Project Management
The Definition of a “Project”
• A temporary endeavor undertaken to create
a unique product, service, or result (PMI)
• In its early days, project management was
used mainly for large complex projects
• As the tools and techniques were
developed, the use of project organization
began to spread
1-2
Three Project Objectives: The “Triple Constraint”
• Time
• Cost
• Scope
• Time, cost, and performance are all related to
a project
1-3
Direct Project Goals: Scope, Cost, Time
Figure 1-1 1-4
The Project Life Cycle
Figure 1-3 1-5
Time Distribution of Project Effort
Figure 1-4 1-6
Another Possible Project Life Cycle
Figure 1-5 1-7
Risk During at the Start of the Life Cycle
Figure 1-6 1-8
Risk During the Life Cycle
Figure 1-7 1-9
Part I: Project Initiation
• Projects in Contemporary Organizations
• Strategic Management and Project Selection
• The Project Manager
• Managing Conflict and the Art of Negotiation
• The Project in the Organizational Structure
1-10
Part II: Project Planning
• Project Activity and Risk Planning
• Budgeting: Estimating Costs and Risks
• Scheduling
• Resource Allocation
1-11
Part III: Project Execution
• Monitoring and Information Systems
• Project Control
• Project Auditing
• Project Termination
1-12
Types of Project Selection Models
• Nonnumeric models
• Numeric models
2-13
Types of Nonnumeric Models
• Sacred Cow
– A project, often suggested by the top management,
that has taken on a life of its own
• Operating Necessity
– A project that is required in order to protect lives or
property or to keep the company in operation
• Competitive Necessity
– A project that is required in order to maintain the
company’s position in the marketplace
2-14
Types of Nonnumeric Models Continued
• Product Line Extension
– Often, projects to expand a product line are evaluated
on how well the new product meshes with the existing
product line rather than on overall benefits
• Comparative Benefit
– Projects are subjectively rank ordered based on their
perceived benefit to the company
2-15
Numeric Models
• Models that return a numeric value for a
project that can be easily compared with other
projects
• Two major categories:
– Profit/profitability
– Scoring
2-16
Profit/Profitability Models
• Models that look at costs and revenues
– Payback period
– Discounted cash flow (NPV)
– Internal rate of return (IRR)
– Profitability index
• NPV and IRR are the more common methods
2-17
Payback Period
• The length of time until the original investment
has been recouped by the project
• A shorter payback period is better
2-18
Payback Period Example
Project Cost
Payback Period
Annual Cash Flow
$100,000
Payback Period 4
$25,000
2-19
The Work Breakdown Structure (WBS)
• A hierarchical planning process
• Breaks tasks down into successively finer levels
of detail
• Continues until all meaningful tasks or work
packages have been identified
• These make tracking the work easier
• Need separate budget/schedule for each task or
work package
6-20
WORK BREAKDOWN STRUCTURE (WBS)
LEVEL DESCRIPTION
1 Total Program
2 Project(s)
3 Task(s)
4 Subtask(s)
5 Work Package(s)
6 Level of Effort
Most common type: Six-Level Indentured Structure
WBS Example
WBS LEVELS
1 PROGRAM 1.00.00
1.00.00
2 PROJECT 1.1.0
1.1.0 1.2.0
1.2.0 1.3.0
1.3.0 1.4.0
1.4.0
3 TASK 1.2.1
1.2.1 1.2.2
1.2.2 1.2.3
1.2.3
4 SUBTASK [Link]
[Link] [Link]
[Link] [Link]
[Link]
5 WORK [Link].1
[Link].1 [Link].2
[Link].2 [Link].3
[Link].3 [Link].4
[Link].4
PACKAGE
Work Breakdown Structure
Project Project #
Project manager Sponsor 0
Project artifacts Updated
Dependencies Estimate
Planned to
Effort Start Completi Completi Actual Resou
ID Task Status Hours Cost Date on on Completion rce
ID # of
1 task
9
Steps to Create a WBS
1. List the task breakdown in successive
levels
2. Identify data for each work package
3. Review work package information
4. Cost the work packages
5. Schedule the work packages
6. Continually examine actual resource use
7. Continually examine schedule
6-24
Human Resources
• Useful to create a table that shows staff needed
to execute WBS tasks
• One approach is a organizational breakdown
structure
– Organizational units responsible for each WBS
element
– Who must approve changes of scope
– Who must be notified of progress
• WBS and OBS may not be identical
6-25
Responsibility Assignment Matrix
• Organizational
Breakdown
Structure (OBS)
• a chart that
shows which
organizational
units are
responsible for
work items
• Responsibility
Assignment
Matrix (RAM)
• shows who is
responsible for
work in a
project
Copyright 2009 John Wiley & Sons, I 9-26
nc.
The Responsibility (RACI) Matrix
• Another approach is the Responsible,
Accountable, Consult, Inform (RACI) matrix
– Also known as a responsibility matrix, a linear
responsibility chart, an assignment matrix, a
responsibility assignment matrix
• Shows critical interfaces
• Keeps track of who must approve what and who
must be notified
6-27
Sample RACI Matrix
Figure 6-7 6-28
Project Scheduling
Network Scheduling Techniques: PERT (ADM) and
CPM (PDM)
• PERT was developed for the Polaris
missile/submarine project in 1958
• CPM developed by DuPont during the same
time
• Initially, CPM and PERT were two different
approaches
– CPM used deterministic time estimates and allowed
project crunching
– PERT used probabilistic time estimates
• Microsoft Project (and others) have blended
CPM and PERT into one approach
8-30
Terminology Continued
• Path - A series of connected activities
• Critical - An activity, event, or path which, if
delayed, will delay the completion of the project
• Critical Path - The path through the project
where, if any activity is delayed, the project is
delayed
– There is always a critical path
– There can be more than one critical path
8-31
Terminology Continued
• Activity on Arrow - Arrows represent activities
while nodes stand for events
• Activity on Node - Nodes stand for events and
arrows show precedence
8-32
AON and AOA Format
Figure 8-2
Figure 8-3
8-33
Solving the Network
8-34
Table 8-1
The AON Network from the previous table
8-35
Figure 8-13
Calculating Activity Times
TE
a 4m b
6
b a
2
2
6
2
8-36
The Results
8-37
Table 8-2
Critical Path and Time
8-38
Figure 8-15
Critical Path and Time Continued
8-39
Figure 8-16
Slack
8-40
Figure 8-16
Slack Values
8-41
Table 8-3
Critical Path Method—Crashing a Project
• Time and costs are interrelated
• Faster an activity is completed, more is the cost
• Change the schedule and you change the
budget
• Thus many activities can be speeded up by
spending more money
8-42
What is Crashing / Crunching?
• To speed up, or expedite, a project
• Of course, the resources to do this must be
available
• Crunching a project changes the schedule for all
activities
• This will have an impact on schedules for all the
subcontractors
• Crunching a project often introduces
unanticipated problems
8-43
Activity Slope
Crash Cost Normal Cost
Slope
Crash Time Normal Time
8-44
An Example of Two-Time CPM
8-45
Table 9-1
Activity Slopes—Cost per Period for Crashing
8-46
Table 9-2
Crashing the Project
8-47
Figure 9-1a
Seven Day Schedule
8-48
Figure 9-1b
Six Day Schedule
8-49
Figure 9-1c
Five Day Schedule
8-50
Figure 9-1d
Four Day Schedule
8-51
Figure 9-1e
Cost-Crash Curve
8-52
Figure 9-2
Project Control
• Time management
• Cost management
• Quality management
• Performance management
• Earned Value Analysis
• a standard procedure for numerically measuring a
project’s progress, forecasting its completion date and
cost and measuring schedule and budget variation
• Communication
• Enterprise project management
Copyright 2009 John Wiley & Sons, I 9-53
nc.
Earned Value Analysis
• Have covered monitoring parts
– Timing and coordination between individual tasks is
important
• Must also monitor performance of entire project
– Crux of matter should not be overlooked
• One way is by using an aggregate performance
measure called earned value
10-54
The Earned Value Chart and Calculations
• Actual against baseline ignores the amount of
work accomplished
• Earned value incorporates work accomplished
• Multiply the estimated percent work complete for
each task by the planned cost
• Only need percent complete estimate for tasks
currently in progress
10-55
Rules to Aid in Estimating Percent Completion
• 50-50 rule
• 0-100 percent rule
• Critical input use rule
• Proportionality rule
10-56
The Earned Value Chart
Figure 10-6 10-57
Earned Value Management
Earned Value Management
• Planned Value (PV) – Budgeted Cost of Work scheduled (BCWS)
• Earned Value (EV) - Budgeted Cost of Work Performed (BCWP)
• Actual Cost (AC) – Actual Cost of Work Performed (ACWP)
• Scheduled Variance (SV) = BCWP – BCWS
• Cost Variance (CV) = BCWP – ACWP
BAC: Budget at completion
• EAC: Expected at Completion (BAC-(BCWP-ACWP))
• SPI = BCWP / BCWS, Schedule Performance Index
• CPI = BCWP / ACWP, Cost Performance Index
• Critical ratio =CPI*SPI >1
Earned Value Management
• Forecast
– EAC – Estimated at Completion
– BAC – Budget at Completion
EAC = ACWP + (BAC – BCWP)
EAC = ACWP + (BAC – BCWP) / (CPI * SPI)
No further schedule variance: EAC = ACWP + (BAC – BCWP) / CPI
this is the formula used by Microsoft Project
Variances
• Variances can help analyze a project
1. A negative variance is bad
2. Cost and schedule variances are calculated as the
earned value minus some other measure
• Will look at some of the more common ones
10-61
Cost Variance (CV)
• CV = EV – AC
• Negative variance indicates a cost overrun
• Magnitude depends on the costs
10-62
Schedule Variance (SV)
• SV = EV – PV(planned cost)
• Negative variance indicates you are behind
schedule
• Measured using costs
10-63
