Project Management LVL A PRT II 2009 - 11 - Edn 3

Project Management:
ISCD: Level A Part II

Bijoy S Guha,
References
Project Management: Harvey Maylor
son Education, 3rd Edition) (Pear
Project Management for Business &
Technology: John M Nicholas ( Projects: Prasanna Chandra (Tata McGraw

Hill, 6th Edition)
Project Management: SMU Publication

(B0915 Edition: Fall 2008)
Project?
Organizational Work Operations
Routine, repetitive &
Projects
Unique, temporary &
ongoing throughout;
Necessary to sustain the
goal directed;
Create strategic
business;
Incremental
initiatives/Products;
New paradigms are put
improvements set.
in place.
Project? (contd.)
Any non-repetitive activity; A low-volume high variety activity; a temporary endeavour undertaken to create a unique
product or service;
Any activity with a defined start and finish; a unique set of coordinated activities, with definite
starting and finish points undertaken to meet specific objectives within defined schedule, cost and performance pararmeters. (BS 6079: 2000)
Project? (contd.)
Projects come in many shapes and sizes:

By number of tasks (complexity) By time required to complete (duration) By resources (thus money) needed Combination of these factors Project teams are born to die! New paradigms become the S.O.P Contributes to organizations learning & growth Can (re)shape the Organization
Other Characteristics:

Project? (contd.)
Projects come in many shapes and sizes:
By number of tasks (complexity)

Diversity of competencies Efforts of many people Changing nature of requirements Tracking Financial outlay Risk
By time required to complete (duration)

By resources (thus money) needed

Combination of these factors
Project Typology
New to World
Complexity
R&D Mergers & Acqzn.

Crisis Solving
Product Design
Orgn. Restruct.
Area of the bubbles indicate the quantity of projects.
Improvement Projects
Duration
Project? (contd.)
Performance
Breakthrough Improvement
Project for Development & Growth Series of mini projects
S/State 2 Stabilization
Mega Project: Start of Business S/State 1
Time
Continuous Improvement
Project? (contd.)
For business continuity, this activity is on-going and is referred to as the S-Curve of a Firms life e.g. Tatas Automotive Business
Passenger cars Trucks & Construction. Equipment. Engineering. & Locomotive
S S
TELCO
TATA MOTORS
Project Management: What is it?

Principally, Project Management, like in any field of management, is bound by:
SC
TI M
RESOURCES (Money) And Priorities always change!
O PE
Project Management: What is it? (contd)

Project managers have to balance and integrate competing
demands to implement all aspects of the project:

Project Scope: specific work to be done Project Time: Duration with milestones Project Cost: tracking the budget Human Resources: competent team Procurement: adequate material & equipment Communication: progress vis-a-vis changes Quality: establishing and delivering acceptable Risk: analyzing and planning adequate response

The required knowledge areas & Processes are:
Integration Management
Cost Management
Communicn Management
Scope Management
PROJECT MNANAGER
Quality Management
H.R. Management Time Management Procurement Management
Risk Management

Project management is the coordinating effort to fulfill the
goals of the project, headed by a Project Manager; who uses knowledge, skills, tools and methodologies to:
Identify the goals, objectives, requirements and limitations of the project - Specification Coordinate the needs (and expectations) of the project stakeholders viz. team, customer, society/ sponsor & supplier Buy-in Plan and deliver the identified objectives & goals - Execution Close the project when completed - Closure Capture (for dissemination) the knowledge accrued - Continuity
Project Manager: Characteristics

Mindset: Timeliness: how to reduce and then deliver on time Responsiveness: to ever changing circumstances Information Sharing: for involvement and clarity Flexibility: adapting to the situational need Structured Planning: towards efficient resource use & priority Ability to work with ill-defined organization & support structures Coping with uncertainty: no two projects are exactly the same Analytical yet speedy: no analysis paralysis Good communication, team-building & networking skills
Project Management: development

Projects start after an authoritative stakeholder decides to
implement a project, involving:

Fair amount of Capital outlay A commitment of Human Resources for (extended) period of time Irreversibility and attendant risk And prioritization/choice from a wide to do list
Possible Projects have to be analyzed and feasibility
assessed before start. Funds have to found for Feasible Projects, which includes a Risk Analysis Finally Projects have to be implemented and, Closed!
Project Management: development (contd)

Phases of a Project
Define it Design it Do it
Close/Develop it
Continuous Improvemen t
What & why
Activity/ Cum. Cost
How, who & When
Day to day control
Time
Project Management: Conceptn (contd) Phases of a Project

Feasibility Closure Preparation Implementation
F P I C F P I C Time
Sequential or stage-gate Model X X
Man-hrs
Concurrent Model
Save
Time
Project Management: Conceptn (contd) Project Analysis - Feasibility
Reject/ shelve
No Go
Terminate No
Market Study
Ideation
Initial Screen
Go
Investigate
Tech/Ecol. Study
Fin./Eco Study
OK? Yes
Project Funding Plan
Project Management: Conceptn (contd) Project Analysis - Ideation

An Idea is not an outcome of logical deduction alone:
There are no defined methods or theories to guide the task; it is often an outcome of a triggering process; They fall-out from either significant technological breakthroughs; or from a rearrangement of the path to an existing end (reengineering). (Periodic) Strategic Planning exercise, stimulating some out-of-box thinking and redefined operational objectives; Creating a quasi-crises situation: if it aint broken, break it! Creating a culture of innovation and learning from failures;
These can be stimulated by:
Project Management: Conceptn (contd) Project Analysis - Ideation

These lead to identifying the Key Success Factors from:
Benchmarking key processes of existing top-class/world-class industries; Examining sourcing, import/export and input/output practices; Environmental Scanning & wandering around Suggestions/analyses of research, financial & development agencies; Generating a host of project ideas which require initial screening before committing time and effort for further investigation: Compatibility with promoter/shareholder viewpoint; Consistency with laws of the land and legislative priorities; Reasonableness of cost, risks and adequacy of markets; Checking out barriers to entry
Project Management: Conceptn (contd) Project Analysis - Facets

Market Analysis
Techn. Analysis
Market Potential/Size Market Share Technical viability Sensible alternatives Environmental impact Restoration/containment Benefits and costs Knock-on impacts Risk Return
Ecology Analysis
Economic Analysis
Financial Analysis
Project Management: Conceptn (contd) Project Analysis: Market & Demand

The starting point is the impact of the project on the top-line of the business:
What is the likely aggregate demand for the product or service? What share of market will the product/service influence? The analysis takes place in the flow:
Collection of Demand Secondary data Forecast Situational analysis Characterization & specification of Of Market Objectives. Conduct of Marketing Market survey Plan
Project Management: Conceptn (contd) Project Analysis: Technical

Analysis of technical, engineering & ecological aspects is
done continuously when a project is being evaluated & formulated:

To ensure technical feasibility especially in respect of inputs, To arrive at the best solution balancing technology/location/scale, The examination is based on common sense and economic logic, technology & ecology being in the expert domain. Inputs: involves ascertaining and lining-up choices; Plant/Facility: requires assessment of internal factors & constraints; Project Execution: detailing the project roll-out for road-blocks,
The broad areas which require to be examined are:

Project Management: Conceptn (contd) Project Analysis: inter-linkages

Product / Service Demand Size Location Product CostTechnology Ecolo gy Investment Selling Price Profitability
Project Management: Conceptn (contd) Project Analysis - Financial

Project Cost & Time Means of Financing
Investm Interest & loan Plan Deprn. repayment Sales Plan Prodn. Plan W/Cap Plan W/Cap Interest Advance Prodn. Estimate of Cash flow Cost Oprn. Result Taxes
B/Sheet

Cost of Project & Means of Finance Cost of
Land, site and building related costs; Hardware Project machinery & equipment related costs Plant, Technical assistance & training fees Start-up / pre-op. expenses Preliminary Capital issue expenses Margin money (working Capital) Initial cash losses
Knowledge
Financing
Cost of (contd)
Project
& Means of Finance
Means of Finance
High cost, control and Share Capital Debenture Capital lower fin. risk Term Loans Deferred Credit Incentives Other sources Least cost Bridging loans
Lower cost, higher fin. ris
Project Management: Concepts (contd) Feasibility Financial evaluation

Three Basic Questions: Can we produce the Goods and/or Services? Can we sell them? Can we earn a satisfactory Return on Investment made in the Project? OR Do we have a favorable Cost Benefit Ratio? Financial appraisal gives answers to the last question,
factoring:

Time value of Money Pay back and Profitability Risk analysis & mitigation
Project Management: Concepts (contd) Time value of money

A rupee today is more valuable than the same
rupee a year hence!

Inflation reduces the purchasing power However, money invested productively yields returns and increases the value People prefer current consumption to future spend.
In projects, cash flows (i.e. income and
spending) are at different points of time. For a fair analysis, they have to be brought to the same (current) point of time
Project Management: Conceptn (contd) Time value of money

To normalize cash flows we need to reduce them
to a common base, usually the Present Value. Algebraically:

PV = Present Value; FV = Future value; Ct = Cash flow at the end of the year t r = Interest rate g = growth rate in cash flows n = number of periods over which cash flows

Formula (single sum):
FVn = PV(1+r)n

(1+r)n is the Future value interest factor The process of investing money as well as reinvesting the interest earned is called Compounding.
Depositing Rs.1000 in the bank today @ 10% interest will in 8 years grow to: 1000(1.10)8 = 1000(2.144) = 2144

The Rule of 72:
Investors commonly ask when will my money double? A rule of thumb says divide 72 by the interest rate
E.g.
if the interest rate is 12%, the doubling period is 72/12 = 6 years Using the formula: 1000(1.12)6 = 1000(1.974) i.e. 1000 becomes 1974 in 6 years.

Returns come in the future. Thus Rs.1000/-
earned 3 years from now will posses less value today. We need to know the present value of future earnings. The process is simply the reverse/inverse of compounding and is called Discounting. Formula (single sum): FVn = PV(1+r)n thus, PV = FVn[1/(1+r)n] The factor 1/(1+r)n is called discounting factor.

In financial analysis, more often cash
flow streams are uneven i.e. not a single sum; they vary year to year The formula for Present Value for uneven (or even) cash flows is:
PVn = A1/(1+r) + A2/(1+r)2 + . An/(1+r)n
n
=
t=1
At/(1+r)t , where
At = Cash flow at the end of t year, n = duration of flow
Project Management: The process

Investment Criteria
There are many (over 30 !) criteria which
can be broadly typed into:
Discounting Criteria, mainly:

Net
Present Value Benefit Cost Ratio Internal Rate of Return
Non-discounting Criteria, mainly:

Payback
Period Accounting Rate of Return Urgency
Project Management: The Process (contd) Investment Criteria Non-discounting

Urgency: Simply put, projects which have higher
urgency get priority.

Issue: what is the basis for urgency? Therefore, used only in crisis situations.
Pay Back: Is the length of time to recover the initial
outlay. Shorter the pay back, more attractive the project.

Issue: does not reflect the true worth, but is a rough and ready reckoner to make quick evaluation and benchmarking, for initial assessment and for small-value projects.
Project Management: The Process (contd) Investment Criteria Payback

Payback - the simplest/basic method
comprises:
Step1: the income that will be generated with the initial investment; Step2: the amount of time that the revenue will need to be generated to cancel out the investment. E.g. If Rs. 1 cr. is generated/yr on an initial investment of Rs. 10 cr., then the payback is 10 yrs.
Project Management: The Process (contd) Investment Criteria Payback
Many companies set this as a hurdle for projects, without going in for detailed computations e.g.

Manufacturing equipment/hardware (Western): Manufacturing equipment/hardware (Japanese): Computer/IT facilities: McDonalds franchise:
4~5 years; ~10 years; 3 years; 12 years.
While simple, it ignores:
The life-cycle cost (e.g. disposal or decommissioning) of an item beyond the payback period a fact which could alter the viability considerably; The time-value of money.
Project Management: The Process (contd) Investment Criteria Discounting

Net Present Value:
represents the sum of all the cash flows, discounted to the present value. If the sum is +ve, then the project is yielding a surplus on date. Thus viable/ feasible.
Year 0 1&2 3&4 5
Cash Flow -1,000,000 200,000 300,000 350,000
Applying NPV formula: NPV = 200000/(1.10)1 + 200000/ (1.10)2 + 300000/(1.10)3 + .. -1,000,000 = Rs.5273; i.e. a surplus
n
E.g. given the cash flow alongside and a discounting of 10%;
NPV = At/(1+r)t
Project Management: The Process (contd) Investment Criteria NPV (DCF)

Suppose you were to start a fast-food joint for 3
years; your estimates are:

Figs: Rs. lakhs
@ 12% discountin g
Now
50
Year 1
Year 2
Year 3
Start-up Costs Running Costs Revenues Sale of Joint
30 40
45 50
45 60 70
NPV = NPVyr1 + NPVyr2 + NPVyr3 = -50 + (-30 +40)/(1+0.12)1 + (-45 +50)/(1=0.12)2 + (-45 +60 +70)/(1+0.12)3 = 23.415 NPV positive so worth pursuing
Project Management: The Process (contd) Investment Criteria Discounting

Internal Rate of Return (I.R.R): is the
discounting rate at which the net present value of the project is 0. It indicates the minimum returns that the project has to generate annually for its duration. E.g.:
Yr C/F 0 -100 1 30 2 30 3 40 4 45 The rate which returns 100 is : 100 = 30/(1+r) + 30/(1+r)2 + .. i.e. r is between 15 & 16%.
Thus accept project if the rate of return is more than the discounting rate.
Project Management: The Process (contd) Investment Criteria Discounting (IRR)
Alternative2: plot the calculated NPV (2 to 4 iterations) on a graph (x-axis: discount rate, y-axis: NPV) and the determine the IRR. E.g.:
Yr C/F 0 -100
12.85
1 30
2 30
3 40
4 45
IRR = 15.6%
20
NPV
10
Discount Rate
- 6.90
Project Management: The Process (contd) Investment Criteria Decision Support tools
The significance of these decision support
tools are:
Payback: The most commonly used method for evaluating investments of a small size and with a short time horizon. For investments of a larger size, the average rate of return is sometimes used as the primary criterion, with payback as a supplementary criterion.
Project Management: The Process (contd) Investment Criteria Decision Support tools
DCF: Allows for a quantitative evaluation of alternate uses of funds vis--vis a safer option e.g. deposit in a bank; Is a measure of the opportunity cost of money; Offers a very clear-cut, standardized decision criterion, e.g. invest if NPV > 0. IRR: Represents the return earned on initial investment made in a project OR the rate of return on the unrecovered investment balance in the project. It is easy to understand and is easily benchmark-able against other financial, economic rates. (NPVs are not so readily comparable to outside world)
Project Management: Conceptn (contd) Investment Criteria Observations

NPV is expressed in absolute
NPV
Invest. 50000 10000 IRR
Ratio 10% 25% NPV

@10% 145 -236
terms and does not indicate the scale of a Project;

NPV favors longer term
X Y
+5000 +2500 C/Fl. Yr 1
projects
The IRR rule does not
differentiate lending & borrowing; e.g.

IRR is clearer than NPV & is
C/Fl. Yr 2
less sensitive to discounting ratio.
A B
-4000 +4000
+6000 50% -7000 75%
Project Management: The Process (contd) Financial evaluation Discounting Criteria

Economic analysis: is the methodology to
evaluate projects from the Societal view point, primarily Public investments.
Social cost/benefits differ from monetary measures due to Societal considerations and market imperfections; UN has formulated an process to assess this under the UNIDO Guide, in which societal and market considerations have been integrated to assess desirability of a Project. (Please read handout on Bridge Project & River Valley Project as an example for the approach)
Project Management: The Process (contd) Feasibility - Risk

Risk analysis is one of the most slippery aspect of project
evaluation there is no one unique method or dimension:

Technique 1 stand-alone risk of a project Technique 2 risk of a project in the context of the firm and/or the market. Risk source is event specific and needs to be assessed at feasibility for threats to financials as well as impediments for execution (entailing unforeseen fund flow) For management of risk, measurement is essential Risk is two sided:

Alpha Risk: accepting the wrong Beta Risk: rejecting the right
Project Management: The Process (contd)

Event linked risk measures (Time & Cost)
Likelihood: the expected probability of an untoward
occurrence (e.g. earthquake)
In real life, this is a geophysical phenomenon and can be linked to a region and a value assigned say 0.2
The expected impact on the project:

in case of NPV calculations, the financial impact in case of untoward occurrence in implementation, the time & cost impact (loss and recovery)
The product likelihood x impact defines
consequence, thus the ranking of risks.
Project Management: The Process (contd) Risk measures of risk (Prioritization)

Expected Impact on Project High Medium Low
Probability of Occurrence
Medium
High
High Priority
High Priority
Medium Priority
High Priority
Medium Priority
Low Priority
Low
Medium Priority
Low Priority
Low Priority
Project Management: The Process (contd) Risk Management

Identification Key risk symptoms Assumptions Project Risk Management Likelihood Hideability Corrective Actions Contingency & Reserve Response Control Effect/Impact Quantification External Sources Time, Cost & Quality Analysis
No Action; Ignore
Project Management: The Process (contd) Financial Risk

Easier to measure
Risk Analysis Stand Alone

SSS Analyses
Contextual
Corporate Risk
Break Even
Decision Tree
Market Risk
Project Management: The Process (contd) Financial Risk

Easier to measure
Stand Alone
SSS Analyses
Risk Analysis Contextual

Corporate Risk
Break Even
Decision Tree
Market Risk
Project Management: The Process (contd) Risk to financials sources

The several sources of risk with respect to projected
earnings and cash-flows are:
Project-specific risk projections may be erroneous due to
Competitive risk affected by unanticipated actions of competition or new competition Industry-specific risk Unforeseen technologies/ products, regulatory changes etc. Market risk Unexpected changes in macroeconomic factors International risk Extraordinary developments on the exchangerate and/or Political climate
Project Management: The Process (contd) Risk the SSS Analyses of Financials
#1 Sensitivity:
Financial statements are worked out with each line changed for optimistic/realistic/ pessimistic values one at a time, the other lines being held at realistic values.
Investigating the situation whatif a change in assumption/projection were to happen Indicates the strength of relationship between the outcome/result and a given parameter e.g. change in profit if material-costs go up to pessimistic levels.
Project Management: The Process (contd) Risk the SSS Analyses

A 'Du-pont" style Report
Sales BalanceSheet Capital Turnover
2.05 12.793
/ Net Assets
6.233
Total Assets
11.497
Interest free Liabilities

5.264
RONA
12.9% 14.8%
Sales
12.793
Operating Income Income before Tax Margin P&L

6.30% 7.20% 809 925 1.103 1.219
Operating expenses
11.690 11.573
Other Costs
5.854
+
Financial Income
-294
+
Purchased materials
5.854 5.728
% Sales
12.793
#2 Scenario:
Variables are interrelated, thus painting different, plausible scenarios involving different (but consistent) sets of variables is helpful. Usually, the factor(s) chosen represent the largest source of uncertainty (e.g. market growth rate), around which the scenarios are built.
The Best/Worst Case Analysis: where scenarios involving best/normal/ worst sets of variables are worked out, e.g. BEST: high demand, high selling prices, low operating costs etc. WORST: low demand, low selling prices, high operating costs etc.
#3 Simulation:
Sensitivity analysis indicates what-if nature correlations between dependant and various input factors, denoting strength of relationships;
A decision maker would want more certainty i.e. the likelihood of such occurrences. Simulation techniques help in developing probability profiles of events by combining (randomly) values of variables which have a bearing on chosen criteria.
It is a powerful technique which permits use of great deal of information and a highly efficient medium of communication; It does not replace judgement, contrarily it requires more application of judgement; A useful technique in the absence of good experience
Project Management: The Process(contd) Risk measures of risk (NPV)

Risk is measured from:
Probability of occurrence (Likelihood):
the variability associated with obtaining different results (e.g. NPV) The weighted NPV works out NPV Prob. to: 200 0.3
600 900 0.5 0.2
E(NPV) = pi NPVi
i=1
difference between the highest/lowest value i.e. 900 200 = 700
= 0.3x200 + 0.5x600 + 0.2x900 measure of the risk is= 540 the range i.e.
Project Management: The Process (contd) Risk measures of risk (NPV)

The
higher the spread the more the variability and
risk
Standard
Deviation ( ) of the NPV distribution quantifies this:
= {0.3(200-540)2 + {0.5(600-540)2 + {0.2(900-540)2}

= 250
We can now define a coefficient of variation in which we relate the to weighted net present value:

CV = /weighted value ; = 250/540 = 0.46 The higher the CV, the higher the risk ranking
Project Management: The Process (contd) Risk the Break Even

Lending institutions/financial managers want
to know how much should be sold/produced at a minimum to ensure the project does not lose money?
Viewpoint 1: Accounting i.e. a value that ensures return of principal without availing of any opportunity (via the time-value principle). Projects breaking even this way may have ve NPV Viewpoint 2: Financial - the focus is on value creation i.e. the level at which the project will yield at least 0 NPV.
Project Management: The Process (contd) Sls 9M Risk the Break Even
P & L Forecast for a new Plant
Head
Yr0
18,000
Yr1-10
20,000
Contribution margin % Sales = 33%
Investment Sales Var.Cost 12,000 Fixed Cost Deprn. 2,000 Pre-tax Profit Taxes(@ 33.3%) P.a.T Net Cflow ( Figs. Rs 000) 2,000 Cflow (Oprn)
V.C. 6M F.C. 1M Depr 2M Accounting BEven: PbT 0M Sales = (Fixed Costs + Deprn.)/ Contribution Margin ratio = (1,000+2,000)/0.333 PbT=0.33Sls 3M = Rs. 9 M
Tax = 0.33 PbT PaT = .667 PbT
1,000 3,000 1,000 4,000 20,000 4,000
Financial BEven (12% rate):

Cash Flow = Deprn.+ P.a.T =0.667(0.333x Sales Rs.3M)+ Rs.2M = 0.222 x Sales PV = 0.222 x Sales ( Discounted) = 0.222 x Sales x 5.650 i.e.20,000 = 0.222 x Sales x 5.650 = Rs. 15.94 M Interest Factor 12%,10yrs
Project Management: The Process (contd) Risk the Break Even

In addition to Break Even, financial institutions
also assess:
Break Even Point for Capacity Evaluation (BEPCU):

Projects reach capacity outputs over time. Only on reaching this point can stable operations start. The Fixed Cost/Contribution ratio is multiplied by %age capacity utilization to derive BEPCU
All ratios are further subjected to Sensitivity Analysis
Debt Service Coverage Ratio (DSCR): Borrowers ability to service a debt is important!
i.e. Tot. accruals/ Tot. Debt burden
DSCR = (P.a.T + Deprn & amorzn + Interests + Lease rentals)/{Repayment & Interest of term debt + Lease rentals} all values cumulated over the period under consideration.
Project Management: The Process (contd) Risk the Decision Tree Analysis
A tool developed and used for aiding sequential
decision making in face of risk involved at every stage e.g. oil-field development.
Identifying the problem and alternatives; Delineating the decision tree: diagrammatic representation of the nature of decisions situations; Specifying the probabilities, impacts and outcomes; Evaluating the decision alternatives. Study handout on the example of a decision tree analysis Spectrum with their electric moped.
Organizing for Projects

Projects are carried out by Institutions themselves
(e.g. Aircraft Coys) Or outsourced to Pure Project Organizations (e.g. MMRDA). Pure Project Organizations have a core, lean management team and engage man-power from a Contractor Pool allowing for flexibility in both nature and quantum of Human Resources. Institutions borrow personnel from internal expert groups to form Project Teams (who in turn might outsource specifics) to execute Projects.
Organizing for Projects (contd)

Pure Project e.g. Construction
C.E.O Roads PM 1 PM 2 Contractor Pool
Housing
Project Team e.g. Automobile

Director PM Markt. Mgr 1 Mgr 2
Ports PM 1 PM 2
Manf. Mgr 1 Mgr 2
Design Mgr 1 Mgr 2
PM 1
Rafting or Matrix Structure
Planning Work in Projects

Elements
Objectives Activities (What ?) Schedule (When ?) Budget ( How much ?) Organization (Who ?) Work methods (Procedure, Standards )
Planning Work in Projects (contd)

Project Planning & Control System
Objective
Detailing: (SoW, WBS)
Scheduling: PERT, CPM etc. Budgets
Management Decision making
Reports (Time, cost, Feedback Performance)
Tracking: Time/Cost/ Performanc e

Major Project Plan Documents
1. Statement of Work/Scope of Work (SoW)
A
general description of the work to be performed- called deliverables work excluded Overall schedule of project
Construction of House Construction, painting, internal electrical wiring, provision of electrical points, plumbing as per the design of the Architect and the work specifications Electrical fittings and Sanitary fittings to be supplied by the owner (exemption) Completion date- 6th June 2004

2. Work Breakdown Structure (WBS)

The breaking of overall project into sub elements Could be further broken down Enables preparation of individual work schedules, their inter relation ships and precedence Enables estimation of Resource requirements Enables realistic Costing
It is the basis for costing and scheduling & is monitored in the
project control process to compute variance with actual costs and schedules. Identifies the Functional divisions/ Managers, Contractors to be involved for apportioning responsibilities

Example of WBS - Construction of a building
1. 2. 3. 4. 5. 6. 7. 8. Excavation Foundation Frame Walls Ceilings Electrical wiring Plumbing Painting
Each of these will have a detailed Specification

3. Specifications

The requirements to be met Could be compatibility with established standards or a new specified requirement Helps in realistic costing Avoids ambiguity and consequent cost and time over runs & legal issues

A typical User (Customer) Contractor Exchange (in absence of clear specifications)
Contractor: The lighting for the office is finished. As we agreed, I wired 20 ceiling lights Customer : But you said there would be enough lights to make the room bright. This room seems kind of dark Contractor : For a room this size, 15 lights are standard. As we agreed, I put in 20 just to be sure Customer: Yes, but you said 20 would make the room bright and they dont. You will have to put in more lights

Constructing process maps is a method
currently favoured by Project Managers, e.g. 4-fields mapping . It captures Project phases, Tasks in the phases, Responsibility matrix for Tasks & the Standards for tasks
(Responsibility #1 Team Members Matrix) # 4 Standards #2 Phases (WBS) With start/end Listed for each ***** Criteria. A task ***** ***** Each #3 Task flow B phase has many tasks
Planning Work in Projects (contd) Designing & Tracking Tools

The Project Planning process stages are: Identify the constituent activities; Determine their logical sequence; Prepare estimates of time & resources; Present the plan in a readily readable format. The general approach to planning involves starting with a
rough overview and then conducting revisions of this through an iterative process i.e. going through the cycle several times to test the effect of the revisions made on the outcomes; The objective is to make major revisions early in the planning cycle and then make minor refinements in the plan.

The development of detailed time plans have varying
complexity, in line with the nature of the project, however the significant area of commonality is:

A construction of comprehensive but understandable picture of the project activities; Communication with others.
The preference for graphical techniques hinges on the
ability of people to understand what is going on i.e. visibility , illustrating inter-relations between activities and time. The 3 most commonly used charts are:

The Gantt Chart Program Evaluation & Review Technique: PERT charts Critical Path Method: CPM charts.

Gantt (Bar) Charts:
Simple to construct and understand Can track progress of individual Activity easily Good for small projects; e.g Boil Water for Tea
Planned activity Actual activity
Activities: 1. Fill kettle. 02mins. 2. Put on the stove..01min 3. Light the stove. 01min. 4. Wait for boiling . 05mins. 5. Take off kettle . 01min. 6. Put off stove . 01min.

Network Scheduling
Developed to address the drawbacks of Gantt
chart esp. inter relationships/ inter dependencies between Activities activities.
Suited for complex projects involving many PERT developed for US Navy to manage complex
Polaris Missile Program.
CPM developed in 1957 in an industrial setting (for Plant

construction project for DuPont), and gives relatively more importance to project cost.

Concepts in Network Diagrams
Activity-on-Arrow (AoA)
Event- Beginning or End of an Activity
A
1
01min. Beginning of filling Activity Fill kettle IMPORTANT RULE:
End of filling Time required 01 min.
Symbol of Activity A
There can be ONLY ONE Arrow (Activity) between two events!

Concurrent Activities
Activities that can be carried out concurrently / simultaneously Not interdependent
A 2 3 C Preceding Activity D 1 5 Activity Observing for water to boil Take kettle off stove Symbol of Activity C D Time required 5 mins. 1 min D Succeeding Activity A = Fill kettle B = Light stove B 1
Succeeding/Preceding Activities
3 C 4 2

A 1 2 C 4 B 3 A: Fill Kettle B: Set up tea cups C: Wait for water to boil
Example of two Activities with a Common immediate Predecessor Dummy Activity- An imaginary Activity which does not consume resources but included in the Network diagram to maintain network logic and understand inter dependency of Activities
2 4

e.g. A-o-A chart for Boiling of water for tea:
Activities: Description A. Fill kettle. 02mins. B. Place on the stove..01min C. Light the stove. 01min. D. Observe boiling . 05mins. E. Take off kettle . 01min F. Put off stove . 01min.
A 0 C 2 1 B 3 D 4
Predecessor Start A Start C D E

E 5 F 6
Note: If we were to include set up tea cups as an activity and we would do it while waiting for water to boil; activity D would then become a dummy & activity set up tea cups would be a real activity.

The Critical Path
The major use of networks is for determining: how long the project will take & when each activity should be scheduled. The project duration is determined by finding the longest
path through the network:

A path is any route comprised of one or more arrows (activities) connected in sequence; The longest path from the origin node to the terminal node is called the Critical Path ; This gives the expected duration of the project.
The Critical Path: an Example

Project: Dinner party (H & W) A B C D E F Shopping (H&W) Prepare to cook (W) Cooking (W) Bathe & dress (W) Tidy house (H) Bathe & dress (H) A B C A E 1 2 1 1 C B A
St
D
En
E
4
There are TWO paths: #1 St 1 -2 3 En ( i.e. A-B-C-D) & #2 St 1 4 En (i.e. A-E-F) Path # 1 takes: 1 + + 2 + 1 = 4 H Path # 2 takes: 1 + 1 + = 3 H The Project requires 4 H and path #1 determines the duration: thus Critical
The Critical Path

Activities not on the critical path can be delayed
without delaying the project however, by how much?
The logic is to determine the latest allowable time that the activity can be completed without delaying the completion of the project, i.e. the start can be late (or early); The time difference between early start and late start is called slack or float; The total slack time is the maximum delay that can occur for noncritical activities. Once this slack is used up, non-critical activities become critical and any further delays will extend the project completion.

Estimating Activity Duration( PERT)
The target Project completion date is dependent on the

proper estimation of duration of all Activities involved
Estimation of Activity duration is not always a straight

forward process because of an element of uncertainty
PERT addresses the uncertainty in the duration by using

three time estimates
Optimistic Most likely Pessimistic

Estimating Activity Duration contd
Optimistic Time estimate a- Every thing goes according

to plan with minimum difficulties
Pessimistic time estimate b Maximum possible time for

completion considering all unfavourable conditions and Pessimistic time estimates. Time required to complete in normal conditions
Most likely Time estimate m - Lies between Optimistic
Estimates are obtained from, experience, people & experts knowledgeable about the difficulties involved

Expected Time (te) for completion of activity
PERT assumes that a, b are equally like to occur, where

as m is four times more likely to occur
Thus, te = (a+4m+b)/6 Variance, v = {(b-a)/6}2 is the measure of variability in

the activity completion time
Standard Deviation, = v1/2 The larger the difference between a & b, the larger the
variance and uncertainty with te; i.e the higher the likelihood of completing earlier or later than te.

Probability of Project Completion
The expected Project Completion Time is the SUM of the
Expected completion time te of ALL activities on the Critical Path; The Standard Deviation, , for Project Completion Time is the Square root of the sums of Variances of ALL activities along the Critical Path: = ( v1 + v2 + vn)1/2 The probability of completing the project in the given completion duration, ts ,is determined by the number of standard deviations separating them: z = (ts te)/ , the corresponding probability can be found from a standard z-table.

Probability of Project Completion (example)
Avity A B C D E F 2 3 4 5 5 4 to (a) 10 5 12 7 9 12 tp (b) 3 4 5 6 7 5 tm (m) 4/1.78 4/0.11 6/1.78 6/0.11
A
te/v
Path A-D B-E C-F
Path Variance 1.78+0.11 0.11+0.44 1.78+1.78
p th a
Z (ts = 11 days)
Prob. in 11 days 0.7673 0.5000 0.2981
1.37 (11-10)/1.37 0.74 (11-11)/0.74 1.87 (11-12)/1.87
7/0.44 6/1.78
D B C E F
(ts = 11 days) te = (a+4m+b)/6; v = {(b-a)/6}

2
The probability of finish in less than 11 days = .7673 x.5 x.2981 = 0.1143 i.e. < 12% chance
p th a
= ( v1 + v2 + vn)1/2
p th a
z = (ts te)/

The Critical Path
Avity A B C D E F 2 3 4 5 5 4 to (a) 10 5 12 7 9 12 tp (b) 3 4 5 6 7 5 tm (m)
te
4 4 6 6
Path A-D (S-1-E): 4 + 6 = 10 days Path B-E (S-2-E): 4 + 7 = 11 days Path C-F (S-3-E): 5 + 7 = 12 days i.e. the project is not expected to be completed in less than 12 days. The longest Path is C-F (S-3-E) and is critical, defining the duration.
A
1
B C
7 6
D E F
2 3

The Critical Path Method(CPM)
Developed in 1957 gives relatively more importance to
project cost, when Project activities are more accurately forecast-able and a definite relationship between time and cost can be established for each activity. The CPM assumes that the estimated completion times can be influenced by applying resources to particular key activities that the time for any activity is variable, depending on the amount of resources applied. The PERT method has been criticized because it is based on assumptions that sometimes yield uncertain results!

CPM and PERT: a comparison
Both employ Network diagrams & analysis of critical
paths CPM, however, use a deterministic approach in time estimates for each Activity: only one time estimate is used. Thus, in CPM there is no statistical treatment of uncertainty. CPM is more Activity oriented. Hence it is possible to measure percentage completion of an Activity CPM more suited for well defined projects, with relatively small uncertainties like construction or in the Process industries

CPM and PERT: a comparison
CPM includes a mathematical procedure for estimating

the trade off between Project duration and Cost
PERT, puts greater emphasis on uncertainties and on

Events (Mile stones)
PERT is more suitable for R&D type of projects where

uncertainties are more and duration of an Activity cannot be estimated accurately
Planning Work in Projects (contd) Analyzing Networks

For analyzing networks, e.g. to determine Critical
Path, Slack, Probable Completion Times, etc. we need information on:

Activity & Interrelations (preceding/succeeding) Earliest event time & latest event time (to be determined)
Conventionally, these are included in the nodes
as under (for a single activity):

Event Label 10 0 0
Earliest Event Time 20 Latest Event Time 5 5
Planning Work in Projects (contd) Analyzing Networks: Constructing

An example:
A project consists of the activities, deterministic times and sequence as under:

Activity No. Duration (days) Sequence A 5 with start B 3 after A finishes C 4 after A finishes D 5 after A finishes E 6 after B finishes F 7 after C finishes G 5 after D finishes H 8 after F,G & H finishes On finishing H, the project is completed.

B 3 10 0 0 A 5 20 C 4 D 5 50 40 30 E 6 F 7 G 5 H 8
60
70
Constructing the Network Diagram (Activity on Arrow)

B 3 10 0 0 A 5 20 5 C 4 D 5 50 10 40 9 30 8 E 6 F 7 G 5 Latest ! H 8
60
16
70
24
Forward Pass
Estimation of Earliest Event Times

B 3 10 0 0 A 5 20 5
5
30
8
10
E 6 F 7 G 5
Latest ! H 8
C 4 D 5
40
9
9
60
16
16
70
24 24
Earliest
50
10
11
Reverse Pass
Estimation of Latest Event Times

B 3 10 0 0 A 5 20 5
5
30
8
10
E 6 F 7 G 5
Latest ! H 8
C 4 D 5
40
9
9
60
16
16
70
24 24
Earliest Path with no Slack OR Float!
50
10
11
Determination of Critical Path

What do we do with determination of Critical
Path?

Provides us the key to prioritization Provides us the back bone for further analysis:
Of
Resource needs and costs Impact of adjusting Project Schedules For reporting on an agreed base If we can establish a Time-Cost relationship.
Analyzing Networks: Time-Cost Relationship (CPM)

In repeat or standard projects, duration & cost
of activities are reasonably well established:

Resource requirements per unit of work is defined Technological or other minimum time to finish a job is known A standard or normal time and cost can be established
The Critical Path in a network are derived using
the standard times. But client requirements and/or deadline pressures may require a Project to be expedited.
With additional resource inputs, time reduction is possible
Time-Cost Relationship: CPM (contd)

Definitions:
Standard Time: the time usually/normally required to carry out an activity: Ts Crash Time: the minimum time required to carry out an activity. Reduction impossible: Tc Standard & Crash Costs: Costs for resources associated with these Times: Cs, Cc
Cc
Cost
Cost Slope: Cost per time-unit of activity.
Cs Tc Time Ts

Assumptions:
Time required for an activity can be crashed (i.e. reduced) to its crash time to reduce its duration; Additional costs are incurred, proportional to the time reduction effected to cover the added resource deployment; To reduce the project duration, only activities on the critical path need to be crashed.

Example:
Activity A B C D E F Ts 5 9 8 6 3 4 Tc 3 5 7 4 2 1
B 1
0 0
Project Duration: 24W Cost: Rs.210m
Cs 30 50 50 20 10 50
3 14
14
Cc 60 90 100 50 20 80
D
Sequence Start After A After A After B After C After D, E
A 5/3
2 5
9/5 C 5 8/7
6/4 E 4 17
13
5 20
20
F 4/1
6 24
24
3/2

If the Client wants a 1W reduction we will need to crash some activities. Which one?
We want to reduce the Project Duration. So we look for activities on the Critical Path: A, B, D or F? Reduction must be at the least cost/time unit. So we look for activity with lowest cost slope. B has the least slope: we reduce B, adding Rs.10m to Cost.
1
0 0
Activity A B C D E F
B 2 5
Ts 5 9 8 6 3 4
13 3 14
14
Tc 3 5 6 4 2 1
D 6/4 E 4 17 16
13
Cs 30 50 50 20 10 50
Cc Cost Slope 60 15 90 10 100 50 50 15 20 10 80 15
5/3
8/5 9/5 C 5 8/7
19 5 20 20 19 3/2
F 4/1
23 6 24 24 23
Project Duration: 24W Cost: Rs.210m
Project Duration: 23W Cost:

If the Client now wants to execute at the least possible time. What can the Project manager offer?
We can crash B by 3 more weeks to 5 at an additional cost of Rs.30m. B then is at Crash. This reduces the Project duration to 20W. This makes the other Path i.e. A, C, E & F Critical too! So any further reduction will need to effect both Paths. Activity A B C D E F Ts 5 8 8 6 3 4 Tc 3 5 7 4 2 1 Cs 30 50 50 20 10 50 Cc Cost Slope 60 15 90 10 100 50 50 15 20 10 80 15
20 623 23 20 20 W, 250m
3 13 10 B 13 D 16 F A 8/5 5/5 6/4 0 2 5 5 19 1 5 C 0 19 4/1 E 16 5/3 8/7 13 3/2 4 16 13
A-B-D-F: 23 W A-C-E-F: 20 W

If the Client now wants to execute at the least possible time. What can the Project manager offer?
We can reduce F by 3 W, costing 45 m & A by 2 W, costing 30m. A & F are crashed. C, D & E are not yet at crash. D can be reduced by 2 W, costing 30m. C & E can be crashed by 1 W each, costing 60m. Project Duration: 24W Cost: Rs.210m
1
0 0
Activity A B C D E F
B A 5/3 3/3 2 3
3
Ts 5 8 8 6 3 4
3 6
6
Tc 3 5 7 4 2 1
D
Cs 30 50 50 20 10 50
Cc Cost Slope 60 15 90 10 100 50 50 15 20 10 80 15
C 8/7 7 4 7 7/7
5/5
6/4 4/4 E 3/2 3/3
5 10
10
F 4/1 1/1
6 14
14
20 W, 250m 325 m 415 m 14 W, Rs. 415m

To run a Project, an establishment need to be set
up to coordinate the activities.
Establishment is relatively independent of the Activities e.g. Project Office, Communication, Security etc. the extent may vary with nature of Projects. This set-up exists for the entire duration of the Project and is minimally affected by activity variance. Thus, the cost for this is fixed/structural in nature and has to be incurred for the duration of the project and is directly proportional to time. Activity is inversely proportional to time.
Activity Cost and Establishment costs display
contrary time-trends.

The Total Cost passes is is U shaped i.e. passes through a minimum point. Thus crashing a Project is also determined by the establishment cost to determine the Optimum or least cost. E.g. In our previous example if we were asked for the Optimum Cost, given the establishment cost is @ Rs.15m/week. We would need to factor in this cost along with the crashed activity costs.
Activity Total Cost
Establishment Time

Duration
Activity Cost Estabish- Total -ment Cost @
Rs.15 m /w
Cost
Normal Duration
24 W 23 W
Rs.210m Rs.220m Rs.250m Rs.415m
Rs.360m Rs.345m Rs.300m Rs.210m
Rs.570m Rs.555m Rs.550m Rs.625m
Optimum Duration Crashed Duration
20W 14W
Project Control
The basic questions that need to
answered are:

Is the project as a whole (and its parts) on/ ahead /behind Schedule? Has the cost of the Project as a whole (and its parts) as per/ more than/ less than budget? What is the trend in performance?
The Standard Variance analysis
approach is inadequate!
Project Control (contd)

E.g. (Costs in Rs. 000) Activity A Activity B Bud. Cost in Period 50 30 Cum. Bud. Till Date 200 75 Actual cost in Period 55 28 Cum. Actual till date 240 80 Standard Budgetory Control Variances: Variance for Period: -5 2 Cum. Variance till Date - 40 -5
Is work on schedule?

Definitions:
Budgeted cost of work Scheduled (BCWS): represents the total cost budgets for all work packets to be completed and work-in-progress scheduled to be finished on date; Budgeted cost of work Performed (BCWP): represents the total cost budgets for all work packets to be completed and work-in-progress executed on date; Actual cost of work Performed (ACWP): represents the total cost budgets for all work packets to be completed and work-in-progress executed on date;

With these 3 parameters, a Project may be
monitored:

Cost Variance = BCWP ACWP Cost Performance Index: BCWP/ACWP Schedule Variance = BCWP BCWS (in cost terms) Schedule Performance Index: BCWP/BCWS Estimated Cost Performance Index: BCTW/(ACWP + ACC)
Where, BCTW = Budgeted cost of total work & ACC = Additional cost for completion)

E.g. Project Start 01/01; End 30/10 and
review 30/06 i.e. 24 w (figs. In Rs. L)
BCWS: 15 BCWP: 14 ACWP: 16 BCTW: 25(40 w) ACC: 12 Cost Variance: BCWP ACWP (14 -16) = -2 Schedule Var.: BCWP BCWS (14 15)= -1 Est. Cost Index: {BCTW/(ACWP+
Spent More Behind Schedule
Time Variance: Status date Date at which BCWS=BCWP
ACC)} {25/(16+12)} = 0.89

Will spend more; funds required

Rs. L 25 BCTW
Cost Var. Overspend
ACWP + ACC
ACWP
BCWS
16 15 14
Schedule Var.
BCWP
Time.Var. 24
40 Review Date
Weeks

What do these terms really indicate? A project manger can charge the client at pre-agreed rates for work completed on date of review This is BCWP and represents the Earned value of the project. The manager has paid out at actual to his supplier for the work performed This is ACWP. If the Actual is less then Earned, then the cost is successfully managed! However, if the progress is behind schedule then the client pays only for completed task and the Projects earnings are less than budgeted. Schedule variance is this shortfall.
Project Control (Practice Problem)

You have employed a Contractor to install 10000 computers @ 20 computers/day and @ Rs.200 / installation. Every 10 days, there is a review and payment. At the end of the 30th Review, you find: #s installed 5800 Bill raised Rs.62000/A) Determine: Time, Cost & Schedule Variances B) What is the earned value for the Contractor? C) What do you report to your management about the Completion of the project, assuming the Contractor has put his best efforts and unforeseen situations have arisen in work execution.

BCWS: 30x10x20 x Rs.200= Rs.1.2 M BCWP: 5800 x Rs.200/- = Rs.1.16 M ACWP: Rs.0.62 M Cost Variance: Rs.1.16 Rs.0.62 = Rs. 0.54 M Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M Time Variance: 1 week late (5800 should have been installed by the 29th
review!) Earned Value: 5800 x Rs.200 = Rs.1.16 M, (contractor has probably under billed.) Project will be at least 1 week late and will complete the project within the budget, subject to bill verification.

If the billing is corrected to Rs.1.18 M

BCWS = Rs.1.2 M; BCWP = Rs.1.16 M ACWP: Rs.1.18 M Cost Variance: Rs.1.16 Rs.1.18 = - Rs. 0.02 M Schedule Var.: Rs.1.16 Rs.1.20 = - Rs. 0.04 M Time Variance: 1 week late (5800 should have been installed by the 29th review!) Earned Value: 5800 x Rs.200 = Rs.1.16 M, contractor will be paid this amount. The Rs.0.02 M excess has to be examined. Project will be at least 1 week late and the project will overshoot the budget if the billing is found correct. Then the installation rate works out to (Rs.1.18M/5800) Rs. 204/- per installation ACC: (10000-5800) x Rs.204 = Rs.0.87 M; Projected Cost: Rs.(1.18+ 0.87) = Rs.2.05 M against BCTW: Rs. (10000 x Rs.200) = Rs.2.00 M
Project Scheduling with Resource Constraints

In real life, there will be constraints on availability & use of resource:

Not every resource required will be freely available influencing design of project activities Particularly true when multiple activity/ projects requires the same resource e.g. Specialist skills Further, crashing will need to take this constraint into consideration
Project Scheduling with Resource Constraints ctd.

Resource Loading is the amount of resource necessary for the Project:
Changes through the duration of the execution since nature and type of activities vary with time Results in variable requirement/loading of a resource over time The usual resource loading pattern is: A slow but steady build-up Intense peaking at a certain point in time A gradual decline
Most Projects require few resources at early and late stages and many in the middle. This problematic for mangers who would like to deal with uniform pool of workers, equipment etc.

The process of smoothening the resource requirements though the Project duration is termed Resource Leveling:
Aimed at sequencing the project activities to level the requirement of the constrained resource, e.g. shift working on bottle-neck machine. The results in resource requirements for the overall project is maintained at a fairly constant level Fair amount of leveling can done by juggling the activities around:
Taking advantage of Slack Delaying non-critical activities.

Consider a Maintenance Project involving overhauling a machine using a team of mechanics. The machine has different sub-systems which can be independently worked upon: Hydraulic, Electrical & Mechanical. The Project details are given as under: Activity days team strength A) Disassembly (1-2) 2 3 B)Ohaul Hydraulic (2-3) 2 2 C)Ohaul Mechanical (2-4) 4 3 D)Ohaul Electrical (2-5) 1 1 E)Assembly (4-6) 2 3 Note: No mechanic can work more than 5 days at a stretch

B 2 A 2 3 A Gang 1
Man / 2 day
B 1 2 2
4 4 2 5 3 1
C 1 3 4
6 3 1
D 1 1 1
7 3 1
E 1 3 2
8 3 1
C 4
E 2
6
1 2 1
Durn. 2 2 2 1 3 6 3
D 5 1
Day Man Reqd. Gang Reqd.

A 3 B 2 E 2 Gang 1
Man / 2 day
B 1 2 2
4 4 2 5 5 2
C 1 3 4
6 5 2
D 1 1 1
7 3 1
E 1 3 2
8 3 1
A 2
C 4 D 1
6
1
Durn. 2 2 2 1 3 3 1
Day
1 mechanic can join from day 3, 1 more from day 4, 1 more from day 5 and 2 mechanics can leave from day 7; so no mechanic works more than 5 days
Man Reqd. 2 Gang Reqd.

1
Improvement Projects
Many Projects which are done in companies are
aimed at improving the current status or solving recurring problems, e.g.:

In Operations: reduction of rejections In Design: reducing documentation & testing time In Finance: reducing accounts receivable & bad debts
Though the subjects are different, most of these
require the same approach based on utilizing incompany knowledge and experience Thus there is a standard process for these Projects, developed from the TQM philosophy.
Improvement Projects: Information & Decision

When work is delegated or distributed two dimensions, Responsibility
and Authority are prime concerns. But there is more, especially during a set-up/change process; People have to "do" something to make the processes happen. Therefore it is useful to describe what should be done by whom The RASCI model is a relatively straightforward tool that can be used for identifying roles and responsibilities

R = Responsible - owns the problem / project A = to whom "R" is Accountable - who must sign off (Approve) on work before it is effective S = can be Supportive - can provide resources or can play a supporting role in implementation C = to be Consulted - has information and/or capability necessary to complete the work I = to be Informed - must be notified of results, but need not be consulted
Information & Decision contd

RASCI Chart for Road Repair
Municipality Stop access for period

Divert & use alternate route
Contractor
Police
Public
A C A A
C I R I
R A I R
I R I, S I
Repair road & certify Resume traffic flow
Information & Decision contd

Providing Information and granting Decision Rights requires to be
supported by decision-making abilities. Decision-making is a universally important competence in business.
Some decisions clearly have a greater impact on the business than others, but the underlying skill is the same; The difference is in the scope and depth of the process you go through to reach your decision In day-to-day operations, these are mostly in the domain of: Choice making Problem-solving/Improvements In these areas, the people need to be supported with simple tools/aids, viz.
Decision support tools for making a choice quantitatively
Problem Solving tools E.g. The 8-D methodology, Six Sigma
Decision Making: informed choice

One reason why decision-making can be so problematic is that the most
critical decisions tend to have to be made in the least amount of time.

People feel pressured and anxious; The time pressure means taking shortcuts, jumping to conclusions, or relying heavily on instinct to guide your way. The other extreme is the guy who simply can't make a decision because he analyses the situation to death!
Between instinct and over-analysis is a logical and practical approach to
decision-making that doesn't require endless investigation, but helps weigh up the options and impacts is needed.

Decision-making is a skill set that needs be learned and improved; One such approach is called the Kepner-Tregoe Matrix. It provides an efficient, systematic framework for gathering, organizing and evaluating decision making information.
Making an informed choice

Kepner-Tregoe describes the following steps to approach decision analysis:
1. Prepare a decision statement having both an action and a result component; 2. Establish strategic requirements (Musts), operational objectives (Wants); 3. Generate alternatives. Check if Musts are met by each alternative; 4. Rank objectives (Wants) and assign relative weights; 5. Assign a relative score for each alternative on an objective-byobjective basis; 6. Calculate weighted score for each alternative and identify top two or three; 7. Make a final, single choice between top alternatives.
ALTERNATIVES
WANTS
MUSTS
Problem Solving
The problem with problems is not that they occurin spite of our best
efforts, stuff happens. Unforeseen circumstances will always conspire against us to disrupt the smooth operation of our production and operations systems and upset our plans. The problem with problems is that we fail to prevent them from happening again. Problems do not confine themselves to organizational niches or structures: they encompass many parts, even the whole organization. Solutions, therefore, more often than not require a team effort to find a lasting cure:

Engaging different skills, knowledge & aptitude Requiring divergent resources These reside scattered in different parts of the organization
Problem Solving: Team approach

Ford Motors is credited with formalizing TOPS (Team Oriented Problem Solving)
methodology:

Involvement: cross-functional and cross-hierarchical, Knowledge & Information sharing, Camaraderie and bonding, Multi-dimensional, thus a holistic solution, Step-by-step (P-D-S-A) approach: subsequent steps based on soundly established previous steps, few come-backs, Problems tackled in bite-size pieces Provisions for emergency response, escape and recurrence preventing measures
Using the 8D (8 Disciplines) process, renamed Global 8D (G8D):

The 8-D method of problem solving is appropriate in "cause unknown" situations and
is not the right tool if concerns center solely on decision-making or problem prevention
8 D Process
D 0 - The Planning Stage:. 8-D is especially useful as it results in
not just a problem-solving process, but also a standard and a reporting format.
Does this problem warrant/require an 8D? If so comment why and proceed. Is an Emergency Response Action needed?
D 1 - Establishing the Team: Establish a small group of people
with the process/ product knowledge, allocated time, authority and skill in the required technical disciplines to solve the problem and implement corrective actions.
Team to set Objectives & Goals: brings belief, commitment & realism
8 D Process
D 2 - Problem Definition: Provides the starting point for solving
the problem or nonconformance issue.
Need to have correct problem description (photos, verbatim statements, eye-witness accounts) to identify causes.
5Ws + H approach in is and is not answers e.g. Who is or is not affected by the problem
Need to use terms that are understood by all.
D 3 - Developing Interim Containment Actions:
Temporary actions to contain the problem and fix until permanent correction is in place - document actions in an Action Item Table. D 4 - Identifying & Verifying Root Cause: Analyze for Root Cause of the problem.

Brainstorming, 5 Whys, Ishikawa Diagrams, DOE etc. document actions in an AIT. Identify and verify the Escape Point
8 D Process
D 5 - Identify Permanent Corrective Actions:
solutions that address and correct the root cause.

Solutions determined to be the best of all the alternatives. Document and verify the Permanent Corrective Action (PCA) in the AIT.
D 6 - Implementing & Validating the PCA
Implement and validate to ensure that corrective action does what it is supposed to do.

Detect any undesirable side effects. Document this on the AIT. Return to root cause analysis, if necessary
D 7 - Preventing Recurrence: determine what improvements in
systems and processes would prevent problem from recurring.

Ensure that corrective action remains in place and successful Address similar systems Revise related documentation (Design/Process/Q-Systems)
8 D Process
D 8 - Congratulate Your Team: ( ensure: was this problem solving
exercise effective? Has it been verified with a follow-up? )

Use all forms of employee recognition and document as necessary. Celebrate successful conclusion of the problem solving effort. Formally disengage the team and return to normal duties OR Go for the next round of problem solving for the remaining issues
D7&8
D 0,1,2 &3 D4&5
D6

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Project Management:

ISCD: Level A Part II

Project Management for Business &

Technology: John M Nicholas ( Projects: Prasanna Chandra (Tata McGraw

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R&D Mergers & Acqzn.

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Mega Project: Start of Business S/State 1

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H.R. Management Time Management Procurement Management

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Project Manager: Characteristics

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How, who & When

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Sequential or stage-gate Model X X

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These can be stimulated by:

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Project Management: Conceptn (contd) Project Analysis: Market & Demand

Project Management: Conceptn (contd) Project Analysis: Technical

done continuously when a project is being evaluated & formulated:

The broad areas which require to be examined are:

Project Management: Conceptn (contd) Project Analysis: inter-linkages

Project Management: Conceptn (contd) Project Analysis - Financial

Project Management: Conceptn (contd) Project Analysis - Financial

Project Management: Conceptn (contd) Project Analysis - Financial

& Means of Finance

Lower cost, higher fin. ris

Project Management: Concepts (contd) Feasibility Financial evaluation

Project Management: Concepts (contd) Time value of money

rupee a year hence!

In projects, cash flows (i.e. income and

Project Management: Conceptn (contd) Time value of money

to a common base, usually the Present Value. Algebraically:

Project Management: Conceptn (contd) Time value of money

Project Management: Conceptn (contd) Time value of money

Project Management: Conceptn (contd) Time value of money

Project Management: Conceptn (contd) Time value of money

At = Cash flow at the end of t year, n = duration of flow

Project Management: The process

can be broadly typed into:

Discounting Criteria, mainly:

Present Value Benefit Cost Ratio Internal Rate of Return

Non-discounting Criteria, mainly:

Period Accounting Rate of Return Urgency