project mgnt
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Slide 2.1
Projject ManagementChandana Unnithan
MSC756Project Management
Topic 5
P l a nni n
g
Slide 2.2
Projject ManagementChandana Unnithan
The Line Manager(s) ?The Project Manager ?
Both Parties ?
* Who plans the project?* Who executes the project?* Who is responsible for monitoring work and
controlling work?* Who is responsible for providing feedback
regarding the planning and execution phases of a project?
Planning Questions Often Asked
Slide 2.3
Projject ManagementChandana Unnithan
Project Managers Responsibility
Project Manager will define: Goals and objectives Major milestones Requirements Ground rules and assumptions
Time, cost, and performance constraints Operating procedures Administrative policy Reporting requirements
Slide 2.4
Projject ManagementChandana Unnithan
Line Managers Responsibility
Line manager will define: Detailed task descriptions to implement
objectives, requirements, and milestones Detailed schedules and manpower
allocations to support budget and schedule
Identification of areas of risk, uncertainty,and conflict
Slide 2.5
Projject ManagementChandana Unnithan
Senior Managements Responsibility
Senior management (project sponsor) will: Act as the negotiator for disagreements
between project and line management Provide clarification of critical issues Provide communication link with
customers senior management
Slide 2.6
Projject ManagementChandana Unnithan
Planning/Scheduling Tools
What to do?
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Slide 2.7
Projject ManagementChandana Unnithan
Defining Requirements
The statement of work (SOW) The project specifications The milestone schedule The work breakdown structure (WBS)
Slide 2.8
Projject ManagementChandana Unnithan
Points to Address When Developing an SOW
Purpose - objectives Exclusions - what should not be done Quantities - how many Schedule - when the work will be started/completed Deliverables (i.e... work done) Acceptance criteria - what method will be used to
accept deliverables Responsibility - department, office or person
responsible
Slide 2.9
Projject ManagementChandana Unnithan
Preparation of internal SOWs Project office and/or user groups
Preparation of external SOWs Dependent on situation, & complexity Project manager/ line managers and project sponsor Client who may have the capabilities Client may decide to contract out to an independent
body Client may contract your servicesPREPARATION OF A STATEMENT OF WORK REQUIRES
TRAINING RATHER THAN LUCK.
Who Prepares the SOW?
Slide 2.10
Projject ManagementChandana Unnithan
Statement of Work Elements
General scope of the work Objectives and related background Contractors tasks Contractor end-item performance requirements Reference to related studies, documentation, and
specifications
Data items (documentation) Support equipment for contract end-item
Slide 2.11
Projject ManagementChandana Unnithan
Statement of Work Elements (continued)
Customer-furnished property, facilities,equipment, and services
Customer-furnished documentation Schedule of performance Exhibits, attachments, and appendices
Slide 2.12
Projject ManagementChandana Unnithan
Purpose of WBS
Detailed planning can be performed
Costs and budgets can be established
Objectives can be linked to available resources ina logical manner
Specific authority and responsibility can beassigned
IT IS TO STRUCTURE AN ASSIGNED PROJECTINTO VARIOUS ACTIVITIES IN ORDER THAT:
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Slide 2.13
Projject ManagementChandana Unnithan
Work Breakdown Structure (WBS) The total program can be described as a summation of
subdivided elements Planning can be performed Costs and budgets can be established Time, cost, and performance can be tracked Objectives can be linked to company resources in a
logical manner Schedules and status-reporting procedures can be
established Network construction and control planning can be
initiated The responsibility assignments for each element can be
established
Slide 2.14
Projject ManagementChandana Unnithan
Have clearly defined start dates Have clearly defined end dates Must be able to be used as a
communicative tool in which you cancommunicate the expected results
Be estimated on a total time duration notwhen the individual activities start or end
Be structured so that a minimum of projectoffice control and documentation (i.e.forms) are necessary
In setting up the WBS the activitiesmust:
Slide 2.15
Projject ManagementChandana Unnithan
Most common type: Six-Level Indentured Structure
LEVEL DESCRIPTION 1 Total Program 2 Project(s) 3 Task(s)
4 Subtask(s) 5 Work Package(s) 6 Level of Effort
Work Breakdown Structure(WBS)
Slide 2.16
Projject ManagementChandana Unnithan
THE WBS BREAKS WORK DOWN INTO SMALLER ACTIVITIES THUS REDUCINGTHE RISK THAT ANY MAJOR OR MINOR ITEM WILL BE OMITTED
WBS: Six Level Structure
Usually specified by the client andmanaged the project manager
Generated by contractor for in-housecontrol and managed by thefunctional manager(s)
Planning accuracy is dependent on the WBS levelselected. The lower the level the greater is the planningaccuracy but the higher the management cost
LEVELS RESPONSIBILITY
123456
Slide 2.17
Projject ManagementChandana Unnithan
Developing a WBS
PROTOTYPEDEVELOPMENT
(1.1.0)
ADVANCEDDEVELOPMENT
(1.2.0)
PRE-PRODUCTION
QUALIFICATION(1.3.0)
FINALPRODUCTION
(1.4.0)
UTILITY CAR (1.00.00)
Slide 2.18
Projject ManagementChandana Unnithan
1.00.00
1.1.0 1.2.0 1.3.0 1.4.0
1.2.1 1.2.31.2.2
1.2.2.1 1.2.2.2 1.2.2.3
1.2.2.1.1 1.2.2.1.2 1.2.2.1.3 1.2.2.1.4
WBS ExampleWBS LEVELS
5
4
3
2
1 PROGRAM
PROJECT
TASK
SUBTASK
WORKPACKAGE
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Slide 2.19
Projject ManagementChandana Unnithan
WBS Controls
WORK
BREAKDOWN
STRUCTURE
MGT.
COORDIN.
ORGANIZ.
CHARTS
COSTSACCOUNT-
ABILITY
DECISIONTREES
SCHEDULES
Slide 2.20
Projject ManagementChandana Unnithan
WBS Interfacing Benefits
The responsibility assignment matrix Network scheduling Costing Risk analysis Organizational structure Coordination of objectives Control (including contract administration)
Slide 2.21
Projject ManagementChandana Unnithan
Work Package Control Point
WORK
PACKAGES
WBS
FUNCTIONAL
ORGANIZATION
Slide 2.22
Projject ManagementChandana Unnithan
WBS Work Packages Represents units of work at the level where
the work is performed Clearly distinguishes one work package from
all others assigned to a single functionalgroup
Contains clearly defined start and end datesthat are representative of physicalaccomplishment
Target is 80 hours and about two weeks, butdepends on size/nature of the project
Slide 2.23
Projject ManagementChandana Unnithan
WBS Packages (Continued)
Specifies a budget in terms of dollars, man-hours,or other measurable units
Limits the work to be performed to relativelyshort periods of time to minimize the work-in-process effort
Slide 2.24
Projject ManagementChandana Unnithan
Change Management YOU CANNOT MANAGE YOUR CUSTOMER
WITHOUT MANAGEMENT OF YOUR PROJECTMANAGEMENT PROCESS
WHEN YOUR CUSTOMER INITIATES A CHANGEREQUEST, YOU MUST BE ABLE TO PREDICTIMMEDIATELY THE IMPACT ON SCHEDULE ,COST AND TECHNICAL PERFORMANCE
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Slide 2.25
Projject ManagementChandana Unnithan
Unmanaged vs. Managed Changes
UnmanagedChange
Where TIMEis invested
HowENERGYis invested
WhichRESOURCES
are used
ManagedChange
Back-end
Front-end
Rework Enforcement Compliance Supervision
Education Communication Planning Improvements Value-Added
Senior Managementand keyplayers only
Stakeholders(internal)
Suppliers Customers
Slide 2.26
Projject ManagementChandana Unnithan
Definition
Cost of Corrections
$1
PreliminaryPlanning
$5 $25 $100 $1000
DetailedPlanning Execution
Implementation /Conversion
Slide 2.27
Projject ManagementChandana Unnithan
Scheduling Techniques Gantt or bar charts Milestone charts Line of balance Networks
Program Evaluation and Review Technique(PERT)
Arrow Diagram Method (ADM) [Sometimescalled the Critical Path Method (CPM)] Graphical Evaluation and Review Technique
(GERT) Precedence Diagram Method (PDM)
Slide 2.28
Projject ManagementChandana Unnithan
Bar (Gantt) Chart
TASKS 1 2 3 4 5
4
MONTHS AFTER GO-AHEAD
3
2
1
5
Slide 2.29
Projject ManagementChandana Unnithan
Milestone Chart
ACTIVITY
TESTINGANALYSISREPORTPRESENTATION
TIME
Slide 2.30
Projject ManagementChandana Unnithan
Simplified PERT Network
1 9
3
42 8765
LEGEND: (TIME = WEEKS)
EVENTACTIVITYCRITICAL PATH ACTIVITY
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Slide 2.31
Projject ManagementChandana Unnithan
Slack Identification
C (8,10)2 (15,17)
EARLIEST START TIME
EARLIEST FINISH TIME
LATEST FINISH TIME
LATEST START TIME
ACTIVITY
TIME
Slide 2.32
Projject ManagementChandana Unnithan
Types Of Slack
[ 20, 26 ]
[ 24, 30 ]
[ 30, 36 ]
[ 24, 30 ]
POSITIVE SLACK NEGATIVE SLACK
Slide 2.33
Projject ManagementChandana Unnithan
Schedule Compression
Elimination of some parts of the project Addition of more resources Substitution of less time-consuming components
or activities Parallelization of activities Shortening critical path activities Shortening early activities Shortening longest activities
Slide 2.34
Projject ManagementChandana Unnithan
Schedule Compression (Continued) Shortening easiest activities Shortening activities that are least costly to
speed up Shortening activities for which you have more
resources Increasing the number of work hours per day
Slide 2.35
Projject ManagementChandana Unnithan
Resource Leveling Resource leveling is an attempt to eliminate the
manpower peaks and valleys by smoothing outthe period-to-period resource requirements. Theideal situation is to do this without changing theend date. However, in reality, the end date movesout and additional costs are incurred.
Slide 2.36
Projject ManagementChandana Unnithan
Resource Allocation Resource allocation (or resource limited
planning) is an attempt to find the shortestpossible critical path based upon the available or fixed resources. The problem with this approachis that the employees may not be qualifiedtechnically to perform work on more than oneactivity in a network
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Slide 2.37
Projject ManagementChandana Unnithan
Types Of Precedence Charts
ACTIVITY 1
ACTIVITY 1
ACTIVITY 2
ACTIVITY 2FINISH-TO-START
START-TO-START
FINISH START
START
START
Slide 2.38
Projject ManagementChandana Unnithan
Types Of Precedence Charts
ACTIVITY 1
ACTIVITY 1
ACTIVITY 2
ACTIVITY 2
FINISH-TO-FINISH
PERCENT COMPLETE
FINISHFINISH
20 %
50 %
Slide 2.39
Projject ManagementChandana Unnithan
Pricing and Estimating Many managers regard this as an art !
Information available to one bidder isgenerally available to others
This is an essential part of the planningprocess
Forms the basis for establishing standardsfor budgets, man-hours, material costs,
contingencies, etc. Specific pricing strategies must be
developed for each situation
Slide 2.40
Projject ManagementChandana Unnithan
Two Types Of Acquisition PoliciesType I acquisition:
One-of-a-kind contract with little or no follow-on potential Objective:- Win the contract- Execute it profitably
Type II Acquisition: One of many contracts
An entry point to larger follow-up project contractsObjective:- Win the contract- Perform with excellence
Slide 2.41
Projject ManagementChandana Unnithan
Cost/Hour Estimates
EstimatingMethod
GenericType WBSRelationship
Accuracy Time toPrepare
Parametric
Analogy
Engineering(Grass Roots)
ROM*
Budget
Definitive
Top Down
Top Down
Bottom Up
-25% to +75%
-10% to +25%
-5% to +10%
Days
Weeks
Months
* Rough Order of Magnitude
Slide 2.42
Projject ManagementChandana Unnithan
Types Of Estimates Order of magnitude estimates
- Made without any detailed engineering data- May use past experience- Accuracy +- 35% within the scope of the project
Approximate (rule of thumb) estimates- Made without any detailed engineering data- May use previous similar projects --- Accuracy +- 15%
Definitive (or detailed) estimates- Prepared from well-defined engineering data, vendor
quotes, unit prices, etc. Accuracy +- 5% Estimating manual
- Developed over time- Use to price out effort. Accuracy +-10%
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Slide 2.43
Projject ManagementChandana Unnithan
Additional Estimating Methods Direct Estimate
- Estimate/experienced person- Requires judgement
Estimate by analogy - Compare with similar activities- Requires judgement
Factored method - Based on historical data- Requires equipment lists, sizes- Starts with equipment quotes
Gross proration method - Based on historical data- Near duplicate information
Slide 2.44
Projject ManagementChandana Unnithan
Detailed estimate- Uses the WBS - Takes the WBS down several levels
Quotation method - Compare three quotations- Select the best quotation
Handbook manuals Learning curves
Additional Estimating Methods (continued)
Slide 2.45
Projject ManagementChandana Unnithan
Do project managers controlcosts, monitor costs or both?
Cost
Slide 2.46
Projject ManagementChandana Unnithan
Cost Management Cost estimating Cost accounting Project cash flow Company cash flow Direct labor costing Overhead rate costing
Others, such as incentives, penalties, and profit-sharing
Slide 2.47
Projject ManagementChandana Unnithan
Cost And Control System
PLANNING
WORK
AUTHORIZATION
AND RELEASE
DATA
COLLECTION
AND REPORTING
COST
ACCOUNTING
CUSTOMER AND
MANAGEMENT
REPORTING
PHASE I PHASE II PHASE III PHASE IV PHASE V
OPERATING CYCLECYCLE
PLANNING
Slide 2.48
Projject ManagementChandana Unnithan
Cost Control Requirements Measure resources consumed Measure status and accomplishments Compare measurements to projections and
standards Provide the basis for diagnosis and re-planning
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Slide 2.49
Projject ManagementChandana Unnithan
Cost Control Requirements
Thorough planning of the work to be performed tocomplete the project Good estimating of time, labor, and costs Clear communication of the scope of required tasks A disciplined budget and authorizations of expenditures Timely accounting of physical progress and cost
expenditures Periodic re-estimation of time and cost to complete
remaining work Frequent, periodic comparison of actual progress and
expenditures to schedules and budgets, both at the timeof comparison and at project completion
Slide 2.50
Projject ManagementChandana Unnithan
When to implement a costmanagement system?
CONCLUSIONA cost management system should be implemented right at the
beginning of the life cycle of the project
Possible costreductions
Cost of change
PROJECTCOSTS
PROJECT LIFE CYCLE PHASES
Slide 2.51
Projject ManagementChandana Unnithan
Work Authorization Form
Description Cost Work WorkCenters Hours Cost Starts Ends
- Test Material 2400 150 R4500 1 Aug 15 Sept- Processing 2610 160 R7500- Final inspection 2621 140 R3500- Packaging 2623 46 R 750- Delivery 2624 R 350
Project office authorization signature:________________
WBS: 31.03.02 Work order no: D1385
Date of original release: 03 Feb 97Date of revision: 18 March 97Revision number: C
Slide 2.52
Projject ManagementChandana Unnithan
Planning and Budgeting
Work packages
WBS Element
MGR
Org
Org
Org
Work PackageWP______ORG_______ Description of task_____
____________________ Sched: Start____Stop__ Budget:______________
Slide 2.53
Projject ManagementChandana Unnithan
CACN No. _____________ Revision to Cost Account No. ____________ Date ________
DESCRIPTION OF CHANGE: ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________
REASON FOR CHANGE: ____________________________________________________________________________________ ____________________________________________________________________________________ ___________________________________________________________________________________ _________________________________________________________________________________
Requested Budget Authorized BudgetLabor Hours ________ _________ _________________ Period of performa nceMaterials _________________ _________________ From _____________ ODCS _________________ _________________ To _____________
BUDGET SOURCE:Funded Contract ChangeManagement ReserveUndistributed BudgetOther _________________
INITIATED BY: __________________ __________ APPROVALS: Program Mgr. ________ Prog. Control ____ ____
Cost Account Change Notice (CACN)Slide 2.54
Projject ManagementChandana Unnithan
Sources Of Additional Funding Funded contract change
Management reserve
Undistributed budget
Other (e.g. profits)
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Slide 2.55
Projject ManagementChandana Unnithan
Cost data collation and reporting flowchart
Actuals
Labor
ACWP
InventoryAccounts
BCWP
Computer
BCWS
Monthly TotalProgram Effort
Weekly Labor Reports
MCCS C omparisonreports To All Execs
Variance Report
Slide 2.56
Projject ManagementChandana Unnithan
Cost Data
Labor Material Other direct charges Overhead
Slide 2.57
Projject ManagementChandana Unnithan
Types of Budgets
Distributed budget Management budget Undistributed budget Contract changes
Slide 2.58
Projject ManagementChandana Unnithan
Variance Analyses
Slide 2.59
Projject ManagementChandana Unnithan
Variables for Variance Analysis
BUDGETED COST FOR WORKED SCHEDULED (BCWS) IS THEBUDGETED AMOUNT OF COST FOR WORD SCHEDULED TO BEACCOMPLISHED PLUS THE AMOUNT OF LEVEL OF EFFORT ORAPPORTIONED EFFORT SCHEDULED TO BE ACCOMPLISHED IN AGIVEN TIME PERIOD.
BUDGETED COST FOR WORK PERFORMED (BCWP) IS THEBUDGETED AMOUNT OF COST FOR COMPLETED WORD, PLUSBUDGETED FOR LEVEL OF EFFORT OR APPORTIONED EFFORTACTIVITY COMPLETED WITHIN A GIVEN TIME PERIOD. THIS ISSOMETIMES REFERRED TO AS AN EARNED VALUE.
ACTUAL COST FOR WORK PERFORMED (ACWP) IS THE AMOUNTREPORTED AS ACTUALLY EXPENDED IN COMPLETING THE WORKACCOMPLISHED WITHIN A GIVEN TIME PERIOD.
COST VARIANCE = BCWP ACWP SCHEDULE/PERFORMANCE VARIANCE = BCWP - BCWS
Slide 2.60
Projject ManagementChandana Unnithan
Variances The cost variance compares deviations only from
the budget and does not provide a measure of comparison between work scheduled and workaccomplished
The scheduling variance provides a comparisonbetween planned and actual performance but doesnot include costs
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Slide 2.61
Projject ManagementChandana Unnithan
Measurements Measurable efforts : discrete increments of work
with a definable schedule for accomplishment,whose completion produces tangible results
Level of effort : work that does not lend itself tosubdivision into discrete scheduled incrementsof work, such as project support and projectcontrol
Slide 2.62
Projject ManagementChandana Unnithan
Cost Variance Calculation
A NEGATIVE VARIANCEINDICATES A COST OVERRUN
CV = BCWP - ACWP
Slide 2.63
Projject ManagementChandana Unnithan
Schedule Variance Calculation
SV = BCWP - BCWS
A NEGATIVE VARIANCE INDICATESA BEHIND SCHEDULE CONDITION
Slide 2.64
Projject ManagementChandana Unnithan
Variance Percents
SCHEDULE VARIANCE % =(SVP)
COST VARIANCE % =(CVP)
SVBCWS X 100
CVBCWP X 100
Slide 2.65
Projject ManagementChandana Unnithan
Project Variance Analysis
R&D QUALIFICATION DEVELOPMENTPHASE I PHASE II PHASE III
VARIANCE LOWER BOUNDARY
ACTUAL COST VARIANCE
PROJECTED COST
VARIANCE UPPER BOUNDARY
TIME
$
Slide 2.66
Projject ManagementChandana Unnithan
Management Reserve
CONTRACTED COST
RELEASED BUDGET
ACTUAL COST
TIME
MANAGEMENTRESERVE
$
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Slide 2.67
Projject ManagementChandana Unnithan
Information Requirements
Budgeted cost for work scheduled (BCWS) Budgeted cost for work performed (BCWP) Actual cost for work performed (ACWP) Estimated cost at completion Budgeted cost at completion Cost and schedule variances/explanations Traceability
Slide 2.68
Projject ManagementChandana Unnithan
Variance Analysis Questions
What is the problem causing the variance? What is the impact on time, cost, and
performance? What is the impact on other efforts, if any? What corrective action is planned or under
way? What are the expected results of the
corrective action?
Slide 2.69
Projject ManagementChandana Unnithan
Variance Reporting
Variance reporting is accomplished ateach reporting interval. However, thevariance threshold reports areexception reports and occur onlywhen the variances exceed the upper and lower boundaries of the projectvariances envelope.
Slide 2.70
Projject ManagementChandana Unnithan
Reporting Intervals
Depends on the type of organization andcharacteristics of the projects.
Project-driven organization - weekly. Non-project-driven organization -
monthly
Slide 2.71
Projject ManagementChandana Unnithan
The 50/50 rule
HALF OF THE BUDGET FOR EACH ELEMENT ISRECORDED AT THE TIME THAT THE WORK ISSCHEDULED TO BEGIN AND THE OTHER HALF AT THETIME THE WORK IS SCHEDULED TO BE COMPLETED
FOR A PROJECT WITH A LARGE NUMBER OFELEMENTS THE AMOUNT OF DISTORTION FROM SUCHA PROCEDURE IS MINIMAL
Slide 2.72
Projject ManagementChandana UnnithanJ F M A M J J A S O N D
ANALYSIS
Budgeted cost for work Scheduled (BCWS)Performed (BCWP)
Budget - 6
8
14
12
10
12
8
12
10
8
Work packages
Cost account budget = 100(thousands)
BCWS = 38BCWP = 49SCHED. VARIANCE = +11
50-50 rule used for work in process
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Slide 2.73
Projject ManagementChandana Unnithan
Using The 50-50 Rule
4,000
10,000
12,000
4,000
6,000
6,000
10,000
TIME
TIME LINE
COMPLETED
NOT COMPLETED
LEGEND
BCWS = 34,000BCWP = 33,000BAC = 52,000
Slide 2.74
Projject ManagementChandana Unnithan
Earned Value Status Reporting
SV
CV
BCWS
BCWP
ACWP
TIME LINE
C U M M U L A T I V E C O S T
, $
TIME
Slide 2.75
Projject ManagementChandana Unnithan
ESTIMATE AT COMPLETION(EAC)
EAC = ACWPBCWP X
Budget at completion
The estimate at completion is the best estimate of the total cost at the completion of the project.
The EAC is a periodic evaluation of the statusof the project - usually on a monthly basis or until a significant change has been identified
(BAC)
Slide 2.76
Projject ManagementChandana Unnithan
Progress Reporting
Progress reporting needs to answer four fundamental questions:
1. Where are we today (time and cost)?
2. Where will we end up (time and cost)?
3. What are the present and future risks?
4. Are there any special problems that needto be addressed and what can
management do to help?
Slide 2.77
Projject ManagementChandana Unnithan
1. VARIANCE ANALYSIS (Cost in Thousands) 1 June 1997
Budgeted Budgeted CostMilestone Cost Work Work Actual Variance, %
Subtask Status Scheduled Performed Cost Schedule Cost1 Completed 100 100 100 0 02 Completed 50 50 55 0 -103 Completed 50 50 40 0 204 Not Started 70 0 0 -100 --5 Completed 90 90 140 0 -55.56 Not started 40 0 0 -100 --7 Started 50 50 25 0 508 Not started 0 0 0 -- --
Total 450 340 360 -24.4 -5.9
Monthly Project Report
Slide 2.78
Projject ManagementChandana Unnithan
2. ESTIMATE AT COMPLETION (EAC)EAC = (360/340) X 579,000 = $613,059Overrun = 613,059 - 579,000 = $34,059
3. COST SUMMARYCosts are running approximately 5.9% over budget due to higher salaried labor.
4. SCHEDULE SUMMARYThe 24.4% behind schedule condition is due to subtasks 4 and 6 which havenot yet begun due to lack of raw materials and the 50/50 method for bookingcosts. Overtime will get us back on schedule but at an additional cost of 2.5% of direct labor costs.
Monthly Project Report (Continued)
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Slide 2.79
Projject ManagementChandana Unnithan
5. MILESTONE REPORTMilestone/ Scheduled Projected ActualSubtask Completion Completion Completion
1 4/1/97 4/1/972 5/1/97 5/1/973 5/1/97 4/23/974 7/1/97 7/1/975 6/1/97 6/1/976 8/1/97 8/1/977 9/1/97 9/1/978 10/1/97 10/1/97
Monthly Project Report(Continued)
Slide 2.80
Projject ManagementChandana Unnithan
Monthly Project Report(Continued)
6. ACTIVITY REPORTCurrent Potential Corrective
Problem Impact Action(a) Lack of raw Cost overruns and Overtime is scheduled.
materials . behind schedule We wil l t ry to use lower condition. salaried staff. Raw
materials areexpected to be onnext week.
(b) Customer un- May need add- Customer will providehappy with test results itional planning. us with revised
statementof work on 6/15/97.
Slide 2.81
Projject ManagementChandana Unnithan
RISK
Risk management focuses on: Known unknowns Proactive management
The alternative to proactive management is
reactive management, also called crisismanagement. This requires significantly more
resources and takes longer for problems tosurface.
Slide 2.82
Projject ManagementChandana Unnithan
Definition Of Risk
Risk = f ( Likelihood, Impact )
Likelihood is the probability of occurrence
Impact is the amount at stake
event
Slide 2.83
Projject ManagementChandana Unnithan
Tolerance For Risk and Decision-MakingCategories
Tolerance for Risk Risk Avoider Risk Neutral Risk Lover
Decision MakingCategories
CompleteUncertainty
Relative Uncertainty(Partial information)
Complete Certainty
Slide 2.84
Projject ManagementChandana Unnithan
Risk Management Risk Management focuses on the future Risk and information are inversely related Historically, we focused our attentions on
schedule and cost risk managements Today, our primary emphasis is on
technological risk management CAN WE DESIGN IT AND BUILD IT? WHAT IS THE RISK OF
OBSOLESCENCE?
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Slide 2.85
Projject ManagementChandana Unnithan
Developing and Using Payoff Tables
Maximin ApproachMaximax ApproachMinimax regret ApproachInsufficient Reason Approach
Establishing the
procedure to follow
Construct thePayoff table
Decision-makingunder certainty
Decision-makingunder completeuncertainty
Decision-makingunder risk
Expected Monetary Value (EMV) ApproachExpected Opportunity Loss (EOL) ApproachExpected Value of Perfect Information (EVPI) Approach
Slide 2.86
Projject ManagementChandana Unnithan
Five Steps to develop Pay Off Table
List all the alternatives List the future consequences of each
alternative Identify the payoffs associated with each
combination Assess the degree of certainty that these
combinations will materialize Decide on a decision criterion
Slide 2.87
Projject ManagementChandana Unnithan
Risk Management Processes
Risk planning Risk assessment
Risk identification Risk analysis/quantification
Risk handling Risk monitoring Developing Contingency Plans
Slide 2.88
Projject ManagementChandana Unnithan
Types Of Risks (General)
Business risks Insurable (pure) risk
Direct property damage Indirect consequential loss Legal liability Personnel
Slide 2.89
Projject ManagementChandana Unnithan
Types Of Risk (PMI Method)
External unpredictable External predictable Internal non-technical Internal technical Legal
Slide 2.90
Projject ManagementChandana Unnithan
Risk QuantificationSTAGE I STAGE II GUID-
ANCEWARHEAD
COST
MANU.
TEST
DESIGN
HIGH
MEDIUM
LOW
LEGEND
PROGRAMSUMMARY
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Projject ManagementChandana Unnithan
Risk Handling
Assumption (retention) Avoidance Control (mitigation) Transfer Risk Problem Solving
Idea generation - brainstorming
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How Much Risk Is Acceptable?
High tolerance for risk
Medium tolerance for risk
Low tolerance for risk
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Projject ManagementChandana Unnithan
Prioritization of Risks
Schedule CostTechnical
Performanceor Quality
First(Highest )Priority
SecondPriority
ThirdPriority
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Projject ManagementChandana Unnithan
P r o
j e c t P r o c e
d u r a
l
D o c u m e n
t a t i o n
GuidelinesHigh Low
Tolerance for Risk
RigidPolicies/
Procedures
Assumption
Reduction
Transfer
Avoidance
Which Method to Use?
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Projject ManagementChandana Unnithan
The Risk-Reward Matrix
Low High Reward
Medium
Risk
High
Low
Medium
Q u a l i t
y o f
R e s o u r
c e s N e
e d e d
L o w
M e d i u
m H i g h
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Projject ManagementChandana Unnithan
Poor Risk Management
Risk Planning
TechnicalInability C u
s t o m e
r E x p e
c t a t i o n
s
A c t u a l P e r f
o r m a n c e P
e r f o r m a n c e
Time
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Projject ManagementChandana Unnithan
Quality Why is it important?
You are buying a house take a home loan What service level do you expect?
Want to buy a new car? A bank is willing to give you100% finance. How much documentation would you tolerate? How many phone calls? What if a credit card company calls you every week for
cross selling a new product? Acceptable?
How much are you willing to accept and how criticalis it? 100 mistakes in your monthly repayments? A phone call every week?
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Projject ManagementChandana Unnithan
Six Sigma
Pioneered by Motorola Improve product and services quality 100 fold by a
set period of time, with an ultimate goal of zerodefects.
Six Sigma translates to 99.99966 defect freeperformance
GE Capital The best practices of a branch in which a customer
nearly every time got answered from an employeeinstead of voice mail was applied to 41 branches.
Result: 99.9 percent chances of a customer getting arepresentative online
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Projject ManagementChandana Unnithan
The SEI-CMM Assessment Software Engineering Institute (Carnegie Mellon) model known as
Capability Maturity Model, used by organisations worldwide for identifying best practices useful in helping them increase thematurity of their processes
There are 5 levels of maturity, the fifth level is the people level Capability Maturity Model? Integration (CMMI) is a process
improvement approach that provides organizations with theessential elements of effective processes. It can be used to guide
process improvement across a project, a division, or an entireorganization. CMMI helps integrate traditionally separateorganizational functions, set process improvement goals and
priorities, provide guidance for quality processes, and provide a point of reference for appraising current processes .- CMMI, SEI,2006
Used for maintaining and implementing quality in organisations
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Projject ManagementChandana Unnithan
Cause and Effect Diagrams
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Data Tables
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Projject ManagementChandana Unnithan
Comparative Pareto Analysis
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