Module 1 Introduction 1/1
1.1 What Is a Project? 1/21.2 What Is Project Management? 1/8
1.3 Characteristics of Project Management 1/16
1.4 Potential Benefits and Challenges of Project Management 1/23 1.5 The History of Project Management 1/25
1.6 Project Management Today 1/27
Module 2 Individual and Team Issues 2/1
2.1 Introduction 2/22.2 The Project Manager 2/4 2.3 The Project Team 2/30
2.4 Project Team Staffing Profile and Operation 2/36 2.5 Project Team Evolution 2/46
2.6 Project Team Motivation 2/53 2.7 Project Team Communications 2/58 2.8 Project Team Stress 2/63
2.9 Conflict Identification and Resolution 2/68
Module 3 Project Risk Management 3/1
3.1 Introduction 3/23.2 Background to Risk 3/3 3.3 Risk Handling 3/11 3.4 Types of Risk 3/19
3.5 Risk Conditions and Decision making 3/25 3.6 The Concept of Risk Management 3/33 3.7 Risk, Contracts and Procurement 3/55
Module 4 Project Management Organisational Structures and Standards 4/1
4.1 Introduction 4/24.2 Organisational Theory and Structures 4/5 4.3 Examples of Organisational Structures 4/50 4.4 Project Management Standards 4/56
Module 5 Project Time Planning and Control 5/1
5.1 The Concept of Project Time Planning and Control 5/2 5.2 The Process of Project Time Planning 5/105.3 Project Replanning 5/60 5.4 Trade-off Analysis 5/72 5.5 Resource Scheduling 5/85 5.6 Project Planning Software 5/95
Module 6 Project Cost Planning and Control 6/1
6.1 Introduction 6/16.2 Project Cost Planning and Control Systems 6/2 6.3 The Project Cost Control System 6/27
Module 7 Project Quality Management 7/1
7.1 Introduction 7/27.2 Quality Management as a Concept 7/3 7.3 The Quality Gurus 7/20
7.4 The Quality Management ‘Six Pack’ 7/36 7.5 Total Quality Management 7/61
7.6 Configuration Management 7/70
7.7 Concurrent Engineering and Time-Based Competition 7/80
Module 8 Case Study 8/1
8.1 Aims and Objectives of the Case Study 8/1 8.2 Introduction (Module 1) 8/2
8.3 Individual and Team Issues (Module 2) 8/10 8.4 Risk Management (Module 3) 8/17
8.5 Case Study First Supplement 8/22
8.6 Organisational Structures (Module 4) 8/27 8.7 Case Study Second Supplement 8/30 8.8 Time Planning and Control (Module 5) 8/33 8.9 Cost Planning and Control (Module 6) 8/41 8.10 Quality Management (Module 7) 8/52
Notes compiled by John Rhoton:
1 - Introduction
1.1 What Is a Project? 1/2
Project – one-off process with single definable end-result or product.
Three key variables: Time, Cost, Quality.
1.1.1 Introduction 1/2
Production system takes resource inputs, passes through transformation, changes into desired outputs.
1.1.2 Projects and Other Production Systems 1/3
Mass production – large number of repetitive items, maximum efficiency, capital intensive, mechanistic, little management
Batch production – non-continuous demand, modifications at intervals, less mechanistic, more management, functional groupings
Project production – one-off, non-repetitive, no learning curve, complex management planning and control
1.1.3 Characteristics of Projects 1/5
Single definable purpose, product or result Defined constraints, targets
Skills & talents from multiple professions Unique, unfamiliar
Temporary
Interlinked process; directed at achieving goal Secondary importance to organisation
Complex
Project management
plans, coordinates, controls complex & diverse activities in projects general management of an organisation
requires skills
o financial awareness
o marketing appreciation
o technical knowledge
o planning skills
o strategic awareness
o quality management
Project types
External (revenue source) Internal (improve operations) &
Hardware (tangible physical result) Software (end result is system or process)
1.2 What Is Project Management? 1/8 1.2.1 Introduction 1/8
1.2.2 Definition of Project Management 1/8
Achieving time, cost, quality targets
within context of overall strategic and tactical client requirements using project resources
planning and controlling from inception to completion
Decide on success criteria (time, cost, quality) Run the project as single entity
Drive the team to success
1.2.3 The Basic Project Management Structures 1/11
Internal (non-executive) Project Management
Single designated responsible (the project manager) Acts independently (outside functional structure) Equal authority to functional managers
Single leader coordinates resources to achieve objectives Multidisciplinary group
Negotiates with functional managers Two lines of authority for members
Decision-making, accountability, rewards shared Temporary structure
Can originate from any organisational level (product dev from Marketing; technology application from R&D…)
Require assistance from support structures
External Project Management Agent on behalf of client
More flexible than internal system
Instructions/communications cross organisational boundary Lower team allegiance
PM has direct control
Functional structure not relevant
Requirement for risk transfer and contractual control No built-in knowledge of firm
1.3 Characteristics of Project Management 1/16 1.3.1 Introduction 1/16
Differences to traditional management International standards
Industry benchmarks Full life-cycle
1.3.2 Multiple Objectives 1/16
Ensure project-success criteria are met within changing constraints of time-cost-quality continuum.
1.3.3 International Co-operation and Standards 1/19
International Project Management Association (IPMA)
National agencies allow for cultural and economic differences: - Association for Project Management (APM) (UK) - Project Management Institute (PMI) (US)
1.3.4 Multi-Industry/Multidisciplinary Practitioners 1/20
Largest membership groups in APM: - Information Technology (IT) - Process engineering
- Construction
1.3.5 Generic Benchmarks 1/20
BS6079 – current UK standard for PM practice ISO10006 – European code of practice
PRINCE2 – controlled environment industries and UK government BT, Construction Industry Council codes of practice
1.3.6 Specific Provisions 1/20
Professional project manager – specialist manager, trained in PM with relevant industry experience in PM
1.3.7 Project Life Cycle 1/21
- Inception – assemble basic proposal
- Feasibility – validate the proposal (financial, time-dependent, technological, political perspectives) - Prototype
- Full design development
- Tendering and contractual arrangements - Manufacturing
- Operation (may be longest part but not always, e.g. moon rockets) - Decommissioning (e.g. toxic processes)
- Removal and recycling (legislative and environmental concerns)
1.4 Potential Benefits and Challenges of Project Management 1/23 1.4.1 Introduction 1/23
1.4.2 Potential Benefits of Project Management 1/24 - focus on objectives
- efficient use of resources - accountability
- competition with functional units
- reduced disruption - visibility
- life-cycle costs - release speed - communications
- security or project information
- team spirit/cohesion - innovation
- skill development
1.4.3 Potential Challenges to Project Management 1/24
- Impact on functional performance - Detrimental effect of competition - Conflicting orders
- Functional manager deprives resources
- Additional level of authority
- Contingency on flexible approach/attitude - Readjustment to functional working after
project
1.5 The History of Project Management 1/25
Pyramids, Great Wall, Roman roads/aqueducts
Industrial Revolution: traditional management practices – batch/mass production 1900s- Gantt chart
1950 – Network diagrams for industrial processes 1940s – Los Alamos – first complex, high-tech project 1957 – DuPont – critical path method (CPM)
1958 – US Navy – program evaluation and review technique (PERT)
Late 1960s – Project Management Institute (PMI) & Association for Project Management (APM) 1988 - APM Body of Knowledge (BoK)
1996 – BS6079 1997 – ISO10006
2 - Individual and Team Issues
2.1 Introduction 2/2
No urgent need for developing tools further. People make projects succeed or fail.
2.2 The Project Manager 2/4
2.2.1 Introduction 2/4
Term “project manager” means different things to different people Wide variation in roles and duties
2.2.2 Selecting the Project Manager 2/4
- Charged with organising and managing a project team to meet objectives - Sole responsibility for outcome
- Responsible to project sponsor
- Temporary role without traditional hierarchical power - Authority to make decisions
- No authority to issue direct orders - Sources of influence:
o Competency
o Professionalism
o Reputation
o Skill
o Interpersonal skills
o Alliances
- May manage across functional, departmental, organisational and geographic boundaries - Central position -> High volume of communications
- Intellect to devise strategy and diligence to ensure execution - Primary requirements:
o Planning
o Organising team
o Interfacing
o Negotiating
o Managing resources
o Monitoring/controlling status
o Identifying issues
o Finding solutions
o Resolving conflicts
- Interface management – between managerial and technical functions
o Maps each team member / stakeholder with clear lines and channels (A2/15)
Formal/contractual, verbal - Soft management skills
o Flexibility
o Parallel focus
o Initiative
o Persuasiveness
o Communications
o Organisation
o Problem identification
o Time management
o Negotiation / diplomacy - Hard skills
o Team set-up and management
o Complex time/cost plans
o Contracts, procurement, purchasing, personnel
o Technology
o Business strategy
- Best selection: good functional manager with PM skills
o Should not retain functional role! - External consultant is alternative
o Learning curve
2.2.3 Some Essential Project Manager Requirements 2/11
Functions:
- Project planning - Authorising - Team organising - Controlling - Directing - Team building - Leadership
- Life-cycle leadership
Constraints: - Time - Cost - Quality - Safety
Project Planning
- Time, cost, quality
- Define authority linkages with Task Responsibility Matrix (TRM)
o Milestones
o Important activities
o General responsibilities
Approval
Preparation
Checking
Making and input
Authorising
o Specific responsibilities
o Dates
Authorising
- Accumulate sufficient authority - Delegate to others
- Authority: type of ability to control/direct given from above (Power is given from below)
Team organising - Classical theory
o People are merely components in process
o E.g. automotive - Empirical theory
o Essential similarities between systems and processes
o Observation and interpretation
o Correct process will materialise from sample and data set
o E.g. trains - Behavioural theory
o Human relations school
Interpersonal relationship between people and work
Profit sharing
Expectancy theory
o Social system school
Social characteristics of organisations and individuals
Evolution as people leave/join
External influences
E.g. smoking ban, health and safety regulations - Decision theory
o Mathematical: Management science, operations research - Systems management theory
o Organisation characterised by throughput of resources
o Input – processing – output
- Functional managers favour Classical, Empirical, Behavioural theory. Project managers favour decision and systems management theory.
- Organising throughout the life-cycle but greatest organisational development at beginning. Clarify:
o Individual responsibilities
o Organisational breakdown structure
o Task responsibility matrix
o Communication links
o Authority links
o Configuration management system
Controlling - Targeting
o Correspond to success criteria
o Cost, output, quality - Measuring
o Formal, informal - Evaluating
o Identification/isolation
o Alternative options
o Corrective action
o Variance analysis in conjunction with forecasting - Correcting
o Identify source of problem
o Correct it
o Monitor actual and planned correction performance (2nd level variance analysis)
Directing
- Setting up project team - Training and development - Supervision
o Individual targets, evaluation, discipline, definition of objectives and responsibilities - Motivation (team and individual)
o Rewards, evaluation, feedback, reconciliation of individual/organisational goals - Co-ordination
o Classification of work; monitoring resources
Team building
- Early stages most critical (initial culture often continues) - Individual and team commitment
o Common objectives, reward system, motivation drivers - Team spirit (not same as commitment)
- Obtaining necessary resources
o Number of people, mix of skills
- Clear team/individual goals and success criteria
- Formalisation of visible manager support (attendance at key meetings) - Effective programme leadership
o Accuracy of planning, efficiency of monitoring/control. Ownership of large problems - Open formal/informal communications
o Complex projects have greater communication requirements
- Rewards and retribution systems (good performers rewarded, poor performers reprimanded) - Identification /management of conflict
o High pressure is common source
o Sudden change in energy levels can be a sign - Heterogeneity and cohesiveness
Leadership
- Decision-making ability - Problem-solving ability
- Integration of new members (flexibility, provision of sufficient learning time) - Interpersonal skills (comradeship and trust)
- Identify and manage conflict (when objectives/limitations are changed) - Communication skills (most important tool)
- Interface management (upward, downward, horizontal) - Factor-balancing skills
Life-cycle leadership
- Project teams last relatively short period of time - Project team changes to meet needs/challenges
Phase Characteristic Task People Effect
1 Inception High Low Telling
2 Development High High Persuading
3 Stabilisation Low High Participating
4 Maturity Low Low Delegating
2.3 The Project Team 2/30
2.3.1 Introduction 2/30
2.3.2 Project Teams within Functional Organisations 2/30
- Using resources from one function or across several
- Contrast with Pure project organisation for relatively large one-off projects (e.g. Millennium Dome) - Advantages of projects within functional organisation
o Flexibility and full use of employees
o Employees gain new experience/skills
o Cross-functional working attitude
o Experts create new synergies outside rigid functional structure
o Employees may follow primary career path in function or new career path through project
o Less costly than external consultants - Disadvantages
o Function is depleted of resources
o Functional managers offload less efficient people
o Adaptation difficulty to demands of project environment
o Prioritisation of simultaneous projects
o Communication barriers (compared to established channels of functional units)
o Motivation (unless senior management support)
2.3.3 Team Multi-disciplinary and Heterogeneity Issues 2/33
Sentience – tendency to identify with own profession/background rather than with project and organisation Interdependency – tendency for teams to depend on input from more than one individual
- Pooled interdependency (sections/divisions make contributions)
- Sequential interdependency (input from multiple individuals required to move to next phase) - Reciprocal interdependency
Differentiation (specialism) contributes to sentience
Integration – process of defining responsibilities and control, ensuring everyone adheres to same definition
Multidisciplinary nature tends to increase sentience and interdependency
Greater range of backgrounds reduces overall bias (but more discussion and conflict)
2.3.4 Group and Team Processes 2/34
Group – collection of individuals with common objective Team – group working under direction of team leader
Organisation contains many formal and informal groups. Informal tend to form quickly and voluntarily for social reasons.
Groups better at problem solving than individuals. Tend to: - Brainstorm
- Consider wider range of factors - Enhanced logic flow
- Generate more original ideas - More potential solutions
- Solve problems more accurately ad quickly
2.3.5 Project Team Performance 2/36
Most important factors contributing to performance:
- Heterogeneity – in qualifications, experience, outlook…
- Cohesiveness – alignment of personal and team goals; commitment and morale of members
2.4 Project Team Staffing Profile and Operation 2/36
2.4.1 Introduction 2/36
2.4.2 Project Team Staffing 2/36
Balance of skills: - Technical - Management - Administrative - Interpersonal
Other considerations:
- Immediate and long-term availability - Ability
- Continuity requirements - Teamworking skills - Special skills
Guidelines:
- Voluntary staffing
- Staffed to add value to project
- Operated less formally than functional teams - Lead by example
- Flexible and responsive
- Interface across organisational boundaries - Teams innovate and evolve
- Functional managers receive recognition for resources - Conflict promoted during staffing (the sooner the better)
2.4.3 Project Team Profile 2/40
Widest interpretation of project team: - Contractor’s personnel - Subcontractors
- Clients - In-house staff
- Other interested bodies (inspectors, government, lobby groups…)
In almost everyone’s interests to meet objectives in timely and cost-effective manner
Project office – focal point, physical hub of project
Three specials project-management positions: - Project manager (“managing director”) - Project planner (“operations director”) - Project controller (“financial director”)
2.4.4 Project Team Operation 2/42
Establish measureable objectives
- Identify and acknowledge stakeholders - Establish dimensions of success - Agree on criteria for success Stakeholder management
- “Invisible team” can provide great source of support. - Protect image of team
- Develop network of useful contacts
- Exploit network for quality project resources Establish/plan measureable targets
- Understandable and practicable - Multi-level
- Plan for unknown (contingencies) - Realistic milestones
Plan and establish processes - Firm ground rules
- Create open environment to be creative and take responsibility - Develop relationships
- Flexible environment when needed Leadership
- Clear direction, stimulate high performance - Reward good performance
Membership and identity - Members must trust PM
- Active followership more valuable than passive - Temporary drafts must be seen in positive light - Clear understanding of roles
- Members recognise their own value Communication systems
- Formal/informal meetings to confirm identity, provide opportunities, reinforce rules, celebrate success - Accept and address conflict
- Efficient communication with external bodies
- Meetings result in actions, documented with time scales and responsibilities Team separation
- Members can rely on fellow team members
- Commitment and momentum maintained even when physically separated - Regular contact enables clear communications
Information technology
- Reduced need for specific facilities (video…)
- Less control bureaucracy Disadvantages
- Expensive remote support - Loneliness
- Loss of managerial control - Time difference – coordination - IT can go wrong
- Cohesion severely restricted Teams in general (optimal when)
- Regular face-to-face meetings
- Performance measures and criteria are clear - Members have responsibility and accountability - Clear time commitments established
2.5 Project Team Evolution 2/46 2.5.1 Introduction 2/46
2.5.2 Project Life Cycles 2/46
- Conception and feasibility - Outline proposals and definition - Tooling up
- Operation and production - Decommissioning
2.5.3 Project Change Control and Management 2/49
Historically little attempt to standardise life-cycle phases BS6079 proposes strategic project plan (SPP)
2.5.4 Project Team Evolution 2/49
Forming
- Task responsibility matrix
- Organisational breakdown structure - Project staff register
- Baseline set of team and project objectives Storming
- Establish cohesiveness
- Increasing tendency of conflict - Attempts to depose leader Norming
- Formal/informal - Behaviour - Performance Performing
- Team members satisfied that team is balanced - New conflicts dealt with by team
2.5.5 Groupthink 2/51
Typical symptoms:
- Absolute commitment to the project - Lack of respect for competitors - Intolerance of dissent
- Fear (of authority or majority)
- Self-delusion (invincibility) – common in successful teams with high cohesion and commitment - Selective reporting
2.6 Project Team Motivation 2/53 2.6.1 Introduction 2/53
2.6.2 McGregor and Maslow 2/53
Theory X – operatives are basically lazy and unmotivated. Require threat and punishment. (Often espoused by autocratic functional managers)
Theory Y – operatives are willing to work and complete job without close supervision. Want to success because it generates greater self-respect. (typically preferred by project managers)
Maslow’s hierarchy of needs - Self-actualisation - Esteem
- Belongingness - Safety
Implications:
- Relative importance of needs
- Time-based requirements (higher levels require more time) - Unsatisfied needs (no “guarantee”)
- Complex needs (higher level needs more subjective)
- Anticipation (fulfilled needs become hygiene factors rather than motivators)
2.6.3 Equity Theory and Expectancy Theory 2/56
Equity theory – perceived fairness compared to others Choices during perceived inequity
- Seek promotion
- Seek increased reward level - Reduce contribution
- Increase other inputs
Expectancy theory
2.7 Project Team Communications 2/58 2.7.1 Introduction 2/58
Inward and outward Formal and informal
2.7.2 Project Communication 2/58
Quality and quantity important
Access to meetings should be open to all team members - encouraged to attend.
Communication mechanisms: - Meetings
- Telephone - Letters/memos
- Notice boards - Chats
- Seminars
- Project plans and reports - Newsletters
2.7.3 Formal and Informal Communication 2/59
Sections defined by power and functional boundaries called organisational islands Formal lines essential for collecting and disseminating project information
Tools include:
- Frequent reports on all aspects with clearly defined distribution lists - Regular project meetings (debate encouraged)
- Project memos - Newsletters - Notice-board
- Away-days and events
Informal communications exposes issues (unhealthy “grapevine” harbours resentment) - Lunch and dinner
- Telephone - Coffee breaks - Evenings in the bar - Social events
2.7.4 Internal and External Communications 2/62
Typically internal are informal --- open communication encouraged
External is formal, explicit – require absolute control on dissemination of information
2.8 Project Team Stress 2/63 2.8.1 Introduction 2/63
2.8.2 Origins and Symptoms of Team Member Stress 2/63
Sources of project stress: - Dual reporting
- Strict time, cost and quality limits - Short life span of teams
- Project complexity
- Frequently changing environment Main sources of stress:
- Personal
- Work (project and functional) - Environment
- Psychological - Physiological - Behavioural
2.8.3 Stress Management 2/66
Individual stress management - Diet
- Reduced alcohol, tobacco - Exercise
- Physiological awareness
- Communication (most important single element) - Realignment of goals and self-limits
- Psychological self-examination - Breaks/holidays
Project-team stress management - Deregulation
- Reasonableness - Fairness
- Open-mindedness - Flexibility
- Approachableness
2.9 Conflict Identification and Resolution 2/68
2.9.1 Introduction 2/68 2.9.2 Sources of Conflict 2/68
- Onerous constraints
- Pressure to increase speed/reduce costs - Imposition of new aims/objectives - Change and realignment
- Function/project conflicting demands - Personality clashes
- Different interpretations of requirements - Incorrect /late information/communication - Perceived inequalities
2.9.3 Conflict Characteristics 2/69
Potential for conflict increased by:
- Heterogeneity, multidisciplinary nature - Lower PM authority in functional organisation - Lower degree of specified/quantifiable objectives - Lower communication and accountability
- Greater degree of change
- Lower perceived prestige of project
2.9.4 Approaches to Conflict 2/70
Areas of conflict
- Onerous deadlines - Change occurs
- Errors/omissions discovered - Resources reduced
- Personality clash
- Agreeing on areas for concentration - Agreeing on priorities
- High uncertainty
Questions to ask - What is source
- Why?
- Impact?
- How to reduce or eliminate
- How to foresee and avoid in future
Project objectives should be SMART, and also: - Compatible with strategic plan - Agreed by senior management - Communicated to team
2.9.5 Conflict Management 2/72
- Conflict avoidance - Conflict absorption
-3 - Project Risk Management
3.1 Introduction 3/2
Risk inherent in every human endeavour, may be subconscious
3.2 Background to Risk 3/3
3.2.1 Introduction 3/3
3.2.2 The Concept of Risk 3/3
Risk management evolved from design of nuclear reactors (1950s),
Energy source is inherently dangerous, consequences catastrophic, no point in examining single events
Risk – measure of probability and consequence of not achieving specific goal. 1st level equation for risk: f (event, uncertainty, consequence)
2nd level equation for risk: f (event, hazard, safeguard)
Hazard – source of danger
Safeguard – mitigation against the hazard
Exposure – vulnerability of parts of organisation to risk impacts
Sensitivity to risk composed of three elements: significance (severity/impact), likelihood, ability to manage implications
Effective Risk Exploitation makes use of non-balance-sheet assets (SCM, IP, KM)
Risk is distribution of possible outcomes in performance over time due to changes in key variables (greater range = greater risk)
Considerations:
- World is uncertain; Risk cannot always be eliminated - Risk is a function of opportunity
- Risk can be an advantage (intimidates competition)
- Risk management is set of analytical tools; operates at all levels
- Risks may be foreseeable, partially foreseeable and wholly unforeseeable. - No risk management is infallible
3.2.3 The Human Cognitive Process 3/8
Cognitive process in risk assessment: - Pattern recognition
- Attention - Memory
- Bounded Rationality
o Generally opt for rational behaviour within constraints
o Examine possible actions and possible outcomes
o Risk forecasting
Based on experience, extrapolated
Combination of subjective and complex modelling (chaos theory)
Success factors: Accurate data Time limits Cost (effort) Vision
o Intuition – combination of experience and extrapolations
o Bias – tendency to misinterpret data because of own perceptions/preferences
3.3 Risk Handling 3/11 3.3.1 Introduction 3/11
3.3.2 Risk Assessment and Control 3/11
Risk analysis – determination of probability of risk events and establishing measure of consequence together with monitoring and control system.
Risk handling – dealing with risk
Risk feedback – occurred risks are analysed and results fed back to system for future strategies Risk control: risk analysis, handling and feedback
Typically risk management considered: risk assessment and risk control.
Risk – combination of uncertainty and constraint (e.g. legislative deadline)
Risk control – investigation of entire project (project plans, scrutiny of critical path)
Risk identification – source and effects.
Individual perception of risks will vary according to: - Organisational position
- Power level - Area of authority - Responsibilities
3.3.3 Project and Strategic Risk 3/16
Project risk – limited to risk considered entirely within project (delays, errors, cost increases…) Strategic risk – long-term, complex, difficult to model (economy, competition…)
Variance envelope – allows divergence to a certain limit
3.4 Types of Risk 3/19
3.4.1 Generic Risk Headings 3/19
Strategic risk – long-term performance of organisation
Operational risk – process itself, asset base, project members, legal controls (e.g. project risk) Financial risk – market, credit, capital structure
Knowledge risk – IT HW/SW, IM, KM
Catastrophic risk – cannot be predicted or quantified, usually covered with reserve/contingency sum
3.4.2 Market Risk and Static Risk 3/20
Market risk – potential gains/losses
Market business risk (MBR) company trading with its assets – concern to all stakeholders (shareholders, creditors, employees…)
Market financial risk – gearing ratio, concern to equity holders Cannot be reduced or controlled – only diversified
Static risk – losses only; potential losses and safeguards. (fire insurance, tortuous liability insurance…)
3.4.3 External Risk and Internal Risk 3/22
External risks
- Competitor risk - Market demand risk - Innovation risk
- Exposure risk (e.g. gearing ratio) - Shareholder risk
- Political risk - Statute risk - Impact risk
Internal risk
- Operational processes risk
o Resource availability
o Production capacity
o Process failure - Financial risk
o Borrowing
o Cash flow
o Exchange rate - Management risk
o Management error
o Strategy implementation
o Communications - IT and Technology risk
o System obsolescence
o Breakdown and failure
o Malicious virus
o Capacity limit
3.4.4 Predictable and Unpredictable Risks 3/25
- Conditions of certainty (gravity) - Conditions of risk (weather/rain)
- Conditions of uncertainty (earthquake, hurricane)
3.5.1 Conditions of Certainty 3/27
Example: when same strategy optimal for all possible states/conditions
3.5.2 Decision Making under Conditions of Risk 3/28
Typically: higher profits implies higher potential risks/losses
Payoff-matrix: Profit-matrix for strategy x state, whereby each state has assigned probability. Multiply payoff by probability; sum for each strategy.
3.5.3 Decision making under Conditions of Uncertainty 3/28
Uncertainly: assigned probabilities are not known. Sources of uncertainty can be - externally driven (environment: inflation, interest rates, demographic changes) - internally driven (process: motivation, loyalty, new products, innovation) - decision-driven (information: strategy planning, R&D, investment)
Maximax - Hurwicz criterion – always optimistic, maximise profits in best-case scenario Maximin - Wald criterion – minimise losses (minimum profits in worst-case scenario) Minimax – Savage criterion – minimise maximum regret
Laplace criterion – assign equal probabilities to all outcomes (assumes Bayesian theory)
3.5.4 The Need for a Risk Management Strategy 3/33
Total Strategic Risk Management (TSRM) must be holistic and pre-emptive (similar to TQM)
3.6 The Concept of Risk Management 3/33 3.6.1 Introduction 3/33
Risk management system must be: - practical
- realistic
- compliant (internal/external standards) - cost-efficient
Risk Management areas: - identification - classification - analysis - attitude
- response, control, policy and reporting
3.6.2 Risk Identification 3/34
Detailed and thorough, identify source of risk Risk attitudes:
- risk seeking – AGAP – all goes according to plan - risk averse – WHIF – what if
Internal risks - use WBS to identify most obvious risk areas
External risks – e.g. interest rates, economic activity --- difficult to identify and evaluate
Project risks – project administration and control techniques – OBS, team membership, leadership, communications
Objective sources – sum total of past experience
Subjective sources – sum total of current knowledge (e.g. PERT analysis)
Brainstorming
- Creative phase - Evaluation phase
-3.6.3 Risk Classification 3/38
Portfolio theory – considers from a financial point of view (beta coefficient) Classify as market risk or static risk
- Risk type - Risk extent - Risk impact
o Maximum probably loss
o Most likely cost of loss
o Cost of covering loss
o Cost of insuring against event
o Reliability of predictions about event
3.6.4 Risk Analysis 3/40
1. Evaluate all option 2. Consider risk attitude
3. Consider characteristics of risks (internal/external, controllable) 4. Establish measurement system
5. Interpret results 6. Make decision
Alternative methodology 1. Identify source
2. Identify threats/opportunities, map risk drivers 3. Assess probably and impact (Actual Risk map) 4. Consider all options; develop target risk map
5. Assess added value with recommended risk response 6. Set up monitoring and reporting
Risk mapping (aka risk profiling) – four quadrants reflecting high/low probability and impact Risk migration – from actual to target risk
Shape (e.g. ellipse) versus point reflects variation limits Risk grid – table
- Dimensions: multiple levels of probability and severity
- Cell: indicates action (e.g. Retain, Part insurance, Full insurance, Cease activity)
3.6.5 Risk Attitude 3/46
Individuals more risk averse than teams
Inclination to risk increases with age of team (time since formed) Multidisciplinary teams seek more risk than unidisciplinary teams.
3.6.6 Risk Response 3/48
Considerations
- Company policy
- Missing information on cause/effect - Time of exposure
- Individual/team interests - Involuntary/voluntary risk - Alternatives
Risk distribution
Contract – tool to allocate/share risk Considerations
- Is the outcome worth the risk? - Who controls most risk
- Who is most liable? - Incentives?
Options:
- Retention – ignore risk (low-probability, low-impact) - Reduction
- Transfer
o Insurability of risk (not all are insurable)
o Cost of insurance
o Maximum probable loss
o Likely loss
o Likely cost of covering loss - Avoidance
o Pre-contract negotiations
o Rescission
o Exemption clauses
- Seeking further information
3.6.7 Risk Control, Policy and Reporting 3/53
Risk handbook – documents experience with risk and risk management Risk reports should be regular and integral to strategy
Risk policy:
- Overall aims and objectives - Accountability for managers - Formalised reporting channels - Risk tolerances
- Authorisation
3.7 Risk, Contracts and Procurement 3/55 3.7.1 Introduction 3/55
Contract is tool for risk transfer and mitigation. Transfers liability. - To insurance company for premium
- Between suppliers/subcontractors - Tender price reflects risk absorption
Reasons for conflict:
- Defective documentation - Inappropriate arrangements - Incorrect estimating/pricing - Unreasonable risk allocation - Communications breakdown - Insolvency
- Ambiguity
Contract defines rights, dues, obligations, liabilities.
Commensurate risk – inability to fulfil obligation due to own inadequacy
Uberrimae fidei (utmost good faith) obligation to disclose all relevant information to contract
3.7.2 Basic Contract Theory 3/56
Contract items
- Signature block & project title - Definition of terms and scope
- Information/facilities provided by client - Project approvals
- Payment systems - Working drawing - Specification - Schedules
- General conditions (sector-generic) - Specific conditions
- Provisions for change - Form of tender - Dispute resolution - Bonds and warranties
Contract requisites
- Offer and acceptance
- Consideration (e.g. deposit) – depending on legal system - Capacity
- Legal relations
- Communication (acceptance to offeror)
Performance – all parties complete all duties and liabilities Alternatives:
- Breach – one party in contravention to terms
- Frustration – cannot be fulfilled although both parties wish to
- Rescission – error or misunderstanding, rescinded by court if terms are not acceptable (e.g. contradiction) - Rectification
- Void (e.g. if goods are illegal)
- Termination/determination – in accordance with provisions of contract
3.7.3 Procurement 3/59
Strategic versus project procurement
Procurement phases: - Objective phase
- Exposure phase (advertisement, investigation into possible sources) - Alternatives phase
- Documentation (of requirements) - Tendering
- Award
- Contract administration
3.7.4 Characteristics of Contracts 3/63
Controllable (e.g. human error) vs. uncontrollable (adverse weather) Fundamental risks:
- Design defects: (latent and patent) - Project cost
- Safety and indemnification - 3rd party insurance
- Fire, flood…
- Completion deadlines: Damages may be punitive, liquidative (cash) or ascertained (actual)
Express/implied terms (e.g. professional indemnity/liability insurance)
3.7.5 Transfer of Risk in Contracts 3/65
Indemnity clause transfers risk
Courts unsympathetic to excessive transfer
3.7.6 Variation Orders and Change Notices 3/65
Variations – allow for changes to contract without invalidating it Must be possible to price to compensate affected party
3.7.7 Claims Risk 3/66
Client risks
- Failure to provide information - Late instructions
- Errors/omissions in contract documents
- Delays by nominated subcontractors or client consultants - Non-availability of labour
- Civil commotion, war, natural disasters - Determination of contract by contractor
Obligation of client to insure against: - Fire
- Flood - Lightning - Radiation
- Impact of aerial devices
Contractor insurance
- Employer liability for employees
- Liability for damage to 3rd party persons and property
4 - Project Management Organisational
Structures and Standards
4.1 Introduction 4/2
Internal (operational, non-executive) project management External (executive) project management
Internal with external specialist support
4.2 Organisational Theory and Structures 4/5
People make projects succeed or fail
People are more difficult to predict/control than schedule/cost
4.2.1 Introduction 4/5
4.2.2 The Project within an Existing Organisation 4/6
Most common form of PM grouping
Fundamental consideration is relationship between organisation and project; dependent on: - Relative size, status and importance of project
- Resources available - Strategic fit
Functional organisational structure
- Most common; preferred by inflexible organisations, examples:
o Government
o Police forces
o Military
o Most large private companies - Power/status defined by vertical hierarchy - Horizontal communications only at top levels - Projects may be contained within function - Benefits:
o Clear reporting, rules, responsibilities
o Mirrors traditional authority structures
o Simple; intuitive
o Specialisation & focus - Disadvantages
o Inflexible
o Cross-functional activity discouraged
o Boundaries, barriers
o Greater need for central support
o Development of organisational and operational islands
Pure project structure
- Can exist within functional structure
- Often have complete freedom within limits of final accountability - Set up to deliver very visible projects
- Benefits
o Flexible & responsive to change
o Encourages innovation and evolution
o Operational costs can be adjusted to workload variations
o No need to negotiate with functional manager for resources
o Shorter formal communication lines
o Authority contained within project
o Team members not distracted by functional loyalty
o Easier to incorporate external consultants
o Easier to execute related projects as programme
o In summary, best structure for a project - Disadvantages
o Concurrent projects may lead to duplication of effort
o High initial operating costs (until any projects are completed)
o Increased early operating costs if PMs “think ahead” to resources needed
o Team members’ concern about long-term
Matrix structure (internal, Non-executive)
- Blend of mechanistic (pure functional) and innovative (project) - Very popular for organisations undertaking projects
- Generally restricted to large organisations with predictable workload - Main characteristics
o Functional (vertical) boundaries
o Power/status (horizontal) boundaries
o Organisational islands
o Project sponsor
Adjudicate disputes
Allocate resources
Make executive decisions
o PM chair
Four legs: PM, sponsor, functional manager, team
Three interfaces for PM
Three levels of control (subordinate, peer, superior)
o Interfaces
o Bidding
o Time-recording and cost-centre charging
Most internal structures make at least some use of external resources
4.2.3 The Project External to the Existing Organisation 4/28
Project team may comprise
- All internal resources managed by external PM - All external consultants managed by consultant PM - Mixture of internal and external resources
Surrogacy – extent to which client wishes to delegate control/authority
Risk transfer – normally cover non-performance/negligence but not supplier breaches
Executive PM – means PM has full authority (does not need to negotiate over resources)
Distinctive characteristics
- Multidisciplinary nature / shared loyalty - Open and competitive fee structures
o Fee bid package
o Tranches
Pre-contract works
Post-contract works
Final account
o Percentages based on measured works totals - External contractual linkages
o Primary types
Completion contracts
Term contracts (long-term agreements)
Service-level agreements
o Competitive contracts (tender) versus negotiated contracts
o Pricing forms
Fixed-price
Cost/cost-plus
Reimbursement
Target-price
o Forms
Standard form (clear terms and conditions)
Professional services (implied terms)
Supply contracts (supply of goods)
Subcontract agreements
Domestic subcontractor (free choice by contractor) Nominated subcontractor (stipulated by client) Pro-forma contracts
o Links
Client to PM and design team
Client to main contractor
Client to service authorities
Client to nominated subcontractors
Client to local authority - External non-contractual linkages
o Authority links
Advantages
- Flexible, responsive - New ideas/approaches
- Outsource where no internal expertise - Quick ramp-up / easy disbanding - Internal risks (resources) avoided
Disadvantages: - Expense - Lack of loyalty
- Difficult recourse over poor performance - Risk profile changes
- Arbitration and litigation possibility - Complexity for PM
4.2.4 Criteria for Selecting the Organisational Structure 4/46
- Authority (project has shorter accountability lines) - Communication (matrix reduced barriers)
- Knowledge transfer (e.g. between function and project) - Loyalty
- Technology/innovation
- Cost (pure project has lower running costs, function has large fixed costs)
- Coordination (function has formal reporting, therefore low coordination requirement) - Support functions (pure project requires less)
Function Matrix Pure project
Workload Constant Variable Significant variance
Project Frequency Low Frequent Frequent / dominant
Focus Functional objectives Project focus
Informal Communications Not required Acceptable
R&D Some High
Centralised support Required Present Little or none
Clear authority Required Split authority ok Devolved to PM
Change propensity Unlikely Some High
Project size Small Small to medium Large, resource intensive
Project response time Not fast Not generally fast Fast
4.2.5 Summary 4/50
4.3 Examples of Organisational Structures 4/50
4.3.1 Introduction 4/50
4.3.2 Example of an Internal Project Management Structure 4/50 4.3.3 Example of an External Project Management Structure 4/54
4.4 Project Management Standards 4/56
4.4.1 Introduction 4/56
For any given industry/profession there are three standards: - IPMA/APM/PMI (BoK)
- BS6079 / ISO10006
- Industry-specific (e.g. PRINCE2)
4.4.2 The APM and the APM Body of Knowledge 4/59
Objectives:
- 1st point of contact (national authority on PM)
- Lead professional development - Champion interest representation - Standardise qualifications
- Develop national branch network
- Establish practice and procedures for training
BoK Profile
- Project Management
o Project life cycles
o Project strategy
o Leadership, communication and team building - Techniques and procedures
o Planning, estimating, control, monitoring - General management
o Finance, law
4.4.3 BS6079 4/63
Focus is standardisation
- E.g. different methods of planning and control measurement
Most important section is standard strategic project plan (SPP) - Preliminaries
o Title page, project description, contents list, introduction, names
o Security levels for different team members - Project aims and objectives
o Time, cost, quality…health and safety, environmental - Subject-specific sections
o BS6079 proposes standard numbering
o Scheduling, cost control, project history, project policy, certification procedures
Acts as both a document and benchmark
Clients may use SPP (up to baseline stage) as basis for competitive bids
4.4.4 PRINCE2 4/66
Project management in a controlled environment (v2)
Alternative to BS6079 – developed by Central Computer Telecommunications Agency (CCTA) in 1989 for IT PM in UK government
Based on process model of project
- Decomponentises model specifying key inputs /outputs and aims/objectives - Driven by project business case
Advantages
- Standard project structure - Regular detailed reviews
o Measured against business case and planned progress - Flexible decision points
- Automatic control of deviations
- Optimises involvement of stakeholders - Encourages communications
5 - Project Time Planning and Control
5.1 The Concept of Project Time Planning and Control 5/2
5.1.1 Introduction 5/2
Time-planning intrinsically linked to life cycle (separate from implementation) Not static – replanning in parallel with implementation
Variance – comparison of actual with planned performance – basis of management reporting Also feedback for future projects
Extrapolation allows prediction of future performance
5.1.2 Aims and Objectives of the Planning Process 5/4
- Plot course from current position to end position - Establish variance limits
- Allow contingencies and resources for divergences - Ensure correction of divergences
More specifically
- Consider strategic objectives - Establish project objectives - Compartmentalise work - Determine interdependencies - Determine resources
- Determine cost/duration/sequence of packages - Establish communications system
- Define responsibilities, deadlines - Set up organisational structure - Identify/highlight critical activities - Motivation
- Produce Strategic Project Plan
5.1.3 Project Time Planning and Control and the Generic Project Plan 5/6
SPP includes time, cost, quality and planning for: - Organisational and authority
- Risk management - Communications system - Finance
- Conflict and stress management - Authorisation and compliance - Health and safety
- Change management
5.1.4 Project Time Planning and the Project Life Cycle 5/7
Continuous planning/replanning throughout the life cycle but intensity varies - Most intense in early stages
- Critical changes increase replanning - Replanning process critical in large projects - Becomes more complex as project progresses
Examples of replanning reasons:
- Internal (optional) change – client-initiated
- External (imposed) change – e.g. supplier/subcontractor fails - Sequential disruption – resource reallocation (within project) - Miscalculation
5.2 The Process of Project Time Planning 5/10
5.2.1 Factors Affecting the Time Planning Process 5/10
Sources of time planning data
- Knowledge, experience, environmental conditions, form of contract Project uniqueness
- Objectives
- Availability of contractors, suppliers - Contractual conditions
- Client characteristics - Time of year
- Local conditions, government regulations, environment People issues
- Stakeholder buy-in
- View as fair, reasonable and achievable Complexity; analyze components for:
- Position in sequence - Importance of package - Criticality of package
- Acceptable time/cost overrun - Resources required
Uncertainty/change
- Not possible to eliminate risks completely - Not cost-effective to eliminate some risks - Eliminating some risks may give rise to others - Difficult to assess some risks
- Relative importance may change over time Accuracy/reliability
- Unfamiliarity with software - Misguided assumptions - Insufficient data
- Incomplete understanding of implications and linkages Communication
- Software promotes tendency to issue too much information
5.2.2 The Planning Process 5/17
1. Statement of Work (SOW)
2. Work breakdown structure (WBS) 3. Project Logic Evaluation (PLE) 4. Separate time, cost, quality planning 5. Network analysis (CPM, PERT…) 6. Trade-off analysis to replan 7. Project Master Schedule (PMS)
Statement of Work – defines overall content and limits of work; all required information for tender/bid - Signature block, project title
- Terms and scope
- Information/facilities provided by client - Approval requirements
- Payment terms - Working drawings - Specification, schedules - General and specific conditions - Variations procedures
- Dispute resolution - Bonds/insurance Work Breakdown Structure
- Purpose
o Improve accuracy of estimates
o Define baseline for performance measurement and control
o Identify tasks and responsibilities - Levels of definition (typically six)
- Logical numbering system
o Align with Cost Accounting Codes (CAC) in use
o Typically generated by Computerised Database Estimating System (CDES) - Dividing the WBS
o Work type
o Responsibility
o Location Project Logic Evaluation
- Define sequence of individual packages
o Resource driven
o Logic driven
Sequential, parallel
- Purposes/uses
o Project completion date
o Supply order/delivery dates
o Subcontractor notification dates
o Milestones for progress planning
o Risk management system
o Logic incompatibilities
o Contractual compatibilities
o Basis for replanning/trade-off analysis, resource levelling , earned value analysis - Critical Path Method (CPM) – deterministic
- Program Evaluation and Review Technique (PERT) – probabilistic - Gantt Charts
- Network Diagrams (precedence diagram with activity durations)
o Activity on arc (AOA)
Activities shown as arcs
Events shown as nodes (circles) with duration
Dummy activities required to represent dependencies (shown as broken line)
o Activity on node (AON)
Activities as nodes (rectangles)
Temporal relationship dependent on placement of arrow end-points Finish to start (most common, simplest)
Finish to finish Start to start Start to finish - Critical Path Method (CPM – DuPont 1960)
o Assign durations for each activity
Modular technique (decompose activities)
Benchmark technique (recorded time for similar works)
Modelling technique (generate formula/model from previous activities)
Computerised Database Estimating System (CDES)
Parametric technique (dependent/independent variables e.g. time& length of digging tunnel)
o Identify start/finish window for each activity
Forward pass: Identify Earliest Event Times (EET) Earliest Start time
Earliest Finish time
Backward pass: Identify Latest Event time (LET)
o Critical path (no float window i.e. EET=LET
o Replan/ rationalise resources
Import new activities
Decrease work (cut corners)
Reshuffle resources
Re-evaluate sequence
Overlap phases
Speed up approvals
Smooth resource utilisation
Prioritise activities (allocate resources to critical path…)
o Form Draft Master Schedule / refine into Project Master Schedule (PMS) - Program Evaluation and Review Technique (PERT)
o Assign three durations to each activity
optimistic, most likely, pessimistic
o Calculate mean duration and standard deviation for each activity (Beta distribution)
Duration:
Standard Deviation:
o Calculate project mean duration and standard deviation
Project Mean Duration:
Project Standard Deviation:
o Identify target completion date and variance about target (Normal distribution)
Number of standard deviations between Project Mean Duration and Target (client-requested) Duration
E.g. 1 standard deviation ~ 68%; 2 stddev ~ 95%; 3 std dev ! 99% probability of meeting deadline
Quality = performance in following sections. Elsewhere it may refer to specific measureable aspect of quality
5.3.1 Introduction 5/60
Crash analysis – how much can project be accelerated and at what cost?
5.3.2 Crash Analysis 5/61
Trade-off between time and cost. Assumes Quality is fixed.
Process:
- Define project logic
- Add durations to each activity - Establish critical path
- Calculate crash cost per activity - Calculate crash cost per unit time
- Determine most cost-effective crash sequence - Check critical path
- Crash network to limit
o Optimum cost point (starting point) --- additional time beyond this will accrue fixed overhead
o First crash point (using cheapest critical path component to crash)
o Maximum crash point
5.3.3 Crash Example 5/67
5.4 Trade-off Analysis 5/72
5.4.1 Introduction 5/72
5.4.2 Methodology for Trade-off Analysis 5/74
1. Identify reason for problem
- Pre-execution (during DMS)
- Change in client requirements; strategic objectives - Design incompatibilities
- Subcontractors/suppliers/ external consultants - Misunderstandings/miscommunications - Execution
- Client requirements - Human error - Execution problems - Emerging risk
Project-specific 2. Re-evaluate objectives
- Competitor behaviour, customer demand, economy, technology, legislation… 3. Allow for other relevant factors
- Strategic and/or operational 4. Shortlist solutions
5. Select/test alternative 6. Implement
5.4.3 Trade-off Classification 5/78
Type 1: Time is fixed Type 2: Cost is fixed
Type 3: Performance is fixed (Order of chapters are fixed)
Type 4: Time and Cost are fixed
Type 5: Time and Performance are fixed Type 6: Cost and Performance are fixed (Reverse order of chapters are variable)
Type 7: Everything is fixed
- Unusual; typically in small, simple projects - Unlikely change
Type 8: Nothing is fixed - Also unusual. - Emergency works
- Stop-loss (fulfil contractual obligations as soon as possible)
5.4.4 Example Trade-off Curves 5/81
5.5.1 Introduction 5/85
Seven types of resources: - People
- Materials - Equipment - Funds - Information - Technology - Space
Considerations:
- Resource productivity
o Project productivity not a simple sum of individual productivity - Resource availability
5.5.2 Resource Aggregation 5/86
Large variations may lead to periodic idle time if resources cannot be easily redeployed
5.5.3 Resource Utilisation 5/89
5.5.4 Resource Levelling (or Smoothing) 5/89
Levelling out peaks and troughs in resource demand so utilisation approaches average Depends on:
- Flexibility of completion date - Availability of resources
Benefits:
- Reduced peaks in demand means fewer people on project => reduces coordination and control - Individuals work for longer period of time (learning curve)
- Reduced float times lead to greater continuity - Reduce overall time subcontractors are required
5.6 Project Planning Software 5/95
5.6.1 Introduction 5/95
5.6.2 Advantages of Computer-based Project Planning and Control 5/96
Speed Cost Capacity Reliability
Combined analysis (e.g. simultaneous planning for time and cost)
5.6.3 Disadvantages of Computer-Based Project Planning and Control 5/97
Reliance (backup)
Over-emphasis on time-consuming detail Information dump
Potential misdirection (Excessive trust in well-presented material if based on erroneous data)
5.6.4 General Factors for Consideration 5/98
Lead-in time Transition Training
Software Updates
Networking (security and access implications)
Wider compatibility (in linking the configuration management system to external consultants/contractors/suppliers)
Critical success factors - Usability
- Familiar displays - CMS compatibility - Extensibility
5.6.5 General Features of Project Planning and Control Software Systems 5/100
- Resource management (resource loading, conflicts, costs, budgets, forecasts) - Tracking and monitoring (compared to baseline)
- Report generation (status, budget, cash flow, resources, schedules)
- Analysis and decision aiding (what-if analysis; or at least straightforward analysis to be used in decision making)
5.6.6 Common Commercial Project Planning and Control Software 5/101
High-end:
- Power project professional - Primavera Project Planner - Artemis Views
- Open Plan - Cobra
- Enterprise PM - Micro Planner X-Pert
Mid-range (up to 2000 tasks) - Microsoft Project - Micro-Planner Manager - Primavera Suretrak
6 - Project Cost Planning and Control
6.1 Introduction 6/1
6.2 Project Cost Planning and Control Systems 6/2 6.2.1 Introduction 6/2
Cost planning – breaking down project into elements, assigning realistic estimate of cost and rolling up costs Cost control – ensuring adherence to cost limits
- Monitoring expenditures - Identifying variances
- Determining reasons for variance - Corrective action
- Monitoring to ensure resolution
- Taking further corrective action if necessary
6.2.2 Cost Planning and Control as a Concept 6/3
Target costs identified by account code system No direct time measurement but time does affect cost
Cost variances from internal sources easier to control than from external sources
General requirements
- Project schedule must be accurate - Estimating system must be reliable
o Typically electronic estimating system; some still use price books - Clear project scope (unambiguous, non-overlapping tasks)
- Realistic budget (fair and reasonable)
- Clear authorisation system (multi-layer approvals filter) - Flexible and responsive system
- Reliable approach to tracking variance
- Time-dependent variance sensitivity (diminishes over time) - Flexible use of reserves and contingencies
6.2.3 Types of Control System 6/10
- Cybernetic - Analogue - Feedback
Cybernetic
- Most common approach
- Automatic response mechanism
- Used by animals and some plants to make decisions - Set of inputs establish context
- Outputs subject to monitoring system - Bounded rationality
- Multi-level cybernetic control
o Low-level: e.g. shower control with temperature sensor, instrument controls, animals
Most cost-control systems
Detecting time and cost variances
Adjusting likely final time/cost estimates
Re-programming schedule change
o Mid-level: greater flexibility, complexity; automobile engine management
Adjusting estimates for individual cost rates
Establishing cost of change notices
Releasing contingency sums
o High-level: introduces intelligence, memory, experience, original thought
Tactical solutions to programming problems
Updating risk profile
Developing negotiation strategy
o Human mind operates at all three levels
Analogue
- Appropriate for smaller elements/packages - Series of yes/no questions
o Basis of human reasoning process
- Can be used on almost every aspect of project to determine if preconditions have been met
Feedback control
- Post-project evaluation and feedback [6/105]
Cybernetic most common
- Key feature automatic response mechanism - Cost-control primarily low-level
- High-level for controlling overall project performance Analogue system
- Every aspect – determine if preconditions met
Cybernetic are automatic and therefore continuous; Analogue are invoked as needed Cybernetic and analogue for ongoing use. Feedback applied after project completion
6.2.4 Costs and Allowances 6/16
[6/106] Factory costs – total fixed/variable costs without any mark-up
Classification:
- Fixed and variable costs (with regard to level of activity of project) - Direct and indirect costs
- Measured works (individual and unit prices) - Contingencies and reserve (empirically calculated) - Fluctuations
- Prime cost (pass-through) and provisional sums (foreseen but undefined work) - Direct payments (e.g. government or utilities)
- Bonds and warranties
- Exchange rates and currency fluctuations - Insurance
6.2.5 Life Cycle Costs 6/21
Life-cycle costing (LCC) – attaching costs to individual stages of life cycle Considers long-term implications of early design decisions
Typical Life-Cycle Phases - Inception
- Feasibility
- Detailed development - Production
- Project termination, system operation, maintenance - System divestment
Additional (optional) phases and costs - Research and development - Prototype
- Design - Production - Commissioning - Operation - Maintenance - Decommissioning
- Product retirement / phase-out
LCC Process
- Establish life-cycle characteristics - Build process cost model
- Calibrate model (benchmark with standard) - Input relevant data
- Generate LCC and define strategy (balance between long-term and project ramp-up)
Advantages
- Long-range considerations - Life-cycle viability
- Strategic decision making - Future awareness
- Market position - Compliance Disadvantages
- Prediction accuracy (invalid assumptions) - Cost (Full LCC is expensive)
- Risk (implications of inaccuracy)
6.3 The Project Cost Control System 6/27 6.3.1 Introduction 6/27
Two cycles
- Cost planning cycle - Cost control cycle
o Phase 1: Cost planning
o Phase 2: Work initiation
o Phase 3: Cost data collection
o Phase 4: Variance generation
o Phase 5: Cost reporting
6.3.2 The PCCS Planning Cycle 6/28
Estimating procedure:
- Professional estimator
o Trained, experienced, unbiased - Project team
o Estimators are responsible
o “on the ground”, best knowledge of resources and requirements
o Aware of system limitations
o Can confer, negotiate on resources
o May cost low to win or high to succeed - Other considerations
o Project success criteria (consistent with estimating assumptions)
o Project linkages (synergies)
o Standardised approach (leverage central data and systems)
o Feedback
Estimating elements - Labour - Materials - Plant
Also many others, e.g. - Fuel
- Maintenance - waste
Additional considerations for materials and equipment
- Packaging and shipping costs (also insurance, duties…) - Availability (may need to pre-order or find alternate source)
- Detailed specifications may not be available on first issue of estimate
Data gathering
- Standard tables
- Company-specific tables - Previous project data
- Estimator skill and knowledge; estimator categories (increasingly dangerous):
o Accurate
o Pessimistic
o Optimistic
o Inconsistent Presenting the Estimate
- The order-of-magnitude estimate (feasibility assessment)
- Indicative estimate (based on known information and published data) - Definitive estimate
Project Estimating - Top-down
o Strategic alignment
o More stable/static
o Less local influence and bias
o Executive commitment But:
o Senior management disconnect from operational costs
o Team may feel budget is unrealistic => reduced motivation
o Politics - Bottom-up
But:
o Less status
o Difficult to adapt to strategic changes
o Easily overridden by senior management
o Tendency to over-estimate
- Iterative (interactive between task managers and senior managers)
o Prepared by operational manager
o Aligned to strategic objectives
o Maintains market influence But:
o Timely and costly negotiation
o Requires control procedures
o Dependency on negotiation skill of operational manager (more important than estimating skill)
Bidding strategy and Estimate reporting - Formulate estimating strategy - ROM estimates
- Carry out preliminary refinement - Indicative estimate
- Add for profit and risk - Compare to cost limit
- Subjective evaluation of bid success probability - Final/definitive estimate
Consider difference between type x acquisitions (one-off with no follow-on) and type y acquisitions (follow-on likely)
Computerised Database Estimating System
- Scan or digitise quantity information directly from drawings
- Description library – collection of standard descriptions (arranged in same format as WBS) - Price codes and unit rates
- Other database elements
o Digitised drawings
o Bill preparation systems
Bill with tender, bill with estimated prices… budget plan
Project Budget Plan
- Viewed as most important project plan
- Standard Method of Measurement (SMM) – standard form to measure and quantify costs
o How to measure work
o What descriptions to use
o What to include/exclude
o Units of measurement
o Assembly in to bill of quantities for tenderer
Role of project budget
- Forecast costs to particular project tasks - Budget baseline
- Projected cost curves (for each element) - Reference for variance analysis
- Moderation of spending - Data for trade-off analysis
- Estimate effects of change notices
- Psychological effects (motivation, demotivation)
Budget Development and Layout
- Objectives and activities (measurable outputs) - Financial resources allocated
- Start/finish points of each activity
- Facility to compare actual and planned performance
- Preliminary items – general project overheads
- Prime cost sums – work is sublet to nominated subcontractor
- Provisional sums – exact extend of works in not known (e.g. excavation) - Direct Payments – payments made through project but not to project team
- Dayworks – unforeseen and unmeasuirable works (e.g. specialist to debug software) - Measured works – physically measured from specifications
- Contingencies, fees and taxes
Budget changes
- Transparency important – visibility of original budget, all changes, current budget
6.3.3 The PCCS Operating Cycle 6/58
Phase 1: Cost planning Phase 2: Work initiation Phase 3: Cost data collection Phase 4: Variance generation Phase 5: Cost reporting
Phase 2: Work initiation
Controlled release of work: - Project works order (PWO) - Variation Order (VO)
- Describe work, standards, cost-centre to charge
Phase 3: Cost data collection
- Earned Value analysis (EVA) required by APM, PMI, ISO10006, BS6079 - End result is generation of cost variance and schedule variance values
o Basis for evaluating performance and, if necessary, corrective action - Mile stone monitoring
o Milestone – definitive stage of project; appropriate point to measure performance
o Most suitable when plans not very detailed
o Disadvantages
Reaction time lag (Intervals to great)
Residual accumulated overspend (in case of late detection)
Replanning issues (milestones rescheduled easily)
Time scale issues (do not allow for work in progress)
o Earned Value Analysis (EVA)
Dynamic
Combined time/performance assessment
Frequent reporting
Demonstrates value as well as cost
Accurate assessment of cost implications of delays
Easier trade-off analysis
Earned Value Analysis
Earned Value – cost of work originally estimated
Cost variance – difference between budgeted cost and actual cost of works
- Measurable effort – separate elements within defined schedule with tangible results
- Support effort – project actions diff