Project Planning and Control

Project Planning and Control

Planning Scheduling Schedule Control Resource Considerations Cost Planning and Performance

I Project Planning

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

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

Work Breakdown Structure (WBS)

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

Work Breakdown Structure (WBS)

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

WBS for Consumer Market Study Project

Consumer Market Study

Questionnaire

Report

Design

Responses

Software

Report

Identify target consumers Develop Draft Questionnaire Pilot-test Questionnaire Finalize Questionnaire Develop Test Data

Print Questionnaire Prepare Mailing Labels Mail Questionnaire & Get Responses

Develop Software Test Software

Input Response Data Analyze Results Prepare Reports

WBS for Samanvay Project

Samanvay 1 Entertainment 2 Volunteers list Quizzes 3 4 Accdn & Food 5 Promotion Level 1

1.1 Performers

1.2 Stage

3.1 Management

3.2 General

4.1 Lodging

4.2 Food Level 2

1.2. 1 Seating

1.2. 2 Adio & Ltg

1.2. Stand 3

3.1. 1 M arketing

3.1. 2 Finance

Level 3 4.2. 3 Eting Areas

4.2. 1 Fd Booths

4.2. 2 Ckng Eqpts

Work Breakdown Structure (WBS)

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

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

Responsibility Matrix for Samanvay

Anki Reddy Raja Sekhar Gopinath Sanjiv Ghosh Sree Vijay Snigdha Gandhi Mamta Rajesh Ranjita Varsha WBS Item 1 1.1 1.2 2 3 3.1 Harish Sabita Srinivas S P P Sridhar S P

Work Item Samanvay Entertainment Performers Stage Volunteers Quizzes Management

P P P

S S P P

S P S P P P P P P

S P

3.1.1 M arketing 3.1.2 Finance 3.2 4 4.1 4.2 General Accommodation & Food Lodging Food

4.2.1 Food Booths 4.2.2 Cooking Equipments 4.2.3 Eating Areas

Developing the Network Plan

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

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

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

Developing the Network Plan

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

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

(for Consumer Market Survey Project)

Activity Per Res Srinivas Srinivas Pankaj 0 10 20 30 40 50 60 70

Gantt Chart

Identify target consumers Prepare Questionnaire Mailing & getting Response

Develop data analysis software Sree Vijay Test software Input Response data Analyze Results Prepare Report
Sree Vijay Ganesh Ganesh Ganesh

Gantt Charts (Cont.)

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

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

Activity in the Box (AIB)

Each activity is represented by a box. The activity description is written in the box. Each box is assigned a unique activity number.

Get Volunteers 5

Activity in the Box (AIB)

Activities have a precedential relationship. Some activities may be done concurrently.

Activity on the Arrow (AOA)

Each activity is represented by an arrow. The activity description is written above the arrow. The tail of the arrow designates the start of the activity. The head of the arrow designates the completion of the activity.
Collect Data

Activity on the Arrow (AOA) (Cont.)

Activities are linked by circles called events. An event represents the finish of activities entering it and the start of activities leaving it. Each event is assigned a unique activity number. Predecessor event and successor event

Wash Car

Dry Car

Loops
Not allowed because it portrays a path of activities that perpetually repeats itself.

A 1 C 3

B 2

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

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

Clean Room 3 9

Paint Room 3 8

Prepare Room 3 7

Laddering??
How about organising like this?
Prepare Room 1 1 Paint Room 1 4 Clean Room 1 7

Start Project

Prepare Room 2 2

Paint Room 2 5

Clean Room 2 8

Finish Project

Clean Room 3 3

Paint Room 3 6

Prepare Room 3 9

Laddering??
How about organising like this?
Prepare Room 1 1 Paint Room 1 2 Clean Room 1 4

Prepare Room 2 3

Paint Room 2 5

Clean Room 2 7

Clean Room 3 6

Paint Room 3 8

Prepare Room 3 9

Preparing the Network Diagram

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

Preparing the Network Diagram (Cont.)

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

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

Prepare Report 13

Analyze Results 12

Input Response Data 11

II Project Scheduling

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

Step 1: Activity Duration Estimates

The first step in scheduling is to estimate how long each activity will take. The duration estimate is the total elapsed time for the work to be done + any waiting time.
Plastering walls 1 10

(10 is the duration estimate for activity 1 and it includes plastering and curing both)

Step 1: Activity Duration Estimates

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

Step 1: Network Diagram (with Activity

Duration Estimates in Days)
Prepare Mailing labels 5 Identify target Consumers 1 3 Develop draft questionnaire 2 10 Pilot-test Questionnaire 3 20 Review comments & Finalize questionnaire 4 5 2 Mail Questionnaire & get Response 9 65 Test Software

Print Questionnaire 6 10

Develop Data Analysis Software 7 12

10

Develop Software Test Data 8 2

Input Response Data 11 7

Analyze Results

Prepare Report

12

13

10

Step 2: Project Start and Finish Times

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

Step 3: Calculating EST & LST

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

Step 3: Earliest Start and Finish Times

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

Step 3: Earliest Start and Finish Times Rule #1

The earliest start time for an activity must be the same as or later than the latest of all the earliest finish times of all the activities leading directly into that particular activity.
10 35 Get Concrete & special sand 2 25 0 10 Erect Pillars & Beams 1 10 10 20 Roof Casting 5 2 Complete Shuttering 3 10

10 14 Get Concrete Mixer 4 4

Step 4: Latest Start and Finish Times

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

Step 4: Latest Start and Finish Times Rule #2

The latest finish time for a particular activity must be the same as or earlier than the earliest of all the latest start times of all the activities emerging directly from that particular activity.
Distribute Posters Print Posters & Brochures 1 8 20 2 20 10 30

Mail Brochures 3 25 5 30

This project is to be completed by day 30. What is the LS for 2, 3 and 1??

Step 4: Consumer Market Study Project

Prepare Mailing labels

Show forward and backward calculation for CSP. Estimated start time is 0. Project completion time is 130 days.
Identify target Consumers 1 3 Develop draft questionnaire 2 Pilot-test Questionnaire 3 Review comments & Finalize questionnaire 4 5

Print Questionnaire 6 10

Mail Questionnaire & get Response 9 65

10

20

Develop Data Analysis Software 7 12

Test Software

10

Develop Software Test Data Input Response Data 11 7 Analyze Results Prepare Report 8 2

12

13

10

Step 5: Total Slack, Defined

5th step is identifying total slack or float: Total slack (TS) or float is the difference between the calculated earliest finish time of the very last activity and the projects required completion time, or TS = Required completion time EF of last activity of the project Also, Total Slack for an activity = LF - EF or LS - ES

Step 5: Total Slack (Cont.)

What if the total slack is positive? Activities on the path can be delayed maximum by the total slack time. What if total slack is negative? Activities on the path must be accelerated. What if the total slack is zero? Activities on the path do not need to be accelerated but cannot be delayed.

Step 5: Total Slack (Cont.)

The total slack for a particular path of activities is common to and shared by all the activities on that path. Consider a network below.

Remove Old Wallpaper 1 7

Paint Walls 2 5

Put-up New Wallpaper 3 3 Required completion = 20 days

Step 6: Critical Path

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

Types of Critical Paths

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

Project schedule (CSP)

For consumer market study project work out ES, EF, LS and LF for each activity Keeping the duration estimate as in the network diagram. Assume start by 0 and required project completion 130 days. Identify the critical paths.
Sl No 1 2 3 4 5 6 7 8 9 Duration Estimate. Total Slack

Activity Identify target consumers Develop Draft Questionnaire Pilot test Questionnaire Review C omments & Finalize Questionnaire Prepare Mailing Labels Print Questionnaire Develop Data Analysis software Develop Software test data Mail questionnaire & get response

ES

EF

LS

LF

10 Test Software 11 Input Response Data 12 Analyze Results 13 Prepare Reports

III - Schedule Control

Project Control Process

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

Project Control Process

Wait until next report period

Establish Baseline plan (Schedule, Budget) Start Project During each report period Information on any changes to project plan (Scope, Schedule, Budget)

Collect Data on Actual Performance (Schedule, Costs)

Calculate updated Project Schedule, Budget, and Forecasts Analyze current status Compared to plan (Schedule, Budget) No

Are corrective actions needed Yes Establish Baseline plan (Schedule, Budget)

Effects of Actual Schedule Performance

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

Effects of Actual Schedule Performance

If activity 1 is actually finished on day 10, what is the ES and EF for 2, and 3? What is the total slack?
Remove Old Wallpaper
1 7 2

Paint Walls
5

Put Up New Wallpaper

3 3

Remove AF=10 Old Wallpaper

1 7 2

Paint Walls
5

Put Up New Wallpaper

3 3

Actual finish of activities have a ripple effect on ES and EF of remaining activities?

Incorporating Project Changes into the Schedule

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

Updating the Project Schedule

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

Updating the Project Schedule

Started at Day 23 Get New Database for labels 14 21 Prepare Mailing labels 5 2

Identify target Develop draft Pilot-test Review comments Consumers 2 questionnaire 11 Questionnaire & Finalize 30 questionnaire 1 3 2 10 3 20 4 5

Print Questionnaire 6 10

Mail Questionnaire & get Response 9 65

AF: Assume 1 finished on day 2, 2 on day 11, and 3 on day 30 PC: 1. DB outdated, and a new one to be purchased, which was ordered on day 23 and will take 21 days to get from supplier. 2. Review of Pilot-test Questionnaire indicates revision to the questionnaire and hence duration estimate of 4 gets increased from 5 days to 15 days. 3. Activity duration for Mail Questionnaire and Get response from the Customers can be reduced to 55 days by getting less time for the customers to respond.

Develop Data Analysis Software 7 12

Test Software

10

Develop Software Test Data 8 2

Input Response Data 11 7 12

Analyze Results

Prepare Report

13

10

ES, EF, LS & LF

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

Approaches to Schedule Control

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

Approaches to Schedule Control (Cont.)

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

Reducing the Estimated Durations

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

Approaches to Schedule Control (Cont.)

Reducing durations of activities usually results in an increase in costs or a reduction in scope.

IV - Resource Considerations

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

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

Resource-Constrained Planning
(a) Activity Sequence without Resource Constraints Paint Living Room Start Project Paint Kitchen Finish Project

Resource limitations have to be considered when network is planned

Paint Bedroom (b) Activity Sequence with Resource Constraints Start Project Paint Living Room Paint Kitchen Paint Bedroom Finish Project

Planned Resource Utilization

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

Planned Resource Utilization

Paint 1st Floor Rooms 8D, 2 Pai Start Project Paint Basement Rooms 4D, 1 Pai Paint Bedrooms 6D, 1 Pai Paint Stairs and Hall 4D, 1 Pai Paint Bathroom 2D, 1 Pai

Finish Project

Painting Project showing needed resources

Planned Resource Utilization

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

Planned Resource Utilization

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

Day

2 4

3 4

4 4

5 3

6 3

7 2

8 2

9 2

10 2

11 1

12 1 32

Painters 4

Resource Profile for Painters

Painters

4 3 2 1

10

11 12

Days

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

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

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

Day

2 3

3 3

4 3

5 3

6 3

7 3

8 3

9 3

10 3

11 1

12 1 32

Painters 3

Resource-Leveled Profile for Painters

Painters 4 3 2 1

10

11 12

Days

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

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

Effect of Limited Resource Availability

4 3 2 1 Resource Limit Pushed Down

10

11 12 Pushed Out

Days

Project Completion

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

Original Resource Utilization

Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 +2

+8 +6

Day

2 4

3 4

4 4

5 3

6 3

7 2

8 2

9 2

10 2

11 1

12 1

Painters 4

First Resource Allocation

Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 2 0 -2

Day

2 2

3 2

4 2

5 2

6 2

7 2

8 2

9 4

10 4

11 3

12 3

13 14 1 1

Painters 2

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

Second Resource Allocation

Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) Bathroom (1 Painter) Basement rooms (1 Painter) Bedrooms (1 Painter) 0 0 -2 -4 -2

Day

2 2

3 2

4 2

5 2

6 2

7 2

8 2

9 2

10 11 2 2

12 2

13 14 15 3 3 1

16 1

Painters 2

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

Third Resource Allocation

Slack First floor rooms (2 Painters) Stairs & Hall (1 Painter) 0 0 Bathroom (1 Painter) -4 Basement rooms -4 (1 Painter) -2

Bedrooms (1 Painter)

Day

2 2

3 2

4 2

5 2

6 2

7 2

8 2

9 2

10 11 2 2

12 2

13 14 2 2

15 2

16 2

Painters 2

V - Cost Planning and Performance

Cost Planning and Performance

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

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

Allocating the Total Budgeted Cost

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

WBS with Allocated Budgets

Project 100 L Contingency 5L 20 L

20 L

5L 10 L

5L

10 L

20 L

5L

Allocating the Total Budgeted Cost

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

Network Diagram for Packaging Machine Project

Design 1 4 2 Build 6 Install & Test 3 2

Network Diagram for Packaging Machine Project Packaging Machine (100 L) Design (24 L) Build (60 L) Install & Test (16 L)

WBS with Budgeted cost for Packaging Machine Project

Developing the Cumulative Budgeted Cost

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

Developing the Cumulative Budgeted Cost

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

Developing the Cumulative Budgeted Cost

Week TBC Design Build Install & Test Total Cumulative 24 60 16 100 4 4 4 8 8 16 8 24 8 32 8 40 12 52 12 64 10 10 74 84 1 4 2 4 3 8 4 8 8 8 12 12 10 10 8 8 92 8 8 100 5 6 7 8 9 10 11 12

Budgeted Cost by Period for the Packaging Machine Project

Cumulative Budgeted Cost curve for Packaging Machine Project

Cumulative Budgeted Cost
120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12

Total Budgeted Cost

Weeks

Developing the Cumulative Budgeted Cost

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

2. Determining Actual Cost

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

Comparing Actual Cost to Budgeted Cost

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

Comparing Actual Cost to Budgeted Cost

Week 1 Design Build Install & Test Total
Cumulative

2 5

3 9

4 5 2

5 1 8

Total Expended 22

10

14

12

46 0

2 2

5 7

9 16

7 23

9 32

10 42

14 56

12 68

68 68

Actual cost by Period for the Packaging Machine Project

Cumulative Budgeted and Actual Cost for Packaging Machine Project

Cumulative Cost

120 100 80 60 40 20 0 1 2 3 4 5 6

Report Period

4 L overrun Cumulative Budgeted Cost (CBC) Cumulative Actual Cost (CAC)

10 11 12 13

Weeks

3. Determining the Value of Work Performed

Earned Value (EV ), Cumulative Earned Value (CEV) Earned value is the value of work actually performed.

Concept of Earned Value

Imagine a Project involves developing 20 similar modules in 20 weeks at total budget of Rs 20 L. At end of 10 weeks 10 L have been spent.
1. As a PM, are you comfortable? Why?

2. Assume, 9 Modules been completed at W10E. Are you comfortable? Why?

Determining the Value of Work Performed

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

Cumulative Percent Complete by Period for Packaging Machine Project

Week 1 Design Build Install & Test 10 0 0 2 25 0 0 3 80 0 0 4 5 6 7 8

90 100 5 0 15 0

100 100 100 25 0 40 0 50 0

Cumulative Earned Value by Period for Packaging Machine Project

Week TBC Design Build Install & Test 24 60 16 2.4 6 19.2 24.6 33 39 48 54 1 2.4 2 6 3 4 5 24 9 6 24 15 7 24 24 8 24 30

19.2 21.6 3

Cumulative 100

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

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

Cost Performance
PMP example - 64 L budgeted to perform all tasks till the first 8 weeks. 68 L was actually expended by end week 8 54 L was the value of work performed till week 8 So, why all this financial jugglery? To know: Is project being performed within budget ?
No, actual cost exceeding budget

Is value of work performed in line with actual cost?

No, value of work is not keeping with actual cost.

Cumulative Budgeted, Actual, and Earned Value for Packaging Machine Project
Cumulative Cost

120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 Weeks

Cumulative Budgeted Cost (CBC) Cumulative Actual Cost (CAC) Cumulative Earned Value (CEV) Report Period

Percent 100 90 80 70 60 50

Packaging Machine Project Status as of Week 8

68% 54%

64%

40 30 20 10

Percent Budgeted to Have Been Spent

Percent Actually Spent

Percent of Work Completed

Cost Performance Index (CPI)

A measure of the cost efficiency with which the project is being performed. Cost performance index = Cumulative Earned Value/Cumulative Actual Cost) Or, CPI = CEV/CAC What is the CPI for PMP as of week 8. What does it say? CPI = 54/68 = 0.79 (For every 1 rupee spent only 79 paisa of earned value was received) Trend in CPI should carefully be watched. If it goes below 1, corrective action be taken.

Cost Variance (CV)

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

5. Cost Forcasting
3 methods for determining Forecasted Cost At Completion (FCAC) Method 1 assumes remaining work will be done at the same efficiency as done till now. Hence, FCAC = Total budgeted cost / Cost Performance Index

= 100 L/0.79 = 125.58 L for PMP

Method 2 assumes remaining work will be done according to its budget, irrespective of efficiency till now Hence, FCAC = Cumulative Actual Cost + (Total Budgeted Cost Cumulative Earned Value)

= 68 L + (100 L 54 L) = 114 L for PMP

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

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

Ways to Reduce Costs of Activities

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

7. Managing Cash Flow

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