority in crashing?
Activity Activity Duration Activity Cost in INR
Normal Crash Normal Crash
A(1-2) 5 2 600 900
B(1-3) 4 2 100 200
C(2-4) 6 3 700 1000
D(3-4) 7 4 400 800
E(4-6) 10 6 1500 1800
F(3-5) 12 3 1600 1960
G(4-7) 9 5 600 920
H(5-8) 12 7 400 850
I(6-7) 7 4 400 490
J(7-8) 6 4 300 420
 Table with Cost slope

Activity Activity Duration Activity Cost in INR Cost Slope(Marginal cost)

Normal Crash Normal Crash in INR per day
A(1-2) 5 2 600 900 100
B(1-3) 4 2 100 200 50
C(2-4) 6 3 700 1000 100
D(3-4) 7 4 400 800 133.3
E(4-6) 10 6 1500 1800 75
F(3-5) 12 3 1600 1960 40
G(4-7) 9 5 600 920 80
H(5-8) 12 7 400 850 90
I(6-7) 7 4 400 490 30
J(7-8) 6 4 300 420 60
Note : Cost slopes = 900-600/(5-2)=300/3=100
 Finding Critical Path

Path Number Paths Duration Total duration in days

1 1-2-4-6-7-8 5+6+10+7+6 34
2 1-3-4-6--7-8 4+7+10+7+6 34
3 1-3-5-8 4+12+12 28
4 1-3-4-7--8 4+7++9+6 26
5 1--2-4-7-8 5+6+9+6 26
• There are two critical paths 1)1-2-4-6-7-8 and
2)1-3-4-6-7-8
• On both these paths there are three common
critical activities namely; 4-6,6-7 and 7-8
• We find that the cost slope of activity I(6-7) in
the above three activities is 30 and is the least
• Therefore we crash this activity by 2 days.
• The objective is to reduce the duration of the
project with least cost impact
• Thus in this case critical activity I will get the
priority and crash this activity by 2 days.
Demand forecasting
 Single Moving Average

• An alternative way to summarize the past data is to

compute the mean of successive smaller sets of
numbers of past data as follows.
• Taking a moving average is a smoothing process
• E.g. set of numbers 9, 8, 9, 12, 9, 12, 11, 7, 13, 9, 11, 10
which are amount of 12 suppliers selected at random.
• Let us set M, the size of the "smaller set" equal to 3.
Then the average of the first 3 numbers is: (9 + 8 + 9) /
3 = 8.667.
• This is called "smoothing" (i.e., some form of
averaging). This smoothing process is continued by
advancing one period and calculating the next average
of three numbers, dropping the first number.
 Single Moving Average

 The next table summarizes the process, which

is referred to as Moving Averaging.

 The general expression for the moving average

is

 Mt=Xt+Xt-1+--------Xt-n+1// N
 Results of Moving Average
Supplier $ MA Error Error squared

1 9      
2 8      
3 9 8.667 0.333 0.111
4 12 9.667 2.333 5.444
5 9 10.000 -1.000 1.000
6 12 11.000 1.000 1.000
7 11 10.667 0.333 0.111
8 7 10.000 -3.000 9.000
9 13 10.333 2.667 7.111
10 9 9.667 -0.667 0.444
11 11 11.000 0 0
12 10 10.000 0 0
Weighted moving average method-Example
• The manager of a restaurant wants to make decision
on inventory and overall cost.
• He wants to forecast demand for some of the items
based on weighted moving average method. For the
past three months he experienced a demand for
pizzas as follows:
• Find the demand for the month of January by
assuming suitable weights to demand data.

Month Demand
October 400
November   480

December 550
 Exponential Smoothing
• Popular scheme to produce a smoothed Time
Series.
• Whereas in Single Moving Averages past
observations are weighted equally, Exponential
Smoothing assigns exponentially decreasing
weights as observation get older.
• Recent observations are given relatively more
weight in forecasting than older observations.
• In case of moving averages, weights assigned to
observations are same and are equal to 1/N.
• In exponential smoothing, there are one or more
smoothing parameters to be determined (or
estimated) and these choices determine weights
assigned to the observations.
 Example
You are given the following information about
the demand of an item
i) Calculate forecasted values using a) 3-Monthly
b) 5-monthly Moving averages
Ii) Calculate forecasted values using 4-monthly
weighted moving averages with weights 4:3:2:1,
largest weight being for the most recent value

Month 1 2 3 4 5 6 7 8 9 10 11
Demand 220 228 217 219 258 241 239 244 256 260 265
Demand forecast using Moving average and weighted moving average
method
Forecast
3-Monthly 5-Monthly 4-Monthly
moving moving Weighted
Month Demand average average moving average
1 220
2 228
3 217
4 219 221.70
5 258 221.30 220.30
6 241 231.30 228.40 235.10
7 239 239.30 232.60 239.30
8 244 246.00 234.80 241.40
9 256 241.30 240.20 243.30
10 260 246.30 247.60 247.50
11 265 253.30 248.00 253.50
12 260.30 252.80 259.60
 Solution
Forecast for 4th month = Forecast for 1st month
+Forecast for 2nd month +Forecast for 3rd month
=220+228+217/3=221.7
For 4 months weighted average month’s forecast
the only difference is that the demand are given
different weightages with the most demand
having the highest weightage which in this case is
4
Forecast for 5th month =
219*4+217*3+228*2+220*1=220.3 units
 Example-2
• An initial forecast for a given series of demand
is 20.using a smoothing constant of α =
0.2.Find the forecast for the 9th period for the
following data of demand. An Alternative
forecast was generated using a three-year
moving average. Which is better forecasting
method
Year 1 2 3 4 5 6 7 8
Demand 22 24 26 18 16 22 18 22
Forecast Using exponential Smoothing
method(α=0.2)
Forecast for
Demand( period
Year St) Forecast(Ft) (St-Ft)^2 t+1=Ft+α(St-Ft)
1 22 20 4 20.4
2 24 20.40 12.96 21.12
3 26 21.12 23.81 22.10
4 18 22.10 16.81 21.28
5 16 21.28 27.88 20.22
6 22 20.22 3.17 20.58
7 18 20.58 6.66 19.25
8 22 19.25 7.56 19.80
9 19.80
Total 102.85
 Solution
Mean Square Error (MSE)
=Σ(St-Ft)^2/n=102.85/8=12.86
Here n =8

By using exponential smoothing method,

forecast for the 9th period= 19.8

And MSE =12.86

Forecast using Three Year Moving Average
Method
Forecast by
using three
Demand( month moving
Year St) average(Ft) (St-Ft)^2
1 22
2 24
3 26
4 18 24.00 36.00
5 16 22.67 44.49
6 22 20.00 4.00
7 18 18.67 0.45
8 22 18.67 21.81
9 20.67
Total 106.75
 Solution
Mean Square Error (MSE)
=Σ(St-Ft)^2/n=106.75/5=21.35
Here n =5

By using three year moving averages method,

forecast for the 9th period= 20.67

And MSE = 21.35

As MSE by using exponential smoothing is better for

forecasting in this case.
 MAD (mean absolute deviation)
• MAD (mean absolute deviation) for forecasts
shows the deviation of forecasted demand
from actual demand.
• This is the mean deviation per period in
absolute terms between a number of period
forecasts and the corresponding period
demand.
 Forecast MAD
Forecast MAD is used in three contexts.

• As a basis for calculating allowable margin of error for

forecasts when checked using forecast alarm 1 and 2.

• To periodically recalculate alpha values when using

forecast methods based on adaptive exponential
smoothing.

• When calculating the standard deviation for forecast

error when setting the dimensions for safety stock.
 Methods for Calculation
MAD can be calculated in three ways, as follows:
Exponential Smoothing
 MAD(i + 1) = ((i) * ABS(D(i) - F(i)) + (1 - ((i)) *
MAD(i)
Average Absolute Forecast Errors
 MAD(i + 1) = (ABS(D(i) - F(i)) + ....... + ABS(D(i - (n
- 1)) - F(i - (n - 1))) / n
Average Absolute Error from Mean Demand
 MAD(i + 1) = (ABS(D(i) - A(n)) + ....... + ABS(D(i -
(x - 1)) - A(n))) / n
 Where
MAD(i) = Mean absolute
deviation for period
(i)
((i) = Smoothing constant
for exponential
smoothing in period
(i)
ABS( ) = The absolute amount
of a difference
(without minus sign)

D(i) = Base demand during

period (i)

F(i) = Base forecast for

period (i)

A(n) = Average demand for

(n) periods

i = Period number

n = Number of periods
included in
calculating the mean
 Example

Oct.
Sep. Nov.
Aug.
Base 120 145 138 129
Demand
Base 136 132 135 133
Forecast
 Example

Applicable MAD for Nov. 10

(-factor used 0.3
 MAD values calculated for December
Exponential Smoothing
 MAD(Dec.) = 0.3 * ABS(D(Nov.) - F(Nov.)) + (1 - 0.3) *
MAD(Nov.) = 0.3 * ABS(129 - 133) + 0.7 * 10 = 0.3 * 4 +
0.7 * 10 = 8.2
Average Absolute Forecast Errors
• MAD(Dec.) = (ABS(D(Nov.) - F(Nov.)) + ABS(D(Oct.) -
F(Oct.)) + ABS(D(Sep.) - F(Sep.)) + ABS(D(Aug.) -
F(Aug.))) / 4 = (16 + 13 + 3 + 4) / 4 = 9
Average Absolute Error from Mean Demand
• Mean demand A(4) = (120 + 145 + 138 + 129) / 4 = 133
• MAD(Dec.) = (ABS(D(Nov.) - A(4)) + ABS(D(Oct.) - A(4))
+ ABS(D(Sep.) - A(4)) + ABS(D(Aug.) - A(4))) / 4 = (13 +
12 + 5 + 4) / 4 = 8.5
 Exponential Smoothing - Indices of Lack of Fit (Error)

• The most straightforward way of evaluating the

accuracy of the forecasts based on a particular
a value is to simply plot the observed values
and the one-step-ahead forecasts.
• In the Time Series module, this plot also
includes the residuals (scaled against the right
y-axis), so that regions of better or worst fit can
also easily be identified.
• This visual check of the accuracy of forecasts is
often the most powerful method for
determining whether or not the current
exponential smoothing model fits the data.
 Exponential Smoothing - Indices of
Lack of Fit (Error)
• In addition, besides the ex post MSE criterion,
there are other statistical measures of error
that can be used to determine the optimum a
parameter
• (see Makridakis, Wheelwright, and McGee,
1983; all measures will automatically be
computed by the Time Series module):
• Mean error : Mean error (ME) value is computed as
average error value (average of observed minus one-
step-ahead forecast).Drawback of this measure is that
positive and negative error values can cancel each other
out, so this measure is not a very good indicator of
overall fit.
• Mean absolute error : Mean absolute error (MAE) value
is computed as average absolute error value. If this value
is 0 (zero), the fit (forecast) is perfect. As compared to
mean squared error value, this measure of fit will "de-
emphasize" outliers, that is, unique or rare large error
values will affect MAE less than MSE value.
• Sum of squared error (SSE), Mean squared error. These
values are computed as sum (or average) of squared
error values. This is most commonly used lack-of-fit
indicator in statistical fitting procedures.
Percentage error (PE). All above measures rely on actual
error value. It may seem reasonable to rather express the lack
of fit in terms of relative deviation of one-step-ahead
forecasts from observed values, that is, relative to magnitude
of observed values.
For example, when trying to predict monthly sales that may
fluctuate widely (e.g., seasonally) from month to month, we
may be satisfied if our prediction "hits the target" with about
±10% accuracy.
In other words, absolute errors may be not so much of interest
as are relative errors in the forecasts.
Percentage error value, is computed as:
 PEt = 100*(Xt - Ft )/Xt
 where Xt is observed value at time t, and Ft is forecasts
(smoothed values).
 Mean percentage error (MPE). This value is computed as
average of PE values.
 Mean absolute percentage error (MAPE)
• Mean percentage error near 0 (zero) can be
produced by large positive and negative
percentage errors that cancel each other out.
• Thus, a better measure of relative overall fit is
the mean absolute percentage error.
• This measure is usually more meaningful than
the mean squared error.
• For example, knowing that the average forecast
is "off" by ±5% is a useful result in and of itself,
whereas a mean squared error of 30.8 is not
immediately interpretable.
NPV,IRR,PROFITABILI
TY INDEX,PAYBACK
PERIOD
 Net present value (NPV)
 Net present value (NPV) is the difference
between the present value of cash inflows and
the present value of cash outflows.
 NPV compares the value of a money today to
the value of that same money in the future,
taking inflation and returns into account.
 NPV analysis is sensitive to the reliability of
future cash inflows that an investment or
project will yield and is used in capital
budgeting to assess the profitability of an
investment or project.
NPV Formula
• If the NPV of a prospective project is positive, the
project should be accepted. However, if NPV is
negative, the project should probably be rejected
because cash flows will also be negative.
• For example, if a retail clothing business wants to
purchase an existing store, it would first estimate future
cash flows that store would generate, then discount
those cash flows into one lump-sum present value
amount, say $565,000. If the owner of the store was
willing to sell his business for less than $565,000,
purchasing company would likely accept the offer as it
presents a positive NPV investment.
• Conversely, if owner would not sell for less than
$565,000, purchaser would not buy store, as
investment would present a negative NPV.
 Internal rate of return (IRR)
 Discount rate often used in capital budgeting
that makes the net present value of all cash
flows from a particular project equal to zero.
 Higher a project's internal rate of return, more
desirable it is to undertake the project.
 IRR can be used to rank several prospective
projects a firm is considering.
 Assuming all other factors are equal among
various projects, project with highest IRR
would probably be considered best and
undertaken first.
• Both NPV and IRR are primarily used in capital
budgeting, process by which companies determine
whether new investment or expansion opportunity is
worthwhile. Given an investment opportunity, firm
needs to decide whether undertaking investment will
generate net economic profits or losses for company.
• To do this, firm estimates future cash flows of project
and discounts them into present value amounts using
a discount rate that represents project's cost of
capital and its risk.
• Next, all of the investment's future positive cash flows
are reduced into one present value number.
• Subtracting this number from initial cash outlay
required for investment provides net present value
(NPV) of investment.
 Profitability index
• Profitability index attempts to identify the
relationship between the costs and benefits of a
proposed project.
• It is calculated by dividing the present value of
the project's future cash flows by the initial
investment.
• A PI greater than 1.0 indicates that profitability
is positive, while a PI of less than 1.0 indicates
that the project will lose money.
• As values on the profitability index increase, so
does the financial attractiveness of the proposed
project.
 Profitability index
• Profitability index differs from NPV in one
important respect: being a ratio, it ignores the
scale of investment and provides no indication
of the size of the actual cash flows.

• The PI can also be thought of as turning a

project's NPV into a percentage rate.
 Payback period
• Payback period is the length of time required to
recover the cost of an investment.
• Payback period of a given investment or project
is an important determinant of whether to
undertake the position or project, as longer
payback periods are not desirable for investment
positions.
• Payback period ignores time value of money
(TVM), unlike other methods of capital budgeting
such as net present value (NPV), internal rate of
return (IRR), and discounted cash flow.
 Payback Period Example
• Assume Company A invests $1 million in a project that is
expected to save the company $250,000 each year.
• Payback period for this investment is 4 years, which is found
by dividing $1 million by $250,000.
• Consider another project that costs $200,000, has no
associated cash savings, but will make the company an
incremental $100,000 each year for the next 20 years ($2
million).
• Clearly second project can make company twice as much
money, but how long will it take to pay investment back?
• The answer is found by dividing $200,000 by $100,000, which
is 2 years.
• Second project will take less time to pay back and company's
earnings potential is greater. Based solely on payback period
method, second project is a better investment.
 Example
• A Company has to consider the following
project with the initial outflow of Rs.10000.
• Compute the internal rate of return and
comment on the project if the opportunity
cost is 14%.

Years Cashflows (Rs)

1 1000

2 1000

3 2000

4 10000
 Solution
Years Cashflows(Rs) Pv @10% Present value Pv @15% Present value

1 1000 0.909 909 0.870 870

2 1000 0.826 826 0.756 756

3 2000 0.751 1502 0.658 1316

4 10000 0.683 6830 0.572 5720

Total present values 10067   8662

 Solution
Present value factor= Initial Investment
/Average Annual Cash Inflow
= 10000/3500 = 2.857
 Average Annual Cash Inflow = (Rs.1000
+1000+2000+10000)/4 =Rs.3500
 In the present value Annuity table, value near
to 2.857 for 4 years is found in 15% however,
IRR is between 10% and 15%.
NPV = Present Value of Cash Inflows – Present
value of cash Outflows
 NPV at 10% = 10067-10000= 67
 NPV at 15% = 8662-10000= -1338
IRR may be found by interpolation between 10%
and 15% as follows:-
 IRR = X+ Px-I/ Px - Py (Y-X)
 Where,
 X = Lower discount rate
 Y= Higher discount rate
 Px = present value of cash inflows at X
 Py = present value of cash inflows at Y and
 I = Initial investment
IRR= 10%+10067-10000/10067-8662(15-10)
= 10% + 67/1405*5
= 10% +0.23
=10.23%
• As the opportunity cost of the firm is 14%, the
project having IRR of 10.23% should be rejected.
 Example-2
Project X and Project Y costs Rs.50000 and Rs.25000
respectively. Their cash flows are given below. You are
required to find out the internal rate of return for each
project and decide on that basis which project is more
profitable

Years Cash Flows

Project X Project Y
1 5000 10000
2 15000 10000
3 30000 10000
4 20000 10000
5 10000 -
Years Cash PV Present PV @ Present Cash PV@ Present PV @ Present
Inflows @18% Value 16% Value Inflows 22% value(Rs) 20% Value
(Rs) (Rs) (Rs) (Rs) (Rs)

1 5000 0.847 4235 0.862 4310 10000 0.820 8200 0.833 8330

2 15000 0.718 10770 0.743 11145 10000 0.672 6720 0.694 6940

3 30000 0.609 18270 0.641 19320 10000 0.551 5510 0.579 5790

4 20000 0.516 10320 0.552 11040 10000 0.451 4510 0.482 4820

5 10000 0.437 4370 0.476 4760 - - - - -

Total Present Value 47965 - 50485 - - 24940 - 25880

First calculate the present value factor for both
the projects.
Present value (PV) Factor = Initial Investment /
Average Annual Cash Inflow
Project X:
 Average Annual Cash Inflow =
(5000+15000+30000+20000+10000)/5
= Rs.16000
 PV Factor = 50000/16000 = 3.125
Project Y:
 Average Annual Cash Inflow =
(10000+10000+10000+10000)/4
= Rs.10000
 PV Factor = 25000/10000 = 2.5
In the Present Value Annuity table, Project X
value near to 3.125 for 5 years is found in
18%. However IRR between 16% and 18%.
Similarly, for Project Y it is 22% for 4 years.
NPV= present value of cash flows- Present
value of cash flows.
Project X:
 NPV @ 18% = 47965-50000 = Rs.-2035
 NPV @ 16% = 50485-50000 = Rs.485
Project Y:
 NPV @ 22% = 24940-25000 =Rs.-60
 NPV @ 20% = 25880-25000 = Rs.880
Calculation of IRR:-
IRR = X+ Px-I/Px-Py(Y-X)
Project X:
 IRR may be found by interpolation between
16% and 18% as follows:
 IRR = 16% + 50485-50000/50485-47965(18-16)
= 16%+ 485/2520*2 = 16% + 0.38 = 16.38%
Project Y:
 IRR may be found by interpolation between
20% and 22% as follows:
IRR = 20% +25880-25000/25880-24940(22-20)
= 20% + 840/940*2 = 20% + 1.87 = 21.87%
Project Y is more profitable than project X
because it shows a higher IRR.
 Example- Profitability Index Method
• A company invests Rs.5000 in a project, which
generates the following cash flow in the next 5 years.
The firm has a cost of capital of 10%. Calculate
profitability index and advice whether the company
should accept or reject the project.
Years Cash Inflows (Rs)

1 2000

2 2000

3 2000

4 1000

5 1000
Years Cash Inflows PV @ 10% Present value

1 2000 0.909 1818

2 2000 0.826 1652

3 2000 0.751 1502

4 1000 0.683 683

5 1000 0.621 621

Total Present Value   6276

 Solution
Profitability index (PI) = PV of Cash Inflows /
Initial Cash Outflows
= 6276/ 5000
= 1.25
Since PI > 1, the project can be accepted.
 Example-Payback Period
The Project costs Rs 1,00,000 and yields
annual cash inflow of Rs 20,000 for 8 years.
Calculate its payback period.
Solution:
 Cashflow of the Project: Rs 1, 00,000
• Annual Cash Inflow: Rs 20,000
Payback Period: Initial Cashflow of the
project/Annual Cash Inflow
 100000/20000= 5 years.
Payback Period is 5 years
 Example-Payback Period
• The Project cost is INR 2,50,000 and yields
annually profit of INR 50000 after depreciation
@ 12% p.a but before tax 50%.

• Calculate Payback Period.

 Particulars Rs in amount

Profit before Tax 50000

(-) Tax 50% 25000

Profit After Tax 25000

+ Depreciation@ 12% on Rs 2.50,000 30000

Profit Before Depreciation but after tax 55000

• Payback Period: Initial Outflow of the

Project/Annual Cash Inflow
= 2, 50,000/55000= 4.5 years
 DSCR & ICR
Debt Service Coverage ratio(DSCR) = Net
Operating Income/Total Debt Service

Interest Coverage ratio (ICR)= EBIT/Interest

Expenses