Project Management and Cost Control

Size: px

Start display at page:

Download "Project Management and Cost Control"

Felicity McCarthy
5 years ago
Views:

1 Project Management and Cost Control

2 What is Project Management Build A A Done Build B B Done Build C JAN FEB MAR APR MAY JUN C Done Build D On time! Ship Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame.

3 What is Project Management 1. ม ว ตถ ประสงค ท ช ดเจน โดยต องท ำให ส ำเร จตรง ตำมเวลำ 2. ม จ ดเร มต นและจ ดส นส ดของงำน 3. ม ขอบเขตกำรใช เง น 4. ม กำรกำหนดทร พยำกรท ใช เช น เง น คน อ ปกร

4 What is Project Management (Cont.) How is it different? Limited time frame Narrow focus, specific objectives Less bureaucratic Why is it used? Special needs Pressures for new or improves products or services

5 What is Project Management (Cont.) What are the Key Metrics Time Cost Performance objectives What are the Key Success Factors? Top-down commitment Having a capable project manager Having time to plan Careful tracking and control Good communications

6 What is Project Management (Cont.) What are the Major Administrative Issues? Executive responsibilities Project selection Project manager selection Organizational structure Organizational alternatives Manage within functional unit Assign a coordinator Use a matrix organization with a project leader

7 What is Project Management (Cont.) 1. Project modeling is the process of formulating relationships of activities in the project : network diagram, 2. Project evaluation is the process of calculating project status including monetary and non-monetary measures: return, or risk profile. 3. Project scheduling is the process of planning and determining a timeframe of the project: Critical Path Method (CPM) and Gantt Chart.

8 The Project Management Function Triple Constraint

9 Key Decisions Deciding which projects to implement Selecting a project manager Selecting a project team Planning and designing the project Managing and controlling project resources Deciding if and when a project should be terminated

10 Project Life Cycle Concept Feasibility Planning Execution Termination Management

11 Project Life Cycle (Cont.) 1. Conceptual phase is a preliminary evaluation of an initial concept or idea e.g. potential costs, time, outcomes, risk, organization, etc. 2. Study phase explains the initial idea into more clearly details. Potential design is detailed. Required resources, time, cost, and performance factors are established. For bidding consideration, this phase determines a bidding recommendation.

12 Project Life Cycle (Cont.) 3. Design phase includes verifying specification and developing of a construction and implementation plan. 4. Production phase constructs and delivers a project including installation, construction, integrating with the existing system, testing, and starting up the system. 5. Termination phase transfers a project to the operational departments. Also, final project evaluation and documentation are needed as lessons learned for other projects.

13 Project Life Cycle (Cont.) Project costs are low at the start, higher as a project proceeds, and drop drastically at the end of a project.

15 Project Stakeholders 1. A project manager- a person who is responsible for managing the project. 2. Customers- the individuals or organizations who will use the project product. 3. Performing organization- the enterprise whose employees are most directly involved in conducting the project. 4. Sponsor- the individual or group in the performing organization who provides the financial resources to the project.

16 Project Stakeholders (Cont.) Other examples of stakeholders are suppliers, owners, contractors, team members, government agencies, financial institutes, the society, etc. Different stakeholders may have different expectations from the project. For example, a project manager requires a low cost and efficient planning software while a software programmer wants to maximize profits from making this software.

17 Matrix organization structure Matrix structure composes of two different structures simultaneously. Functional departments are responsible for the performance and professional standards of their units. Project units are created to perform specific programs. Project teams are from several functional departments and report to a project manager. Employees have two bosses.

18 Matrix Organization Chief Executive Vice President In Projects Functional Manager Functional Manager Functional Manager Project Manager Staff Staff Staff Project Manager Staff Staff Staff Project Manager Staff Staff Staff A project has full time project manager and involves several employees from different functional departments. Effective response to the complex environment. Two bosses situation.

19 Matrix organization structure (Cont.) Enhance company s flexibility. Efficiency. Involves, motivates, and challenges people. Develop employee skills. Suited for complex environment. Require a strong interpersonal skill. Create conflicts. Two different bosses, confusion. Costly to maintain and implement.

20 Project Scheduling Gantt Chart MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Locate new facilities Interview staff Hire and train staff Select and order furniture Remodel and install phones Move in/startup

21 Project Scheduling (Cont.) Project scheduling involves detailed planning of a project timeframe determining what tasks to be performed and when tasks should be started and completed. Initially, activities or tasks in a project are defined. Later, project is modeled to see what individual tasks in the project are and their relationships to other tasks in the project.

22 Network Diagram Network diagram is a method used to represent project activities with nodes and arrows. A node represented by a circle indicates starting and finishing points. Arrows or arcs are used to represent activities. Precedent relationship indicate what activity must be performed and finished before the subsequent activity can be started.

23 Network Diagram (Cont.) Network (precedence) diagram: diagram of project activities that shows sequential relationships by use of arrows and nodes Activity-on-arrow (AOA): network diagram convention in which arrows designate activities Activity-on-node (AON): network diagram convention in which nodes designate activities Activities: project steps that consume resources and/or time Events: the starting and finishing of activities, designated by nodes in the AOA convention

24 Network Diagram Activity on Arrow AOA Locate facilities 2 Order furniture 4 Furniture setup 1 Remodel 5 6 Move in Interview 3 Hire and train

25 Network Diagram Activity on Node AON S Locate facilities 1 Order furniture 2 Remodel 5 Furniture setup 6 7 Move in Interview 3 Hire and train 4

26 Network Diagram (Cont.) a c a b b c a c a c b d b Dummy activity

27 Network Diagram (Cont.) Each activity is represented by only one arc. A dummy activity represented by dash line indicates a precedent relation with duration = 0 4 A B C 5 D Activities B and C must be finished before an activity D begins.

28 Network Diagram (Cont.) Example 1 Activity Predecessors Duration (wks) A - 3 B A 2 C B 5 D B 6 E C 3 F D,E 4 G D 7 H F,G 5

29 Network Diagram (Cont.) C,5 4 E,3 6 F,4 A,3 B, H,5 7 8 D,6 5 G,7 Network diagram of a project is illustrated. There are 8 nodes, 8 arrows, and 1 dummy. A project starts from node 1 and finish at node 8.

30 Network Diagram (Cont.) Example 2 Activity Predecessors Duration (wks) A - 5 B - 3 C A 4 D B 7 E B,C 3 F D 5 G E 5 H F,G 6 I H 3

31 Network Diagram (Cont.) A,5 C,4 2 4 E,3 6 G,5 1 B,3 3 D,7 5 F,5 7 8 H,6 I,3 9 There are 9 nodes, 9 arrows, and 1 dummy. A project starts from node 1 and finish at node 9.

32 Network Diagram (Cont.) Example 3 Activity Predecessors Duration (wks) A - 2 B - 3 C A 2 D A,B 4 E C 4 F C 3 G D,E 5 H F,G 2

33 Network Diagram (Cont.) A,2 C,2 2 4 F,3 1 B,3 3 D,4 5 E,4 G,5 6 H,2 7 There are 7 nodes, 7 arrows, and 1 dummy. A project starts from node 1 and finish at node 7.

34 Problem 4 The following table contains information related to the major activities of a research project. Use the information to do the following: Draw a precedence diagram using AOA Find the critical path Determine the expected length of the project

35 Problem 4

36 Network Diagram (Cont.) Path Sequence of activities that leads from the starting node to the finishing node Critical path The longest path; determines expected project duration Critical activities Activities on the critical path Slack Allowable slippage for path; the difference the length of path and the length of critical path

38 Network Diagram (Cont.) Activity Immediate Predecess or a - b - c d a a,b

39 Example Given the information on the bank network of figure

40 Example: The length of each path. The critical path The expected length of the project The amount of slack time for each path.

41 Solution: As shown in the following table, the path lengths are 18 weeks, 20 weeks, and 14 weeks. Path is the longest path (20 weeks), so it is the critical path.

42 Project Management Technique PERT and CPM PERT: Program Evaluation and Review Technique CPM: Critical Path Method Graphically displays project activities Estimates how long the project will take Indicates most critical activities Show where delays will not affect project

43 PERT and CPM PERT เป นเทคน คกำรบร หำรโครงกำร ซ งฝ ำยบร หำรจะ กำหนดข นตอนของแต ละก จกรรมให ม ควำมเหมำะสม รวมท ง เวลำท คำดคะเนไว เพ อให โครงกำรเสร จสมบ ร และใช ทร พยำกรท เหมำะสมท ส ดก บโครงกำรท สล บซ บซ อน CPM เป นเทคน คกำรวำงแผนและควบค มโครงกำรท สล บซ บซ อนเป นเคร อข ำย ด วยกำรคำดคะเนเวลำของแต ละ ข นตอน โดยกำรจ ดกำร ส งกำร ท ม งเน นท ศทำงของเส นทำง ว กฤต (Critical Path) ท อย ในโครงกำรมำกท ส ด

44 Framwork of PERT and CPM 1. ก ำหนดโครงกำรและเตร ยมโครงสร ำงแบบแยกย อยงำน ( Work Breakdown Structure) 2. พ ฒนำควำมส มพ นธ ระหว ำงก จกรรม ก อนและหล ง 3. วำดเคร อข ำยเช อมแต ละก จกรรม 4. กำหนดเวลำและต นท นในแต ละก จกรรม 5. คำนว หำเส นทำงท ยำวนำนท ส ดหร อ Critical Path 6. ต ดตำมและควบค มโครงกำร

45 Critical Path Method Objectives of critical path method (CPM) are to determine the total project completion time and identify critical and non-critical activities. CPM was developed by DuPont company during 1950s. A critical activity is an activity that directly impact to the total project completion time. If these activities delay, the total project completion time also delays.

46 Critical Path Method (Cont.) A non-critical activity is an activity that does not impact to the total project completion time. A delay in this activity does not result in delay in the total project completion time. A slack is the time allowed for a non-critical activity to start performing without an impact to the total project completion time.

47 Critical Path Method (Cont.) Network activities ES: the earliest time activity can start EF: the earliest time the activity can finish LS: the latest time the activity can start LF: the latest time the activity can finish Used to determine Expected project duration Slack time Critical path

48 Critical Path Method (Cont.) CPM is calculated using forward pass and backward pass computation. A forward pass determines the earliest times of events in a project. A backward pass determines the latest times of events in a project. Let E i be the earliest time of an activity i L i be the latest time of an activity i t i be the duration of an activity i

49 Critical Path Method (Cont.) Forward pass: E j = Max {E i + t i, E h +t h, } When activities i,h are precedent activities of activity j. Backward pass: L i = Min {L j - t j, L k - t k, } When activities j,k are succeeding activities of activity i.

50 Critical Path Method (Cont.) A,3 B, C, E, F,4 H, D,6 5 G,7 18 L E Latest time Earliest time The total completion time is 23 weeks. A critical activity has the same earliest time and latest time. Critical activities are A, B, D, G, and H.

51 Gantt Chart A 2 B 3 C 4 D 5 E 6 F 7 G 8 H

52 Example: Compute the earliest starting and earliest finishing time for each activity in the diagram.

53 Solution

54 Solution

55 Solution

56 Solution

57 Solution

58 Example: Compute the latest finishing and starting times for the precedence diagram developed in last example:

59 Solution

60 Solution

61 Solution

62 Solution

63 Activity on Node

64 Activity on Node

65 Activity on Node

66 Activity on Node

67 Computing slack time

68 Program Evaluation and Review Technique Program Evaluation and Review Technique (PERT) was developed by US Navy and the consulting company, Booz, Allen, and Hamilton during 1950s. PERT is used in the case that an activity duration is not certain, or that activity is not previously performed before.

69 PERT (Cont.) Optimistic time Time required under optimal conditions Pessimistic time Time required under worst conditions Most likely time Most probable length of time that will be required

70 PERT (Cont.) In PERT, activity duration can be calculated as follows: t = a+4m+b 6 σ = (b-a) 6 Where; t: the expected time a: the optimistic time b: the pessimistic time m: the most likely time σ: the standard deviation of the expected time.

71 Example Optimistic time Most likely time Pessimistic time b d e f h

72 PERT (Cont.) Example 2 (Revisited) Activity Predecessor a m b t σ 2 A B C A D B E B,C F D G E H F,G I H

73 PERT (Cont.) A, C,4 4 E, G, B,3 3 5 D, F,5 7 8 H, I, The total project completion time is 26 weeks. Critical activities are A, C, E, G, H, and I.

74 PERT (Cont.) Example 3 (Revisited) Activity Predecessor a m b t σ 2 A B C A D A,B E C F C G D,E H F,G

75 Network Diagram (Cont.) A,2 C,2 2 4 F,3 1 B,3 3 D,4 5 E,4 G,5 6 H,2 7 The total project completion time is 15 weeks. Critical activities are A, C, E, G and H.

76 Probabilistic Estimates t o t m t e t p Activity start Optimistic time Most likely time (mode) Pessimistic time

77 Example 17 Weeks a-b-c Weeks d-e-f 16.0 Weeks g-h-i Weeks

78 Probabilistic Estimates (Cont.) The expected project completion time is 26 weeks. According to critical activities, total variance is calculated: σ 2 total = σ 2 A + σ 2 C + σ 2 E + σ 2 G + σ 2 H + σ 2 I = = 1.65 σ total = 1.285

79 Probabilistic Estimates (Cont.) Sigma Limit Percentage Expression Range ± ± ± This project has a 99% chance of complete in to weeks.

80 Probabilistic Estimates (Cont.) Probability to finish a project in 28 weeks. Determine z; z = (X-t) σ total = (28-26) = Prob. [z < 1.56] = (From standard normal distribution table) It is 94.06% chance to finish a project in 28 weeks.

81 Advantages of PERT Forces managers to organize Provides graphic display of activities Identifies Critical activities Slack activities

82 Limitations of PERT Important activities may be omitted Precedence relationships may not be correct Estimates may include a fudge factor May focus solely on critical path

83 Problem 1 The following table contains information related to the major activities of a research project. Use the information to do the following: Draw a precedence diagram using AOA Find the critical path Determine the expected length of the project

84 Problem 1

85 Solution 1

86 Solution 1

87 Solution 1

88 Problem 2 Using the computing algorithm, determine the slack times for the following AOA diagram. Identify the activities that are on the critical path.

89 Solution 2

90 Solution 2

91 Solution 2

92 Solution 2

93 Time-cost Trade-offs: Crashing Crash shortening activity duration Procedure for crashing Crash the project one period at a time Only an activity on the critical path Crash the least expensive activity Multiple critical paths: find the sum of crashing the least expensive activity on each critical path

94 Time-Cost Trade-Offs: Project Crashing Total cost Expected indirect costs Shorten Cumulative cost of crashing CRASH Shorten Optimum

95 Example Using the following information, develop the optimal time cost solution. Indirect project costs are $1,000 per day.

96 Example 2 f 4 d

97 Solution a-b-f 18 Critical path c-d-e-f 20 Rank critical path

98 Solution

99 Solution

100 Project Crashing 1. Calculate crashing cost per time (week) of each activity. 2. Consider all critical activities, select the activity with the least crash cost per week. 3. If the crash cost of the selected activity does not exceed the total budget available, crash one week on this activity. Otherwise, end the crashing process.

101 Project Crashing (Cont.) 4. Recalculation of critical path and repeat steps 2,3, and 4 again until the total budget is not enough to crash any activities. 5. In multiple critical paths, each path must be crashed in order to shorten the overall project completion time.

102 Project Crashing (Cont.) Activity Normal (wks) Crash (wks) Normal Cost ($) Crash Cost ($) Crash Cost per Week A ,000 24,000 6,000 B 2 1 6,000 7,000 1,000 C ,000 16,000 4,000 D ,000 35,000 2,500 E ,000 16,000 5,000 F ,000 20,000 - G ,000 26,000 1,667 H ,000 25, , ,000

103 Project Crashing (Cont.) Iteration Crashed activity Crashed time (wks) Crashed Cost ($) Budget ($) Project Cost ($) , ,000 1 B 1 1,000 9, ,000 2 G 1 1,667 7, ,667 3 G 1 1,667 5, ,333 C 1 4,000 1, ,333 In iteration 3, both G and C must be crashed to reduce the total project completion time. Even the budget left $1,667 is enough to reduce activity C for a week, but it does not reduce the total project completion time.

104 Project Crashing (Cont.) C,4 4 E,3 6 F, A,3 B, H, D,6 5 G, The total project completion time is 20 weeks. All activities are critical activities. The total crashed cost is $ 8,333.

105 Project Crashing (Cont.) Activity Normal Time (wks) After crashed (wks) Crashed Cost ($) Critical Activity A Critical B 2 1 1,000 Critical C 5 4 4,000 Critical D Critical E Critical F Critical G 7 5 3,333 Critical H Critical 8,333

106 Project Crashing (Cont.) 152, , , ,000 Project cost ($) 149, , , , , , , , , , Project completion time (weeks)

107 Project Cost Estimation and Control Most projects suffer severe cost overruns. Consequently, projects are unable to cover their investment since the costs are higher than prospect returns. Causes of overruns can be summarized as follows: 1. Initial low estimates. The estimator lacks of necessary information. 2. Unforeseen technical difficulties. The project is complex and very difficult e.g. new technology, hightech industry. 3. Unexpected events e.g. material price increases or strikes, floods, etc.

108 Project Cost Estimation and Control Objectives of project cost estimation are to prepare project budget and to provide a baseline for project performance measurement. Budgets are plans that determine actions into monetary numbers. Generally, a project is unique. A budget is prepared by estimating activity costs and resource usages. However, unexpected events always may encounter in a project. Thus, a cost estimation must concern project uncertainty.

109 Labor Costs The functional departments supply manpower to the project departments. Man-hours are submitted for each task, assuming that the task is the lowest pricing element, and are time-phased per month. The man-hours per month per task are converted to dollars after multiplication by the appropriate labor rates.

110 Materials/Support Costs Materials/support costs cover materials, purchased parts, subcontracts, freight and travel, and other. Material costs are obtained from bill of materials that includes all vendors, projected costs throughout the program, scrap factors, and lifetime of those products that may be perishable. Support materials consist of materials required by engineering and operations to support the manufacture of end-items and are identified on the manufacturing plan.

111 Overhead Rates Overhead rate is a rough estimate of indirect costs that incurred in functional divisions or activities. Examples of overheads are: Building maintenance Building rent Cafeteria Clerical Clubs/associations Auditing expenses Fringe benefits Insurance Storage expenses Office supplies Payroll taxes Postage Sick leave Retirement plans Telephone facilities Transportation Utilities Vacation

112

113 Cost distribution

114 Cost distribution (Cont.)

115 Cost distribution (Cont.)

116 Cost distribution (Cont.)

Project Planning. Identifying the Work to Be Done. Gantt Chart. A Gantt Chart. Given: Activity Sequencing Network Diagrams

Project Planning. Identifying the Work to Be Done. Gantt Chart. A Gantt Chart. Given: Activity Sequencing Network Diagrams Project Planning Identifying the Work to Be Done Activity Sequencing Network Diagrams Given: Statement of work written description of goals work & time frame of project Work Breakdown Structure Be able