rlpm.ppt

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Resource LimitedResource LimitedProject ManagementProject Management

Vladimir LiberzonVladimir Liberzon

[email protected]@mail.cnt.ru

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IntroductionIntroduction

We will discuss methodologies and techniques We will discuss methodologies and techniques that are necessary for the proper project that are necessary for the proper project management when project resources are management when project resources are limited.limited.

And to my knowledge they are And to my knowledge they are alwaysalways limited. limited. Please feel free to ask questions any time Please feel free to ask questions any time

during my presentation.during my presentation. We shall learn from each other and more We shall learn from each other and more

discussions create more understanding.discussions create more understanding.

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IntroductionIntroduction

My name is Vladimir Liberzon.My name is Vladimir Liberzon. I am a head of the leading Russian I am a head of the leading Russian

project management consulting project management consulting company that:company that:– Implements project management Implements project management

systems at the different enterprises,systems at the different enterprises,– Manages projects for our customers,Manages projects for our customers,– Provides project management training,Provides project management training,– Develops the most powerful project Develops the most powerful project

management software Spider Project.management software Spider Project.

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Topics of Topics of DiscussionDiscussion

We will discuss:We will discuss:– Organizing data for the proper project Organizing data for the proper project

computer simulation and corporate computer simulation and corporate resource management,resource management,

– Resource constrained scheduling and Resource constrained scheduling and Resource Critical Path,Resource Critical Path,

– Project Success Criteria,Project Success Criteria,– Project Risk Simulation,Project Risk Simulation,– Success Driven Project Management.Success Driven Project Management.

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Organizing dataOrganizing data It is Data Structure that defines the It is Data Structure that defines the

possibilities of simulating the situations possibilities of simulating the situations occurring in the actual projects.occurring in the actual projects.

The main elements of a project computer The main elements of a project computer model are project model are project activitiesactivities, activity , activity dependenciesdependencies, project , project resourcesresources and their and their assignmentsassignments, project , project calendarscalendars, , costscosts, and , and Work, Resource and Cost Work, Resource and Cost Breakdown Breakdown StructuresStructures..

We will discuss the main elements of Data We will discuss the main elements of Data Structure that are vital for understanding the Structure that are vital for understanding the specific approaches to project simulation.specific approaches to project simulation.

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ActivitiesActivities

In the majority of well-known PM In the majority of well-known PM software packages project activities software packages project activities are characterized by their duration.are characterized by their duration.

Besides duration, it is frequently Besides duration, it is frequently necessary to set the activity’s physical necessary to set the activity’s physical volumevolume of work. of work.

Activity volume can be measured in Activity volume can be measured in meters, tons, etc., planned work hours, meters, tons, etc., planned work hours, percents or any other units.percents or any other units.

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ActivitiesActivities

Activity volume is often used as an Activity volume is often used as an initial activity information instead of initial activity information instead of duration. If assigned resource duration. If assigned resource productivity is defined in volume units productivity is defined in volume units per hour then activity duration may be per hour then activity duration may be calculated during project scheduling.calculated during project scheduling.

Unlike activity duration activity volume Unlike activity duration activity volume does not depend on assigned resources.does not depend on assigned resources.

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DependenciesDependencies

Sometimes it is necessary to set Sometimes it is necessary to set more than more than one linkone link between activities. between activities.

Besides the positive and negative time lags, Besides the positive and negative time lags, it is useful to set it is useful to set volume lagsvolume lags, which is , which is preferable in many cases.preferable in many cases.

The problem with time lags is that if the The problem with time lags is that if the preceding work has started but is executed preceding work has started but is executed slower than it was planned, the time lag slower than it was planned, the time lag may be satisfied earlier than the planned may be satisfied earlier than the planned volume of work is fulfilled. volume of work is fulfilled.

The time lags call for special attention and The time lags call for special attention and regular adjustments.regular adjustments.

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ResourcesResources

Resources are divided into two classes:Resources are divided into two classes:– renewablerenewable (human resources and mechanisms) (human resources and mechanisms)

andand– consumableconsumable (materials). (materials).

In most PM software packages, both are set In most PM software packages, both are set together, differing only in setting the costs together, differing only in setting the costs of their use - per work hour or per unit.of their use - per work hour or per unit.

Thus you can not define that renewable Thus you can not define that renewable resource spends materials during the work.resource spends materials during the work.

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Complex Complex ResourcesResources

Besides the individual resources one may Besides the individual resources one may set resource crews (we call them multi-set resource crews (we call them multi-resources) and resource skills (roles). resources) and resource skills (roles).

Multi-resourcesMulti-resources are the settled groups of are the settled groups of resources working together (e.g. a team, resources working together (e.g. a team, a crew, a car with a driver, etc.).a crew, a car with a driver, etc.).

Multi-resource can be assigned to activity Multi-resource can be assigned to activity which means assignment of all resources which means assignment of all resources comprising the multi-resource.comprising the multi-resource.

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Resource SkillsResource Skills

Resources sharing the same skills Resources sharing the same skills comprise comprise Resource Assignment PoolsResource Assignment Pools..

Resources belonging to the same PoolResources belonging to the same Pool are interchangeable though individuals are interchangeable though individuals in a pool may have different in a pool may have different productivities performing the same productivities performing the same activities.activities.

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CalendarsCalendars

The calendars can be set for all The calendars can be set for all activities, resources and time lags.activities, resources and time lags.

Availability of all these calendars is Availability of all these calendars is important for the proper project important for the proper project simulation.simulation.

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AssignmentsAssignments

Assigning resources to activities implies the Assigning resources to activities implies the notion of anotion of a team team - a group of resources - a group of resources working on an activity together.working on an activity together.

The team can include individual resources, The team can include individual resources, multi-resources and pools.multi-resources and pools.

If the activity’s initial information is work If the activity’s initial information is work volume, one should set the volume, one should set the productivityproductivity of of at least one of assigned resources, to enable at least one of assigned resources, to enable the calculation of the work duration. It the calculation of the work duration. It should be noted that when the pools are should be noted that when the pools are assigned, activity duration can be calculated assigned, activity duration can be calculated only in the process of scheduling.only in the process of scheduling.

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In assigning resource assignment pool, In assigning resource assignment pool, one should either set a total number of one should either set a total number of pool resources necessary for the pool resources necessary for the execution of activity or their aggregate execution of activity or their aggregate productivity.productivity.

Example:Example: a pool consists of the tip lorries a pool consists of the tip lorries (dump trucks) with different carrying (dump trucks) with different carrying capacity. One may set a number of lorries capacity. One may set a number of lorries necessary for the execution of this activity necessary for the execution of this activity or the aggregate productivity (dependent or the aggregate productivity (dependent on capacity) of assigned tip lorries.on capacity) of assigned tip lorries.

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If more than one team is assigned then If more than one team is assigned then resources belonging with the different teams resources belonging with the different teams work on an activity work on an activity independently independently of each of each other.other.

One may set the volumes or duration of work One may set the volumes or duration of work for each team, but it is not obligatory.for each team, but it is not obligatory.

When the volume or duration of assignment When the volume or duration of assignment are not defined the team will continue working are not defined the team will continue working until the work on the activity is completed.until the work on the activity is completed.

Such approach allows to simulate the Such approach allows to simulate the shiftshift work efficiently.work efficiently.

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Resources can be assigned to activities part Resources can be assigned to activities part time.time.

In this case one shall set In this case one shall set percentage of percentage of assigned resources utilization together with assigned resources utilization together with resource quantity resource quantity (not just the total (not just the total percentage calculated by multiplying percentage calculated by multiplying percents and quantities, that leaves the percents and quantities, that leaves the necessary amount of resources unclear - necessary amount of resources unclear - two resource units with 50% utilization are two resource units with 50% utilization are equivalent to one resource unit used to its equivalent to one resource unit used to its full capacity).full capacity).

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AssignmentsAssignments Another useful option – Another useful option – variable resource variable resource

assignmentsassignments.. Example:Example:

– You may define that the number of resources that You may define that the number of resources that may be used at some work is between 2 and 4, may be used at some work is between 2 and 4, and their workload should be not less than 40% and their workload should be not less than 40% and not more than 80%.and not more than 80%.

– In this case activity will start if two units of In this case activity will start if two units of assigned resource are available not less than 40% assigned resource are available not less than 40% of their time, and the team may be increased if of their time, and the team may be increased if additional resources become available. Finishing additional resources become available. Finishing other assignments resources may apply more of other assignments resources may apply more of their time to the specified assignment but not their time to the specified assignment but not more than 80%.more than 80%.

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Resources can consume materials in the Resources can consume materials in the process of their work,process of their work,

Besides materials can be assigned to Besides materials can be assigned to activities or resource assignments directly.activities or resource assignments directly.

In some projects it is necessary to simulate In some projects it is necessary to simulate not only material consumption but also not only material consumption but also production production of resources and materials on of resources and materials on activities and assignments.activities and assignments.

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CostCost Usually it is not enough just to define activity Usually it is not enough just to define activity

and resource costs. It is necessary to know and resource costs. It is necessary to know project expenses and revenues, what will be project expenses and revenues, what will be spent on wages, on machinery and spent on wages, on machinery and equipment, on taxes, etc.equipment, on taxes, etc.

Sometimes it is necessary to allow for Sometimes it is necessary to allow for multiple currencies.multiple currencies.

So there is a need to define and assign cost So there is a need to define and assign cost components.components.

Besides setting the cost of an hour of Besides setting the cost of an hour of renewable resource work and the cost of renewable resource work and the cost of material unit, it is necessary to be able to set material unit, it is necessary to be able to set the cost directly for activities and the cost directly for activities and assignments.assignments.

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CostCost

People may be paid not only for the hours People may be paid not only for the hours spent on the task but also by the quantity of spent on the task but also by the quantity of work they have done.work they have done.

It means that labor resource cost that is It means that labor resource cost that is usually defined by the cost of work hour is usually defined by the cost of work hour is not enough.not enough.

Frequently it is necessary to set Frequently it is necessary to set costs for costs for resource assignmentsresource assignments (fixed or per unit of (fixed or per unit of volume).volume).

Cost of assignment is one example of setting Cost of assignment is one example of setting contract costs for the project.contract costs for the project.

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CentersCenters

Setting costs for the components of the project Setting costs for the components of the project expenses, materials and resources you may expenses, materials and resources you may need to get different reports on the groups of need to get different reports on the groups of cost components, materials and resources. That cost components, materials and resources. That is why it is necessary to define Cost, Material is why it is necessary to define Cost, Material and Resource Breakdown Structures or Centers.and Resource Breakdown Structures or Centers.

Material centerMaterial center can include any group of can include any group of materials.materials.

Resource centerResource center can include any group of can include any group of resources.resources.

Cost centerCost center includes selected cost components. includes selected cost components.

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Multiple Breakdown Multiple Breakdown StructuresStructures

It is also very useful to have an opportunity to It is also very useful to have an opportunity to get project reports that aggregate project data get project reports that aggregate project data different ways.different ways.

Usually we use at least three Work Breakdown Usually we use at least three Work Breakdown Structures in our projects: based on Structures in our projects: based on project project deliverables, project processes and deliverables, project processes and responsibilitiesresponsibilities..

The use of The use of multiple breakdown structuresmultiple breakdown structures allows allows not only to obtain different project reports as not only to obtain different project reports as seen from the different standpoints, but also to seen from the different standpoints, but also to provide that the project model is truly provide that the project model is truly comprehensive.comprehensive.

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Multiple Breakdown Multiple Breakdown StructuresStructures

The use of resource breakdown structures is The use of resource breakdown structures is especially important in multi-project especially important in multi-project management. management.

In this case the matrix organizational In this case the matrix organizational structure determines the necessity of structure determines the necessity of obtaining the reports on both obtaining the reports on both Project and Project and Functional Functional Resource Breakdown Structures.Resource Breakdown Structures.

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Project ArchivesProject Archives

Another feature that is necessary for the proper Another feature that is necessary for the proper project control is an ability to store project project control is an ability to store project history.history.

The planners should be able to store project The planners should be able to store project versions and to analyze the progress in project versions and to analyze the progress in project execution, comparing current project schedule execution, comparing current project schedule not only with the baseline but with any other not only with the baseline but with any other previous version too. previous version too.

This possibility enables to assess the progress in This possibility enables to assess the progress in project execution for the last week, last month, project execution for the last week, last month, last year, compared to the baseline, etc.last year, compared to the baseline, etc.

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Project Reference Project Reference BooksBooks

Corporate project management has to be Corporate project management has to be based on the corporate standards.based on the corporate standards.

These standards shall include not only These standards shall include not only processes and documents that should be processes and documents that should be used in all projects but also estimates of the used in all projects but also estimates of the typical activity and assignment parameters.typical activity and assignment parameters.

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Project Reference Project Reference BooksBooks

Reference books that should be created Reference books that should be created should include at least:should include at least:– Activity cost and material requirements per Activity cost and material requirements per

activity volume unit,activity volume unit,– Assignment cost and material requirements Assignment cost and material requirements

per activity volume unit,per activity volume unit,– Assignment productivity,Assignment productivity,– Assignment work load.Assignment work load.

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Fragnet LibraryFragnet Library

Another necessary thing – to create Another necessary thing – to create a library a library of typical project of typical project fragnetsfragnets..

Project fragnets usually describe typical Project fragnets usually describe typical processes and technologies that are used processes and technologies that are used more than once.more than once.

Creating project computer models using the Creating project computer models using the corporate library of typical fragnets will help corporate library of typical fragnets will help to avoid inconsistencies and assures that the to avoid inconsistencies and assures that the project model follows corporate standards.project model follows corporate standards.

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Fragnet LibraryFragnet Library A library of typical fragments is a very A library of typical fragments is a very

important tool for the development of important tool for the development of corporate culture and management standards.corporate culture and management standards.

An interesting side effect of the use of typical An interesting side effect of the use of typical fragnets library is the technology of work fragnets library is the technology of work breakdown structure development not top-breakdown structure development not top-down, as usual, but bottom-up.down, as usual, but bottom-up.

In such structure typical fragments serve as In such structure typical fragments serve as work packages. Since we commonly use work packages. Since we commonly use several Work breakdown structures top-down several Work breakdown structures top-down and bottom-up technologies are used in and bottom-up technologies are used in parallel, complementing each other.parallel, complementing each other.

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Resource constrained Resource constrained schedulingscheduling

and Resource Critical Pathand Resource Critical Path The problems solved with the help of The problems solved with the help of

project management software usually project management software usually include: include: Project scheduling without the limitations of Project scheduling without the limitations of

resources taken into the consideration, resources taken into the consideration, Project resource constrained scheduling Project resource constrained scheduling

(resource leveling),(resource leveling),Determination of critical path and time float Determination of critical path and time float

for project activities,for project activities,Determination of the project requirements Determination of the project requirements

for finance, materials and equipment for for finance, materials and equipment for any time period,any time period,

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and Resource Critical Pathand Resource Critical PathDetermination of renewable resources Determination of renewable resources

utilization in time,utilization in time,Risk analysis and development of the Risk analysis and development of the

project schedule and other project project schedule and other project characteristics allowing for the risks,characteristics allowing for the risks,

Project performance measuring,Project performance measuring,Project performance analysis and Project performance analysis and

forecasting main project parameters.forecasting main project parameters.

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and Resource Critical Pathand Resource Critical Path The problem of project schedule The problem of project schedule

development without allowing for resource development without allowing for resource constraints has a correct mathematical constraints has a correct mathematical solution (critical path method), which would solution (critical path method), which would be the same for all PM packages, provided be the same for all PM packages, provided that initial data are identical.that initial data are identical.

All other problems are solved using different All other problems are solved using different approaches and yielding different results.approaches and yielding different results.

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Resource constrained schedules produced Resource constrained schedules produced by different PM software are different.by different PM software are different.

The software that calculates shorter The software that calculates shorter resource constrained schedules may save a resource constrained schedules may save a fortune to its users.fortune to its users.

Spider Project is based on advanced Spider Project is based on advanced heuristics that consistently obtains shorter heuristics that consistently obtains shorter resource constrained schedules than using resource constrained schedules than using

other PM software packages.other PM software packages.

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The schedule stability is no less important, The schedule stability is no less important, especially at the project execution phase. especially at the project execution phase.

That’s why Spider Project features an That’s why Spider Project features an additional option - the support of the earlier additional option - the support of the earlier project version schedule (the order of project version schedule (the order of activity execution is the same as in selected activity execution is the same as in selected earlier project schedule).earlier project schedule).

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Resource Critical PathResource Critical Path

Traditional notion of Critical Path works only Traditional notion of Critical Path works only in case of unlimited resources availability. in case of unlimited resources availability.

Let us consider a simple project consisting of Let us consider a simple project consisting of five activities, presented at the next slide.five activities, presented at the next slide.

Activities 2 and 5 are performed by the same Activities 2 and 5 are performed by the same resourceresource

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At the next slide you will see the results of At the next slide you will see the results of resource constrained scheduling (leveling).resource constrained scheduling (leveling).

Please pay attention to activities that Please pay attention to activities that became critical (red on the diagram).became critical (red on the diagram).

Now delaying each of the activities 1, 2 and Now delaying each of the activities 1, 2 and 5 will delay the project finish date.5 will delay the project finish date.

And though these activities are not linked we And though these activities are not linked we call them call them Resource CriticalResource Critical and their and their sequence comprise sequence comprise Resource Critical PathResource Critical Path..

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MS Project ExampleMS Project Example

At the next slide you may find MS Project At the next slide you may find MS Project resource constrained schedule for the same resource constrained schedule for the same project.project.

Please pay attention to the total slack Please pay attention to the total slack figures and which activities were considered figures and which activities were considered as critical.as critical.

Unfortunately resource constrained floats Unfortunately resource constrained floats are not calculated not only by MS Project but are not calculated not only by MS Project but by other popular PM software as well.by other popular PM software as well.

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MS Project ExampleMS Project Example

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Resource Critical Resource Critical PathPath

In many projects it is necessary to simulate In many projects it is necessary to simulate financing and production, and calculate financing and production, and calculate project schedules taking into account project schedules taking into account allall limitations (availability of renewable limitations (availability of renewable resources, material supply and financing resources, material supply and financing schedules).schedules).

True critical path should account for all True critical path should account for all schedule constraints including resource and schedule constraints including resource and financial limitations.financial limitations.

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We call it We call it Resource Critical Path (RCP)Resource Critical Path (RCP) to to distinguish it from the traditional distinguish it from the traditional interpretation of the critical path definition. interpretation of the critical path definition.

The calculation of RCP is similar to the The calculation of RCP is similar to the calculation of the traditional critical path calculation of the traditional critical path with the exception thatwith the exception that both both early and late early and late dates (and corresponding activity floats) are dates (and corresponding activity floats) are calculated during forward and backward calculated during forward and backward resource (and material, and cost) leveling.resource (and material, and cost) leveling.

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Resource Constrained FloatsResource Constrained Floats

Activity resource constrained floats have one Activity resource constrained floats have one large advantage over the total floats large advantage over the total floats calculated by most PM software. This calculated by most PM software. This advantage is feasibility.advantage is feasibility.

Activity resource constrained float shows the Activity resource constrained float shows the period for which activity execution may be period for which activity execution may be postponed within the current schedule with postponed within the current schedule with

the set of resources available in this project.the set of resources available in this project.

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Resource Critical Path and Resource Critical Path and Critical ChainCritical Chain

It appears that by adding financial and It appears that by adding financial and supply constraints to the Critical Chain supply constraints to the Critical Chain definition as well as the way of the Critical definition as well as the way of the Critical Chain calculation, we will obtain something Chain calculation, we will obtain something very similar to RCP. very similar to RCP.

Thus the proven technology of project Thus the proven technology of project management based on RCP that is described management based on RCP that is described further may be of particular interest for the further may be of particular interest for the Critical Chain theory supporters.Critical Chain theory supporters.

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Project Success CriteriaProject Success Criteria

If project success criteria are set as finishing If project success criteria are set as finishing project in time and under budget then project in time and under budget then proper decision making will be complicated.proper decision making will be complicated.

Project managers will not be able to Project managers will not be able to estimate the effect of their decisions to estimate the effect of their decisions to spend more money but to finish the project spend more money but to finish the project earlier.earlier.

If some project is business oriented then this If some project is business oriented then this project has to have business criteria of its project has to have business criteria of its success or failure.success or failure.

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One of potential options – to set the profit One of potential options – to set the profit that should be expected at some point in that should be expected at some point in time basing on the forecast of the profit that time basing on the forecast of the profit that will be obtained after the project will deliver will be obtained after the project will deliver its results.its results.

Such success criterion will permit to weight Such success criterion will permit to weight time and money making managerial time and money making managerial decisions.decisions.

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At the next slide you may see the project At the next slide you may see the project schedule that is calculated without allowing schedule that is calculated without allowing for project financing and supply restrictions.for project financing and supply restrictions.

There are periods when project has no There are periods when project has no money to proceed and necessary materials money to proceed and necessary materials are absent.are absent.

But if project manager will find money and But if project manager will find money and materials then total profit to some imposed materials then total profit to some imposed date will be close to $225,000.date will be close to $225,000.

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If to calculate project resource, financing and If to calculate project resource, financing and supply constrained schedule than total profit supply constrained schedule than total profit will become more than $16,000 less.will become more than $16,000 less.

Maybe it will be reasonable to borrow Maybe it will be reasonable to borrow $41,000 for ten days or to find some other $41,000 for ten days or to find some other solution?solution?

To be able to weight options and to choose To be able to weight options and to choose the best it is necessary to simulate not only the best it is necessary to simulate not only expenses.expenses.

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Risk SimulationRisk Simulation

Our experience of project planning shows Our experience of project planning shows that the probability of successful that the probability of successful implementation of deterministic project implementation of deterministic project schedules and budgets is very low. schedules and budgets is very low.

Therefore project planning technology Therefore project planning technology should always include risk simulation to should always include risk simulation to produce reliable results.produce reliable results.

Risk simulation may be based on Monte Risk simulation may be based on Monte Carlo simulation or use three scenarios Carlo simulation or use three scenarios approach that will be described further.approach that will be described further.

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Monte Carlo simulation is very time Monte Carlo simulation is very time consuming and not practical for the large consuming and not practical for the large projects.projects.

Current practice of its implementation Current practice of its implementation mostly do not consider correlation between mostly do not consider correlation between activity duration and cost estimates that activity duration and cost estimates that exists if activities are performed by the exists if activities are performed by the same resources, do not consider risk events same resources, do not consider risk events that may change a set of project activities.that may change a set of project activities.

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Even if everything is properly simulated the Even if everything is properly simulated the number of necessary iterations is too high number of necessary iterations is too high for receiving reliable results in the for receiving reliable results in the reasonable time.reasonable time.

A project planner may be happy with the A project planner may be happy with the probability estimates that has plus or minus probability estimates that has plus or minus 10% accuracy but only if the error will be 10% accuracy but only if the error will be stable. If it may change from one calculation stable. If it may change from one calculation to another then these estimates can not be to another then these estimates can not be used as performance management tool.used as performance management tool.

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Risk Simulation – Risk Simulation – three scenarios approachthree scenarios approach

A project planner obtains three estimates A project planner obtains three estimates (optimistic, most probable and pessimistic) (optimistic, most probable and pessimistic) for all initial project data (duration, volumes, for all initial project data (duration, volumes, productivity, calendars, costs, etc.).productivity, calendars, costs, etc.).

Risk events are selected and ranked using Risk events are selected and ranked using the usual approach to risk qualitative the usual approach to risk qualitative analysis.analysis.

Usually we recommend to include risk Usually we recommend to include risk events with the probability exceeding 90% in events with the probability exceeding 90% in the optimistic scenario, exceeding 50% in the optimistic scenario, exceeding 50% in the most probable scenario, and all selected the most probable scenario, and all selected risks in the pessimistic scenario. risks in the pessimistic scenario.

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Risk Simulation – Risk Simulation – three scenarios approachthree scenarios approach

These data are used to calculate optimistic, These data are used to calculate optimistic, most probable and pessimistic project most probable and pessimistic project schedules and budgets.schedules and budgets.

The most probable and pessimistic project The most probable and pessimistic project scenarios may contain additional activities scenarios may contain additional activities and costs due to corresponding risk events and costs due to corresponding risk events and may employ additional resources and and may employ additional resources and different calendars than the optimistic different calendars than the optimistic project scenario.project scenario.

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Risk Simulation – Risk Simulation – three scenarios approach three scenarios approach

As the result project planner obtains three As the result project planner obtains three expected finish dates, costs and material expected finish dates, costs and material consumptions for all major milestone.consumptions for all major milestone.

They are used to rebuild probability curves They are used to rebuild probability curves for the dates, costs and material for the dates, costs and material requirements.requirements.

Defining desired probabilities of meeting Defining desired probabilities of meeting project targets a project planner obtains project targets a project planner obtains desired finish datesdesired finish dates, costs and material , costs and material requirements for any project deliverable.requirements for any project deliverable.

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Risk Simulation – Risk Simulation – setting targetssetting targets

There is a preferable interval for setting There is a preferable interval for setting project targets that is defined by market project targets that is defined by market competition.competition.

Let’s consider an example:Let’s consider an example:– Some company delivers projects that bring Some company delivers projects that bring

her $10,000 profit per project if the project her $10,000 profit per project if the project is successful.is successful.

– Unsuccessful project means $10,000 lost.Unsuccessful project means $10,000 lost.

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Let’s create a table with the following data:Let’s create a table with the following data: P - Probability of project successP - Probability of project success M - Mean profit from the single projectM - Mean profit from the single project N - Number of expected customersN - Number of expected customers T - Expected total profitT - Expected total profit

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PP MM NN TT

100100 1000010000 33 3000030000

9090 80008000 55 4000040000

8080 60006000 88 4800048000

7070 40004000 1212 4800048000

6060 20002000 2020 4000040000

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Risk Simulation – Risk Simulation – setting targets setting targets

For this company it is reasonable to propose For this company it is reasonable to propose project targets that will be met with the project targets that will be met with the probability that is between 70% and 80%.probability that is between 70% and 80%.

These data form basis for the negotiations These data form basis for the negotiations that may result in establishing other target that may result in establishing other target dates, costs, material consumption.dates, costs, material consumption.

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Success ProbabilitiesSuccess Probabilities

In this case it is necessary to calculate In this case it is necessary to calculate the the probabilities of meeting required project probabilities of meeting required project targets.targets.

If they are reasonable then they may be If they are reasonable then they may be accepted.accepted.

Probabilities to meet approved project Probabilities to meet approved project targets we call targets we call Success ProbabilitiesSuccess Probabilities..

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BaselineBaseline

Target dates do not belong to any schedule. Target dates do not belong to any schedule. Usually they are between Usually they are between most probable and most probable and pessimistic dates.pessimistic dates.

A set of target dates and costs (analogue of A set of target dates and costs (analogue of milestone schedule) is the real project milestone schedule) is the real project baselinebaseline. . But baseline schedule does not But baseline schedule does not exist!exist!

A schedule that should be used for setting A schedule that should be used for setting tasks for project implementers is optimistic.tasks for project implementers is optimistic.

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Critical ScheduleCritical Schedule

Project planner obtains not only the set of Project planner obtains not only the set of target dates but also a critical schedule – a target dates but also a critical schedule – a project schedule calculated backward from project schedule calculated backward from target dates.target dates.

Usually this schedule is based on most Usually this schedule is based on most probable estimates of activity durations and probable estimates of activity durations and the difference between current and critical the difference between current and critical dates shows current schedule contingency dates shows current schedule contingency reserves (buffers).reserves (buffers).

At the next slide critical schedule is shown in At the next slide critical schedule is shown in blue.blue.

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BuffersBuffers

There are time, cost and material buffers There are time, cost and material buffers that show contingency reserves not only for that show contingency reserves not only for a project as a whole (analogue of Critical a project as a whole (analogue of Critical Chain project buffer) but also for any activity Chain project buffer) but also for any activity in the optimistic project schedule.in the optimistic project schedule.

Time buffer for activity is defined as the Time buffer for activity is defined as the difference between activity starts (finishes) difference between activity starts (finishes) in the current and critical schedules.in the current and critical schedules.

During project execution it is necessary to During project execution it is necessary to estimate if these buffers are properly estimate if these buffers are properly utilized.utilized.

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Success Probability Success Probability TrendsTrends

TheThe best way to measure project performance best way to measure project performance is to estimate what is going on with the is to estimate what is going on with the project success probabilities.project success probabilities.

If they rise it means that contingency reserves If they rise it means that contingency reserves are spent slower than expected, if they drop it are spent slower than expected, if they drop it means that project performance is not as means that project performance is not as good as it was planned and corrective actions good as it was planned and corrective actions are needed.are needed.

In any case if the project meets project targets In any case if the project meets project targets then corresponding success probabilities will then corresponding success probabilities will reach 100% before project finish.reach 100% before project finish.

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Success probabilities may change due to:Success probabilities may change due to:– Performance resultsPerformance results– Scope changesScope changes– Cost changesCost changes– Risk changesRisk changes– Resource changesResource changes

Thus success probability trends reflect not Thus success probability trends reflect not only project performance results but also only project performance results but also what is going on around the project.what is going on around the project.

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We consider success probability trends as We consider success probability trends as the really integrated project performance the really integrated project performance measurement tool.measurement tool.

Success probability trends may be used as Success probability trends may be used as the only information about project the only information about project performance at the top management level – performance at the top management level – this information is sufficient for performance this information is sufficient for performance estimation and decision making.estimation and decision making.

We call the described methodology We call the described methodology SSuccess uccess DDriven riven PProject roject MManagementanagement..

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If project performance is estimated by If project performance is estimated by success probability trends then project success probability trends then project managers are encouraged to resolve managers are encouraged to resolve uncertainties ASAPuncertainties ASAP– This can increase success probabilities even with This can increase success probabilities even with

activity finish delays & cost overruns.activity finish delays & cost overruns. Postponing problem activities leads to Postponing problem activities leads to

negative trends in success probabilities.negative trends in success probabilities. This attribute of success probability trends is This attribute of success probability trends is

especially useful in new product especially useful in new product development project management.development project management.

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It is useful to set not one but several targets It is useful to set not one but several targets for the same project parameter.for the same project parameter.

In this case success probability trends will In this case success probability trends will show to what interval of final results project show to what interval of final results project is going.is going.

In any case there are always several sets of In any case there are always several sets of target data for each project.target data for each project.

Let’s discuss it using project budget as an Let’s discuss it using project budget as an example.example.

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Project BudgetsProject Budgets

The first project budget is the optimistic The first project budget is the optimistic budget that is set as a target for the project budget that is set as a target for the project team.team.

The second one is the budget of the project The second one is the budget of the project management team that includes approved management team that includes approved contingency reserves.contingency reserves.

The third budget includes management The third budget includes management reserves and may be called executive reserves and may be called executive budget.budget.

And at last the project may have contract And at last the project may have contract cost that includes profit.cost that includes profit.

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Project BudgetsProject Budgets

Optimistic budget has zero success Optimistic budget has zero success probability.probability.

As for others it is useful to know what is As for others it is useful to know what is going on with the probabilities to meet going on with the probabilities to meet project management team budget, project management team budget, executive budget and contract cost.executive budget and contract cost.

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Critical ChainCritical Chain

You may notice that the approaches to the You may notice that the approaches to the project management discussed today are project management discussed today are similar to those that are used in Critical similar to those that are used in Critical Chain Project Management.Chain Project Management.

I do not see the difference between I do not see the difference between Resource Critical Path and Critical Chain Resource Critical Path and Critical Chain except I have never met the description of except I have never met the description of the Critical Chain calculation.the Critical Chain calculation.

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Both the SDPM and the Critical Chain Both the SDPM and the Critical Chain theories recommend project managers to theories recommend project managers to use optimistic estimates of the project data use optimistic estimates of the project data to set the tasks for the project manpower to set the tasks for the project manpower and to control contingency and management and to control contingency and management reserves. SDPM also offers a technique for reserves. SDPM also offers a technique for calculating necessary contingency reserves, calculating necessary contingency reserves, while CCPM suggests to use qualitative while CCPM suggests to use qualitative estimates.estimates.

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Unlike Critical Chain theory SDPM approach Unlike Critical Chain theory SDPM approach states that:states that:– RCP can change during the project RCP can change during the project

execution, execution, – multitasking is sometimes necessary, and multitasking is sometimes necessary, and – critical (drum) resources can be different critical (drum) resources can be different

at the different stages of the project life at the different stages of the project life cycle.cycle.

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Critical PathCritical Path

RCP and classical Critical Path are the same RCP and classical Critical Path are the same if project resources are unlimited.if project resources are unlimited.

If project resources are limited then the If project resources are limited then the classical Critical Path is useless and total classical Critical Path is useless and total floats calculated without considering floats calculated without considering resource limitations are not feasible.resource limitations are not feasible.

Really critical activities belong to Resource Really critical activities belong to Resource Critical Path and resource constrained floats Critical Path and resource constrained floats show real activity time reserves.show real activity time reserves.

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ConclusionsConclusions

Resource Limited Project Management Resource Limited Project Management requires implementing special requires implementing special techniques that include:techniques that include:– Organizing data in a way that supports Organizing data in a way that supports

proper resource work simulation and proper resource work simulation and application of corporate norms and application of corporate norms and standards.standards.

– Creating a set of reference-books and a Creating a set of reference-books and a fragnets library that are obligatory for fragnets library that are obligatory for creating project computer models.creating project computer models.

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ConclusionsConclusions

– Calculating Resource Critical Path and Calculating Resource Critical Path and resource constrained floats.resource constrained floats.

– Risk assessment and simulation.Risk assessment and simulation.– Defining target dates and costs (and Defining target dates and costs (and

corresponding contingency reserves) that corresponding contingency reserves) that may be achieved with reasonable probability.may be achieved with reasonable probability.

– Recalculating the current probabilities of Recalculating the current probabilities of meeting project targets during project meeting project targets during project execution and analyzing success probability execution and analyzing success probability trends.trends.

– Applying corrective actions if these trends Applying corrective actions if these trends are negative. are negative.

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Thank youThank you

Thank you for your participation.Thank you for your participation. I am looking forward to your feedback I am looking forward to your feedback

and comments.and comments. My E-mail: My E-mail: [email protected]@mail.cnt.ru

Vladimir LiberzonVladimir Liberzon

Владимир ЛиберзонВладимир Либерзон

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