2018-11-141Project ManagementClass – 10Project Q

2018-11-14
1
Project Management
Class – 10
Project Quality
Management
Learning Outcomes
Ø What is quality and what are different dimensions
of
quality?
Ø What are the main quality concepts
Ø Define different cost elements of quality
Ø Implement quality planning, assurance, and control
in
projects
Ø Discuss the basicquality control tools
Ø Explain how control charts are designed and the
concepts
that underlie their use.
2

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Quality Concepts
3
$550
Which watch has the higher quality?
Let’s not confuse quality with
luxury…
Ø Which watch has the higher
quality?
$110
4
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Which watch has the higher quality?
Movado
üStainless steel
üQuartz movement
üWater-resistant
üShock-resistant
üFashionable!

Timex
üStainless steel
üQuartz movement
üWater-resistant
üShock-resistant
üDate indicator
üHour/minute markings
üIlluminated dial
üFashionable??
Let’s consider
their features:
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What is Quality?
There are two ways of defining quality:
Ø Conformance to requirements: The project’s
processes and products
meet written specifications. The International Organization
for
Standardization (ISO) defines quality as “the
degree to which a set of
inherent characteristics fulfills requirements” (ISO9000).
§ Those requirements may be imposed by government
(such as the Ontario
Building Code) or by the client (deliverables in
the agreement) or by a
consultant (materials described in a building
specification).
Ø Fitness for use: A product can be used as it

was intended. Fitness may
be determined by the client, users or other key
stakeholders.
§ If the lobby of a new condominium building
has a bare concrete floor, that
would be acceptable under the Ontario
Building Code, but would not be
considered suitable by most purchasers.
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Eight Dimensions of Product Quality
Ø Performance refers to a product's primary
operating characteristics. This
dimension of quality involves measurable attributes.
§ Example: A car’s fuel economy, acceleration rate,
top speed, interior volume, seating capacity,
etc.
Ø Features are additional characteristics that enhance the
appeal of the product or
service to the user.
§ Example: Availability of heated steering, AC,
power brakes, alloy wheels, GPS mapping, etc.
Ø Reliability isthe likelihood that a product will not
fail within a specific time period.

This is a key element for users who need the product
to work without fail.
§ Example: The reliability of cars is often measured by
how many problems the owner has with
a particular product and how severe the problems
are.
Ø Conformance is the precision with which the product
or service meets the
specified standards.
§ Example: Emission control in Canada is a
predetermined standard that needs to be
implemented regardless of where the car was
manufactured and bought.
Competing on the eight dimensions of quality.
David A. Garvin, Harvard Business Review.
1987. 7
Eight Dimensions of Product Quality (cont’d)
Ø Durability measures the length of a product’s
life. When the product can be
repaired, estimating durability is more complicated.
§ Example: Durability of tires in terms of
kilometres until they require replacement
Ø Serviceability is the speed with which the product
can be put into service when it
breaks down, as well as the competence and
the behavior of the serviceperson.
§ Example: How accessible are battery, spark plugs,
and other easily maintainable parts

Ø Aesthetics is the subjective dimension indicating the kind of
response a user has to
a product. It represents the individual’s personal
preference.
§ Example: Style and look of the exterior and interior
of cars; overall image
Ø Perceived Quality is the quality attributed to a
good or service based on indirect
measures.
§ Example: Having the opinion that cars made in
Germany or Japan have higher quality
Competing on the eight dimensions of quality.
David A. Garvin, Harvard Business Review.
1987. 8
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More on Reliability and Maintainability
Reliability
§ Average time that a unit or a piece of
equipment performs its intended
function under specified conditions.
§ Usually specified as Mean Time
Between Failure, or MTBF
§ Determined in two ways:
§ Predicted MTBF - based on a
mathematical computation of sequential

failure of “parts”
§ Actual MTBF - based on field collected
data
Maintainability
§ Average time to restore a
malfunctioning unit to working
condition, meeting standards, under
prevailing conditions.
§ Usually defined as the Mean Time To
Repair or MTTR
§ Types of Repairs
§ Operator Repairs: Usually less than 1
hour
§ Shop Repairs: 1-3 hours
§ Major Overhaul: 3-60 hours
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MTBF & MTTR
Availability of a machine is defined in terms of the time when it
is
available for use; i.e. when it is not being repaired or
maintained.
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One Machine Down
All Machines
Working

All Machines
Working
MTBF MTTR MTBFMachine A
Machine B
Machine C
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11
Quality Concepts
1. Zero Defects
2. Quality Throughout
3. The Quality Cycle
4. Continuous Improvement Process (CIP)
5. Specification Practices
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1. Zero Defects
Ø Zero Defects is a management tool aimed at
the reduction of defects

through prevention. It is directed at motivating
people to prevent
mistakes by developing a constant and conscious
desire to do their job
right the first time.
Ø Before the Quality Movement started in the
1970s, 2-3% defects were
tolerated in most products and services
Ø Today the Six Sigma quality standards specify a
goal of 3.4 defects per
million units.
Zero Defects = No tolerance for errors within
the system or its processes
Six Sigma is a data-driven approach and
methodology for eliminating defects (driving
toward
six standard deviations between the mean and the
nearest specification limit) in any process.
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2. Quality Throughout
Ø Quality has an impact in multiple areas
§ Product
§ Process

§ Organization
Ø Quality will only work if it is applied to all
areasin a similar way
Ø It requires Total Quality Management (TQM) in
which all members of an
organization participate in improving processes,
products, services, and the
culture in which they work.
Ø TQM enjoyed widespread attention during the
late 1980s and early 1990s
before the more recent quality concepts such as
ISO 9000, Lean
manufacturing, and Six Sigma.
3. The Quality Cycle
A Four-step Model for Carrying Out Change
1. Plan - decide what your Client wishes
to accomplish and what you need to do to
fulfill the commission
2. Do - carry out the commission through
its stages; preliminary design, working
drawings, contract documentation etc.
3. Check - review what you are doing on a
continuous basis, identify problems and
take corrective action where necessary.
4. Act - identify opportunities for
improvement and implement measures
to improve the reliability of the process.
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1. Plan

1. Plan the
Quality
Program
2. Do 2. Do, carryout the Quality
Program
3. Check
3. Check the
Outcome of the
Quality Program
4. Act4. Act to
improve
Quality
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4. Continuous Improvement Process (CIP)
Ø CIP is a concept that recognizes that
innovation in technology and
business practices is continuously driving change
and that any process
that is satisfactory today is unlikely to remain
so for long.
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Time

Productivity CIP
Innovation
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5. Specification Practices
Two main types of specification:
1. Detailed or Prescriptive Specification gives full
details of the
material to be used and the method of installation
§ Written for more complex projects, e.g., buildings where
the client has
requirements that might not be familiar to
contractors
2. Functional or Performance Specification describes
the end result
required but not the method of achieving that end
result.
§ Written on projects that are straight-forward, e.g.,
standard building types
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Project Quality Management Processes
Ø Project Quality Management is composed of:

§ Quality planning: Identifies quality standards that are
relevant to the
project and determines how to use those
standards in planning
§ Quality assurance: periodically evaluating overall
project performance to
ensure the project will satisfy the relevant quality
standards
§ Quality control:monitoring specific project results to
ensure that they
comply with the relevant quality standards, and
identifying ways to
eliminate causes of unsatisfactory results
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Quality Planning
Process of identifying quality requirements and/or
standards for the
project and product, and documenting how the project
will
demonstrate compliance with relevant quality
requirements and/or
standards. – PMBOK® Guide
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Quality Planning
Ø Project quality planning is a process for
identifying quality standards and
requirements for the overall project and for
tracking, monitoring, and
managing the expectations of planned quality.
Ø The inputs for quality planning include the
§ Scope document
§ Requirements from stakeholders
§ Risk register
§ Project schedule
Ø By using this input information, a project
manager in cooperation with the
quality team can develop a quality plan for a
project.
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Quality Planning
Standards and Quality
Ø There are many organizations to provide
standardization, including
International Organization for Standardization (ISO).
Ø The ISO 9000 family of standards addresses quality
management to help
organizations fulfill the quality requirements of
the customer and represents
an international consensus on good quality management
practices
Ø Some examples of ISO 9000 family:

Version Description
ISO 9000 Defines the fundamentals of quality
management systems
ISO 9002 Provides a model for quality assurance in
production, installation, and servicing.
ISO 9003 Provides a model for quality assurance in
final inspection and testing.
ISO 9004 Emphasizes quality assurance via preventive
actions instead of just checking final product,
system or service. 20
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Quality Planning
Tools and Techniques
Ø Benchmarking: Comparing planned project practices
and quality criteria with those
used in similar and successful projects within the
organization and external to it.
Ø Design of Experiments: Statistical method use to
identify specific variables that
influence a product performance
§ The objective is to determine the most desirable
combination of factors for
optimal performance at a reasonable cost

Ø Statistical Sampling (more on this later)
Ø Cost-Benefit Analysis: Quality planning must consider
trade-offs
§ Costs associated with quality activities
§ Benefit of less rework
§ See following
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Cost of Quality
Ø Cost of Quality is the
total cost of all efforts
to achieve product
quality.
Ø This includes all the
work to develop and
build a product that
conforms to the stated
requirements as well as
all work resulting from
non-conformance to
these requirements.
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Cost of
Quality
Cost of
Conformance
Cost of Prevention

Cost of Appraisal
Cost of Non-
Conformance
Cost of Internal
Failure
Cost of
External Failure
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Bad Costs: Cost of Internal and External Failure
Ø Costs incurred by the project before a product or
service reaches or is
used by a client or customer
§ Cost of repairs or scrapping defective products
§ Cost of rework
§ Cost of investigations
§ Cost of planning corrective action
Ø Costs incurred to rectify a product or service
after it has reached or is
used by a client or customer
§ Replacement/repairs costs for defective products
§ Warranty claims and cost of handling complaints
§ Cost of lost customers/opportunity
§ Legal Costs

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Good Costs: Cost of Appraisal
Ø Costs associated with investigative effort to assess
and
uncover quality issues related to the product
§ Cost of internal and external audits
§ Cost of investigations
§ Cost of inspections
§ Cost of testing and test equipment
§ Cost of models, prototypes, mock-ups, etc.
The higher you invest on appraisal, the lower
the expected
non-conformance cost would be
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Good Costs: Cost of Prevention
Ø Costs associated with proactive measures to ensure
conformance with
quality standards:
§ Cost of Quality Consultants
§ Cost of Quality Management System
§ Cost of Validation of Design and Planning
§ Training costs
§ Maintenance costs

§ Cost of Continuous Quality Improvement
§ Cost of preventive actions
The higher you invest on prevention, the lower
the expected
non-conformance cost would be
Total Cost of Quality
Ø As the cost of
conformance
decreases, the
percentage of
defects increases.
Ø As the percentage of
defects increases,
the cost of non-
conformance
increases.
Ø Where is the happy
medium?
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Percentage
Defective
100%0%
Co
st
o
f Q

ua
lit
y
Cost of Non-
Conformance
“Bad”
Cost-Effective Defect %
Cost of
Conformance
Good
Total Cost of
Quality
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Quality Assurance
The process of auditing the quality requirements
and the results from
quality control measurements to ensure appropriate
quality standards
and operational definitions are used. – PMBOK ®
Guide
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Quality Assurance

Ø Quality assurance (QA) is a process used to
evaluate project performance
periodically and ensure that the project will satisfy
the quality standards
of an organization.
Ø The inputs for quality assurance are quality
planning, work performance
information, quality control measurements, and quality
metrics.
Ø The outputs of the process are change
requests, project management plan
updates, and project document updates.
Ø Quality assurance is accomplished by quality audits,
process analysis, and
tools and techniques used in quality control.
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Quality Audits
Ø Quality Audits: A quality audit is a review of
the quality plan to determine
whether the project activities comply with
organizational and project
policies, processes, and procedures.

Ø A Quality Audit needs to:
§ Identify all the best practices of the project.
§ Identify all the limitations of the project.
§ Identify all the problems in the project.
Ø The Quality Auditor:
§ Helps the project by providing positive criticism
towards the implementation of
project.
§ Provides positive influence on project processes.
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Quality Control
The process of monitoring and recording results of
executing the
quality activities to assess performance and
recommend necessary
changes. - PMBOK
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Quality Control
Ø Quality Control involves monitoring specific phases
of product
production to determine if they comply with

relevant quality
standards, and identifying the root causes of
unsatisfactory results.
Ø Quality Control also validates that project deliverables
and work meet
the requirements. This is necessary for final acceptance
by
stakeholders.
Ø We discuss seven basicquality tools
Tools & Techniques:
Seven Basic Quality Tools
1. Cause and effect diagrams – also known as
fishbone diagram
2. Check sheets – collection of data about a
quality problem
3. Histogram – a bar chart showing a statistical
distribution
4. Pareto diagrams – identity the few causes that
contributing to a
quality problem
5. Scatter diagrams – plotting ordered pair of two
variables to
determine if there is a correlation between the
variables
6. Flow charts – showing sequence and branching of
steps in a process
7. Control charts – used to determine if a process
is stable and
predictable

32Seven Basic Tools of Quality per Ishikawa, in
Guide to Quality Control
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Some causes seem to fit in more than one
category and it is fine to
have the same causes in several bones!
Basic Quality Tools: Cause and Effect
Diagrams (Fishbone
Diagram)
• Defines the
nature of the
problem
through a
“Why” question.
• Brain storming
for all root
causes that
explain the
Why? question
33
Major
Defect
Cause Effect

Schedule
Measurement Personnel EnvironmentEnergy
Machine Method Materials
Categories
Causes
Basic Quality Tools: Check Sheet
Ø Traditionally used for collecting
data about a process, and then
to discover patterns and trends
Ø Four steps:
§ Define events and data
§ Decide on who, what, when,
where, how, and why
§ Design the check sheet
§ Collect data
ØModern tools for collecting data
§ Bar code scanner
§Output from measuring
devices
§ Test results
§ Reports
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35
Basic Quality Tools: Check Sheet
Example
Ø In a healthcare project, the project team needs to
understand the
reason for hospital admission delays in an
emergency department.
Project Management, Process, Technology, and
Practice. Ganesh Vaidyanathan
Day
REASON Mon Tue Wed Thu Fri
Overload of patients 5 2 2 5 7
Patient discharge problems 2 1 1 2 4
Staff problems 5 2 5 1 2
Lack of rooms 5 2 4 5 5
TOTAL 17 7 12 13 18
Basic Quality Tools: Pareto Charts
Ø Identifies the vital few
contributors that
account for the most
quality problems in a
system
Ø The y-axis represents

frequency of
occurrence and the x-
axis represents the
reasons
36
Problems are
charted in order of
greatest frequency
0%
25%
50%
75%
100%
31%
62%
85%
100%
In order to lower the amount of
delay by 85%, it is sufficient to
solve the first three issues!
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Basic Quality Tools: Histogram
Ø Bar chart showing data in a continuous range
Ø To prepare a histogram, do the following steps:
1. Select the measures to be examined
2. Collect the data
3. Prepare a frequency table
4. Design the histogram
5. Draw the histogram
6. Interpret the data
37
Number of
contracts
Number of
processing days
Basic Quality Tools: Scatter Diagrams
Ø Identify patterns in testing
results and other data:
§ A: No pattern
38
x
y
.

..
.
.
.
.
.
.
Diagram A
.
.
.
.
.
.
.
.
.
Diagram B
x
y

§ B: Positive slope correlation
.
.
.
.
.
.
.
.
.
Diagram D
x
y
§ D: Non-linear correlation
. .
.
.
.
.
.
.

.
.
Diagram C
x
y
§ C: Negative slope correlation
?
? ?
?? ?
? ?
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39
Linear Regression and Correlation
In process analysis two variables y and x can be
functionally correlated.
Ø The Independent Variable: The variable x is
referred to as the

independent variable.
Ø The Dependent Variable: The variable y is
referred to as the dependent
variable.
Ø The functional relationship: We define the
relationship as: y = f(x)
Ø The following can be analyzed based on
regression models in projects:
§ The activity completion time and number of
labors
§ The cost/time of project completion and type of
resource
§ The cost/time of project completion and
geographical location of
project
Example of Linear Correlation Parameters
Linear Correlation
y = b + mx
where
b = y intercept
m = Slope of the Line = Δy/Δx
r = Correlation Coefficient
-1 < r < 1
40
y
x
∆x = 2

b2 = -2
∆y = 2
b1= +1
∆x = 1
∆y = 2 m2 = ∆y / ∆x = 1
y = -2 + x
r = 0.90
m1 = ∆y / ∆x = 2
y = 1 + 2x
r = 0.65
*
* *
*
**
*
*
*
*

*
*
*
*
*
*
*
Correlation coefficient shows
the statistical relationships
between two or more values
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Basic Quality Tools: Flow Charts
Ø Used to identify sequence of events in a
process
Ø It provides a visual model of how inputs,
activities, and outputs of a process are
linked.
Ø Basic Symbols
Start, End, Input, Output
Activity
Decision
Connection
Arrow - Direction of flow

41
Start
Request
invoice data
Request
activity reports
Assemble
Monthly Status
Report Data
Prepare
Monthly Status
Report
Complete and
Correct?
Sign Monthly
Status Report
Send to
distribution
centre
End
Add data Correct Errors

Provide invoice
data
Provide activity
data
A B
No No
Yes
Incomplete Incorrect
End
Send to
distribution
centre
Complete and
Correct?
A
Basic Quality Tools: Control Charts
Ø Use of control charts:
§ A proven technique for improving productivity
§ Effective in defect prevention
§ Provides diagnostic information
Ø Objective: Distinguish Assignable from Random
variations
1. Random variation or chance: Natural variations in

the output of process,
created by countless minor factors
2. Assignable variation: A variation whose source
can be identified (equipment
that needs adjustment, human error, defective
materials) and eliminated.
42
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Sampling
Ø A process can be described by a process
distribution, with a
mean and variance that will be known only with a
complete
inspection with 100 percent accuracy.
ü 100% inspection is expensive
ü 100% inspection is costly
ü Sometimes impossible
Ø The purpose of sampling is to estimate a
variable or attribute
measure for the output of the process without
doing a
complete inspection.
Process

distribution
Sampling Distribution
Ø Suppose we want to control the amount of
soft drink in
a large number of bottles.
Ø If these amounts were arranged on a graph, the
frequency distribution would reflect the process
variability.
Ø The target value for the process is 2
liters.
Ø Let us take samples of n = 3 bottles at
a time and
compute the mean amount of soft drink in
each sample.
Ø By iterating sampling, we have
Distribution
of sample
means
μ = 2 Liters
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Control Charts

Nominal
UCL
LCLV
ar
ia
tio
ns
Sample number
(a) Normal – No action
Nominal
UCL
LCL
Va
ria
tio
ns
Sample number
(b) Run – Take action
45
Control Charts
Nominal

UCL
LCLV
ar
ia
tio
ns
Sample number
(c) Sudden change – Monitor
Nominal
UCL
LCLV
ar
ia
tio
ns
Sample number
(d) Exceeds control limits – Take action
46
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Ø We define
Control Charts Formula
� = Population Standard deviation
� = Sample size
��% =
�
��
=Sample mean Std.
�' = Sample mean average
�� = �' + ��%
�� = �' − ��%
Control Charts Example
Ø The management of West Allis Industries is
concerned about the
production of a special metal screw used in
many of its projects.
Ø The diameter of the screw is critical to
the projects.
Ø The standard deviation of the production process
is 0.001.
Ø Data from five samples appear in the
accompanying table.
Ø The sample size is 4.

Ø Is the process in statistical control?
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Control Charts for Variables – Example
Observations
Sample
Number 1 2 3 4
1 0.5014 0.5022 0.5009 0.5027 0.5018
2 0.5021 0.5041 0.5024 0.5020 0.5027
3 0.5018 0.5026 0.5035 0.5023 0.5026
4 0.5008 0.5034 0.5024 0.5015 0.5020
5 0.5041 0.5056 0.5034 0.5047 0.5045
Average 0.5027 �
': Sample mean
average
Control Charts Example
Ø Based on the formula we have
�� = �' + ��%
�� = �' − ��%
!"# = %& + ()%* = +. -+./+ (×
+. ++1

2� = +. -+2. 56
#"# = %& − ()%* = +. -+./ − (×
+.++1
2� = +. -+1. 56
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Control Charts for Variables – Example
Process is NOT in statistical control.
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1
Project Management
Class – 11
Procurement and
Contracts
Learning Outcomes
Ø Understanding project procurement management
Ø Identifying key procurement categories
Ø Following an appropriate procurement process

Ø Selecting appropriate contract types
Ø Soliciting responses and selecting sellers
Ø Administering and closing contracts
Ø Understanding ethical concerns
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Why Outsourcing?
Ø You are a PM in a “new office construction
project”.
Ø The level 1 activities may include:
§ Excavation foundation
§ Concrete foundation
§ Building and roofing
§ Electrical and lighting
§ Plumbing and piping
§ Energy systems (heating, cooling, water unit)
Ø Your company is not expert (has not enough
experience) in electrical and lighting!
Ø Outsource or insource?
Outsourcing Pros vs. Cons
Ø Some common reasons for make-buy decisions at
this level follow:
§ Delivery failure or poor service by existing
source

§ To allow the client organization to focus on
its core business
§ Gain access to world class capabilities
§ Reduced capital requirements and staff costs
§ Pressure to reduce costs
Ø Some problems with outsourcing
§ Long term commitment
§ Communication with suppliers
§ Dependence on suppliers
§ Lack of control over supplier and quality of
work
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Procurement & Project Procurement Management
Ø Procurement is the act of finding, acquiring, buying
goods, services or works from
an external source, often via a tendering or
competitive bidding process.
(Wikipedia)
Ø Project Procurement Management includes the
processes required to acquire
goods and services, to attain project scope,
from outside the performing
organization. (PMBOK® Guide).
§ Project Procurement Management is typically
discussed from the perspective of the project
team as the buyer in the buyer-seller relationship.

§ However, the project team could also be selling
the project deliverables to an external client.
Ø Depending on the application area, the seller
may be called a contractor,
subcontractor, vendor, or supplier.
Ø For simplicity, goods and services will
generally be referred to as a product.
5
Tendering: make a formal written offer to carry
out work, supply goods, or buy land,
shares, or another asset for a stated fixed price.
Procurement Categories
Ø Not all project procurements are created equal;
§ Some purchases are big, others are small
§ Some procurements carryhigh risks, other have only
minimal/no risks
§ Some requires a major long-term commitment
from seller, but some are
immediately available for purchase in the open market
Ø Why place these various procurements into
different categories?
§ You manage project procurements differently,
according to their

complexity, their risks, their unique characteristics.
Fleming, Quentin W. Project procurement
management: contracting, subcontracting, teaming.
Fmc Press, 2003.
6
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Major Complexity Procurement
Ø Major (high risk) complexity procurement involves
the purchase of something
which does not exist, and is tailored to the
project's unique specification.
Ø They represent high risks to the project’s technical,
quality, costs, and schedule.
Ø They often require the creation of something new by
a seller:
§ It may push the state of the technical art
ü The development of a new radarsystem
ü The development of a new computer software
program
ü The design and development of a new
airplane
§ It may be technically routine, but had never
been done before

ü Design and construction of a new production
factory
ü The architectural design of a new commercial
centre
Fleming, Quentin W. Project procurement
management: contracting, subcontracting, teaming.
Fmc Press, 2003.
7
Minor Complexity Procurement
Ø Minor (low risk) complexity procurements will often
represent large
monetary values, but the commodities exist and will
conform to the sellers
existing product specification.
Ø Early identification of these items is important in
order to properly schedule
lead-times for each item and to budget the
necessary funds for them.
Ø Some examples are
§ The purchase of existing automobiles, buses,
and transportation vehicles
§ The purchase of an existing radarsystem
§ The purchase of large electrical generators
§ The purchase of existing but high value
software
§ The purchase of existing computers
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Routine Buys of Commercial-Off-The-Shelf (COTS)
Ø It involves the purchase of substantial amounts of
materials that are
often commercially available as “off-the-shelf” articles, or
routine
services.
Ø The early identification of these procurements is
typically not vital to
the success of the project.
Ø Some examples are
§ Purchased labor, which will brought in plant
and supervised by the project’s staff
§ Purchased services, such as testing
§ Raw materials: nuts, bolts, fasteners, sheet metal,
paints
§ Office supplies and equipment: existing computers,
printers, scanners
§ Outsourced services, such as cafeteria, security, and
accounting
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Procurement Risks
1. The risks associated with technical, quality, or
performance
Ø The possibility that the item being developed or
procured will not perform

to the levels needed by the project.
2. The risks with schedule performance
Ø The possibility that a critical item needed by
the project will not be available
in the time-frame needed.
Ø The technical risks may also cause adverse impact
on the project schedule
3. The risks with cost performance
Ø The possibility that the costs of the critical
items will exceed that which has
been estimated, and budgeted.
10
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6
Project Procurement Management Processes
Pr
oj
ec
t
Pr
oc
ur
em
en
t
M

an
ag
em
en
t
1. Procurement
Planning
2. Solicitation
Planning
3. Solicitation
4. Source
Selection
5. Contract
Administration
6. Contract
Close-out
Determining what to procure and when
Documenting product requirements and identifying
potential sources
Obtaining quotations, bids, offers, or proposals, as
appropriate
Choosing from among potential sellers
Managing the relationship with the seller
Completion and settlement of the contract

11
1.
Procurement
Planning
Ø Procurement planning involves identifying
which project needs can be best met by using
products or services outside the organization.
Ø It includes deciding
§ Whether to procure
§ What to procure
§ How to procure
§ How much to procure
§ When to procure
11/21/18
7
Tools and Techniques for Procurement Planning
Make or Buy Analysis
Ø Used to determine whether a practical product
can be produced by the
performing organization or purchased from someone
else.
Ø Often involves financial analysis:
§ The possible increase in risk incurred by using
a third party

§ Both direct and indirect costs
§ Prospective as well as the immediate needs of
performing organization
§ For example:
§ Whether a capital good item can be used for other
current or future
projects of the organization
§ Whether additional capacity is available for use within
the organization
13
Capital goods: goods that are used in producing other
goods, rather than being
bought by consumers.
Tools and Techniques for Procurement Planning
Make or Buy Analysis
Ø You are considering whether to buy or make
a software product:
§ If you buy, the cost is $80,000, and the cost of
procurement and integrating
your company is $1,000.
§ If you want to make it yourself, the product
will require seven software
engineers working three months. Salary of each
software engineer is $4,000
per month. The overhead costs apportioned to the
project will be $2,000.
Ø Which option will you choose; make or buy?

§ If you buy => $80,000 + $1,000 = $81,000
§ If you make => $4,000 * 7 * 3 +
$2,000 = $86,000
§ It is better to buy.
14
11/21/18
8
2. Solicitation Planning
Ø Solicitation planning: documenting product requirements
and identifying potential
sources
Ø It involves preparing
1. Procurement documents: are used to solicit proposals
from prospective
sellers.
§ Requests for Quotes (RFQ): used to solicit
quotes for well-defined procurements (the
source selection is based on price)
§ Request for Proposals (RFP): used to solicit
proposals from prospective sellers where
there are several ways to meet the sellers’ needs
(the source selection is based on
technical skills and technical approach)
§ Request for Information (RFP): used to obtain

information from prospective sellers
as to what products or services are available. Often
used to build a list of sellers to
sent a RFP to.
§ Invitations for Bid (IFB): an invitation to contractors
or equipment suppliers to submit
an offer on a specific project
15
2. Solicitation Planning (Cont.)
2. Evaluation Criteria
§ Used to rate or score proposals.
§ They can be objective (the proposed PM must be a
certified PMP) or subjective
(the proposed PM must have previous experience with
similar projects)
§ Evaluation criteria may be limited to purchase
price if the item is readily
available from a number of acceptable sources.
§ Other selection criteria:
§ Technical capability: does the seller have the
technical skills and knowledge needed?
§ Overall or life-cycle cost: will the selected seller
produce the lowest total cost (purchase
cost plus operating cost)
§ Financial capacity: does the seller have, or
can the seller reasonably be expected to
obtain,

the necessary financial resources?
16
11/21/18
9
3. Solicitation
Ø Solicitation involves obtaining responses (bids and
proposals) from
prospective sellers on how project needs can be
met.
Ø Most of the effort in this process is
expended by the prospective sellers,
normally at no cost to the project.
Ø Tools and techniques:
1. Bidder conferences:
§ Meetings with prospective sellers prior to
preparation of a proposal.
§ Provide assurance that all of the bidders clearly
understand the requirements
of the RFP
2. Advertising
§ Expanding the list of potential sellers by placing
advertisements in general
circulation publications

17
4. Source Selection
Ø Source selection involves the receipt of bids or
proposals and the
application of the evaluation criteria to select
a provider.
Ø Price may be the primary determinant, but the
lowest proposed price may
not be the lowest cost, e.g., the lowest-price seller
is unable to deliver the
product in a timely fashion
Ø Proposals are often separated into technical (approach)
and commercial
(price) sections with each evaluated separately
Ø A weighting system may be used to
§ Select a single source to sign a standard
contract
§ Rank order all proposals to establish a
negotiating sequence
18
11/21/18
10
Tools and Techniques for Source Selection
Ø Contract negotiation: involves clarification and

mutual agreement on the structure
and requirements of the contract prior to the signing
of the contract.
Ø Weighting system: a method for quantifying
qualitative data to minimize the effect
of personal prejudice on source selection. It usually
involves:
§ Assigning a numerical weight to each of the
evaluation criteria
§ Rating the prospective sellers on each criterion
§ Multiplying the weight by the rating
§ Totaling the resultant products to compute an
overall score
Ø Independent estimates: The procuring organization may
prepare its own
independent estimates as a check on proposed
pricing.
§ Significant differences from these estimates may be an
indication that the SOW was
not adequate, or the prospective seller failed to
respond fully to the SOW
Ø Best and final offer (BAFO): The procuring buyer
who has received several
offers will ask either all bidders or the top
bidders to submit their best and final
offers.
19
Weighted Scoring System: Evaluation Criteria
Category Category Components Weight Scoring

Seller price Labour, material, overhead, and
local taxes costs
35% 0: Not provided; 1: >$100,000; 2:
50,000 to 100,000; 3: <50,000
Delivery costs All transportation costs from seller
to destination, packaging costs
5% 0: Not provided; 1: >$10,000; 2:
5,000 to 10,000; 3: <5,000
Quality costs Cost of inspection, rework, product
returns
10% 0: Not provided; 1: >$10,000; 2:
5,000 to 10,000; 3: <5,000
Reputation Reputation impact of performance
problems
20% 0: Very bad; 1: Bad; 2: No impact;
3: Improvement
Other costs Exchange rate trends, taxes, duties 5% 0:
Not provided; 1: >$100,000; 2:
50,000 to 100,000; 3: <50,000
Seller
capabilities
Replenishment lead time, flexibility,
information coordination capability
25% 0: Very bad; 1: Bad; 2: No impact;
3: Good

20
11/21/18
11
Weighted Scoring System: Sellers
Ø 3 sellers have responded to your RFP:
§ Apex: The low cost, low quality startup provider at
$40,000 based
in a nearby community
§ Big Guy: The market leader located in Europe
with a cost of
$110,000, with an excellent reputation
§ Cammon: Based on Canada but on the other side of
the country,
gaining market share and having growing
problems with a cost of
$60,000
Ø Which one do you pick?
Weighted Scoring System: Scoring Results
Criteria Weight Apex Big Guy Cammon
Price 35% 3 1 2
Delivery Costs 5% 3 1 2
Quality Costs 10% 1 3 2
Reputation 20% 1 3 2

Other costs 5% 3 1 3
Seller Capabilities 25% 1 3 1
Weighted Total 100% 1.9 2.1 1.8
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12
5. Contract Administration
The Contract
Ø In order for a contract to be formed all
three of the following required
elements must be present:
Contract = Offer + Acceptance +
Consideration
Ø Contracts include:
§ Technical, management and commercial requirements
§ Specific descriptions of technical and management
programs
§ The proposed prices
The Contract Example
Ø Person A approaches Person B and states,
“I’d like to rent your 300
acresto plant corn and I will pay 40% of the input
costs and receive
40% of the profits.” Person B agrees to Person
A’s terms.
Ø In this Example, the Person A makes the offer

and
Person B accepts the offer.
Ø Person A’s consideration is that she will pay 40%
of the input costs and 60% of the profits to
Person B.
Ø Person B’s consideration is agreeing to Person A
renting his land and paying 60% of the input
costs.
11/21/18
13
Key Contract Terms
Ø A project manager needs to be familiar with
the contract, in particular some
key terms:
§ Payment Terms: How does the seller get paid?
What is the buyers
responsibilities?
§ Termination: How can the contract be terminated?
What happens when the
contract is terminated? What are the warranty
conditions?
§ Insurance, Bonds: What type of insurance and
performance bonds are
required?

§ Confidentiality: What are the requirement to protect
confidential
information?
§ IP ownership: Who owns the intellectual property
created during the
execution of the contract?
Contract Type Selection
1. Fixed price or lump sum: Involves a fixed total price
for a well-defined
product or service
Ø May include incentives for meeting project
objectives such as schedule
2. Cost reimbursable: Involves payment (reimbursement)
to the seller for
its actual costs, plus a fee representing seller
profit.
3. Time and material: Hybrid of fixed price and cost-
plus contracts
Ø Open ended, as full value of the contract is
not defined at the time of award
4. Guaranteed maximum price: Protects buyer from
excessive costs, and
can also motivate buyer and seller to identify
and share cost savings
26

11/21/18
14
1. Firm Fixed Price– FFP
Firm Fixed PriceContract Type:
Ø Buyer pays the Seller for agreed costs for a
well-
defined statement of work
§ Seller is assured that scope of work is fixed
Ø Buyer Exposure is constant (except for any
changes) as Seller’s firm bid includes their
estimated costs plus a fee
Ø Seller Exposure varies: Seller Fee increases if
actual cost of work is lower, but Seller Loss
occurs if actual costs are much higher than
seller had estimated
27
Seller
estimate
Buyer
Exposure
Seller
lossSeller
fee

Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Firm Fixed PriceConceptual View
© Copyright D. C. Bower 2017
Buyer Exposure is the amount paid to the Seller.
Seller Exposure is the amount that the Seller
spends to accomplish the work in the
contract.
$
$
Fixed PriceIncentive Fee – FPIF
Ø Includes financial incentives for
meeting or exceeding specific project
objectives, such as a tight time schedule
Ø Similar to Firm Fixed Price(FFP):
§ Seller’s bid includes their estimated costs
plus an expected fee
§ Seller’s fee increases if actual cost of work

is lower, but becomes a loss if costs higher
Ø Different from FFP: Seller’s fee also
increases if they complete the project
according to an incentive in the
contract, such as “before a stated
deadline”.
28
Seller
estimate
Buyer
Exposure
Seller
fee
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Fixed PriceTime Incentive
Conceptual View
Incentive

bonus
Buyer Base
Seller
loss
11/21/18
15
Seller
loss
Fixed Pricewith Economic PriceAdjustment (FP-EPA)
Ø Includes provisions for adjusting the
final price due to changes in conditions
Ø May be linked to indices for currency
exchange rates, interest rates, etc.
Ø Similar to Firm Fixed Price(FFP):
§ Seller’s bid includes their estimated costs
plus an expected fee
§ Seller’s fee increases if actual cost of work
is lower, but becomes a loss if costs higher
Ø Different from FFP: Seller’s fee also
increases if specified conditions change,

such as the cost of a key material
29
Seller
estimate
Price
adjusted
per index
Seller
fee
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Fixed PriceEPA Conceptual View
Buyer Base
Seller
fixed fee
2. Cost Plus Fixed Fee (CPFF)

Cost Reimbursable Contract Type:
Ø Buyer pays the Seller for agreed project
costs plus a fixed-fee payment
§ Seller Fee is based on the estimated project
costs, estimated hours, complexity, etc.
§ Seller assumes little or no risk
Ø Seller Exposure is the actual cost of work
Ø Buyer Exposure will vary directly with the
actual cost of work
§ Buyer assumes a high degree of risk
Ø No motivation for the Seller to decrease
actual costs, as its fee is constant
30
Estimated
cost
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Cost + Fixed Fee Conceptual View

11/21/18
16
Cost Plus Incentive Fee (CPIF)
Ø CPIF is similar to Cost Plus Fixed Fee:
§ Seller Fee is based on the estimated project
costs, estimated hours, complexity, etc.
§ Seller assumes little or no risk
Ø Different from CPFF:
§ Buyer also pays the Seller a bonus that
varies with how much they achieve a
specific objective such as cost, time, etc.
§ Example: if actual costs are below the
seller’s estimate, then the Buyer and Seller
will share those savings equally
Ø Both the Buyer and Seller benefit if the
total costs are less than estimated
31
Seller
fixed fee
Estimated
cost

Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Cost + Incentive Fee
Conceptual View
Incentive
bonus
3. Time and Materials Contracts
Time & Materials Contract Type:
Ø Buyer pays Seller for all costs they incur
§ Seller costs include their fees to cover
overhead and profit; Seller assumes no risk
Ø Different from Cost Plus Fixed Fee:
§ Rates for labour and materials are fixed and
usually include the Seller’s fees
Ø Possible to convert to a fixed-price or
cost-

plus contract later, once project underway
Ø Upper cost limit for government contracts
§ Limitation on signing an open-ended contract
32
Upper
cost limit
Seller labour and
materials costs
Seller
fees/profits
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
Time & Material Conceptual View
11/21/18
17

4. Guaranteed Maximum Price(GMP)
Guaranteed Maximum PriceContract Type:
Ø Similar to Cost Plus Fixed Fee:
§ Buyer pays the Seller for agreed project costs
plus a fixed-fee payment
Ø Different from Cost Plus Fixed Fee:
§ Seller is subject to a ceiling price in the
contract
§ Any savings are returned to the Buyer
Ø Seller Exposure is the actual cost of work
§ Seller incurs a loss if costs exceed ceiling
price
Ø Buyer Exposure is limited to the ceiling
§ Buyer gains if actual cost is below ceiling
price
33
Ceiling
Price
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur

e
Guaranteed Maximum Price(GMP)
Conceptual View
Seller
loss
Seller
fixed fee
Reduced
Seller fee
Guaranteed Maximum Price(GMP) Incentive Fee
Ø GMP – Incentive Fee is similar to GMP:
§ Buyer pays the Seller for agreed project costs
plus a fixed-fee payment
§ Seller Exposure is the actual cost of work
§ Seller incurs a loss if costs exceed ceiling
price
§ Buyer Exposure is limited to the ceiling
Ø Different from regular GMP:
§ If actual cost of work is below ceiling price,
then Buyer and Seller share in the savings
Ø This contract arrangement encourages
Buyer and Seller to identify cost savings

34
Ceiling
Price
Actual Cost of Work
Co
nt
ra
ct
E
xp
os
ur
e
GMP with Incentive Fee
Conceptual View
Seller
loss
Seller
incentive fee
Reduced
Seller fee
11/21/18
18

Buyer and Seller Contracts Risks
Ø The various contract types
represent different levels of
risk to the Buyer and Seller.
Ø FFP contract represents the
lowest level of risk to the
Buyer, but the highest level to
the Seller.
Ø CPIF contract represents the
lowest level of risk to the
Seller (who will be reimburse
for all costs and is eligible for
an incentive fee) but the
highest level of risk to the
Buyer.
FFP (Firm Fixed Price)
FPIF (Fixed PriceIncentive Fee)
T&M (Time and Material)
CPFF (Cost Plus Fixed Fee)
CPIF (Cost Plus Incentive Fee)
Ri
sk
t
o
B
uy

er
(o
r
D
eg
re
e
of
U
nc
er
ta
in
ty
)
Risk to Seller
(or Scope Information)
35
6. Contract Close-out
Ø Contract close-out includes
§ product verification to determine if all work was
completed correctly and
satisfactorily
§ administrative activities to update records to
reflect final results
§ archiving information for future use
Ø Procurement audits:
Ø A tool for contract closeout
Ø It is a structured review of the procurement

process from procurement
planning through contract administration.
Ø Following audit, the seller may receive a
formal written notice that the
contract has been completed.
36
11/21/18
19
37
Resolution of Contract Claims
Ø It is not uncommon that there are claims during
the contract
§ Buyer claiming the product or service is not
functional as required
§ Seller claiming the requirements have changed
Ø All contract claims must be resolved prior to
contract closeout.
Ø Ways to resolve contract claims:
§ Negotiations: The buyer and seller enter into
negotiations to resolve the
disputes
§ Mediation: A mediator is engaged to find a
middle-ground which both sides

will accept as reasonable
§ Arbitration: More formal than mediation typically
using a 3 member panel and
can be binding on non-binding
§ Legal: Using the courts to resolve the dispute
Multi-Purpose Computer Lab
Facility for Ryerson University
Assignment #3 – Final Report
Team Name: Computing and Communications
Team
Course: GMS450-011
Date Submitted: April 2, 2018
Member Name Student ID
Tasfeia Alli 500751520

Yogya Atwal 500747648
Tanvir Sra 500759144
Sama Hussain 500777719
Daniyal Khalid 500641397
Shazaan Amaan 500790600
Cynthia Pathmanathan 500706092
Avani Patel 500693703
Jatin Dhingra 500798777
Multi-Purpose Computer Lab Facility for Ryerson University
Computing and Communications Team 2
Contents
1 Project Charter
...............................................................................................
.................................. 3
1.1 Purpose
...............................................................................................
............................................. 3
1.2 Objectives
...............................................................................................
......................................... 4

1.3 Schedule
...............................................................................................
............................................ 4
1.4 Resource Requirements
...............................................................................................
.................... 5
1.5 Stakeholders
...............................................................................................
..................................... 6
1.6 Risks
...............................................................................................
.................................................. 6
1.7 Evaluation Methods
...............................................................................................
.......................... 6
2 Scope Statement and WBS
...............................................................................................
............... 7
2.1 Project Scope Statement
................................................................................. ..............
.................. 7
2.2 Work Breakdown Structure (WBS)
...............................................................................................
... 8
3 Gantt Chart and Milestone Schedule
...............................................................................................
9

3.1 Gantt Chart
...............................................................................................
....................................... 9
3.2 Milestone Schedule
...............................................................................................
......................... 10
4 Project Budget
...............................................................................................
................................ 11
4.1 S-Curve
...............................................................................................
............................................ 11
4.2 Supporting estimates
...............................................................................................
...................... 12
5 Risk Assessment
...............................................................................................
.............................. 14
5.1 Risk Management Plan
...............................................................................................
................... 14
5.1.1 Risk Threshold
...............................................................................................
................................. 14
5.1.2 Risk scoring
...............................................................................................
..................................... 14

5.1.3 Risk Prioritization
...............................................................................................
............................ 14
5.1.4 Resources
...............................................................................................
........................................ 14
5.1.5 Categories
...............................................................................................
....................................... 15
5.1.6 Risk Register Template
...............................................................................................
.................... 15
5.2 Risk Assessment
...............................................................................................
.............................. 16
5.2.1 Risk Identification
....................................................................................... ........
........................... 16
5.2.2 Qualitative Analysis
...............................................................................................
......................... 17
5.2.3 Quantitative Analysis
...............................................................................................
...................... 17
5.2.4 Risk Response
...............................................................................................
.................................. 18

5.2.5 Risk Register
...............................................................................................
.................................... 19
Version Control
...............................................................................................
............................................ 21
1 Project Charter
1.1 Purpose
Ryerson University is striving towards providing an excellent
infrastructure to students, through which they can promote
innovation and real world application knowledge, therefore
students need hands-on experience with many sophisticated
software packages that are used in the workplace. The current
computer labs are inefficient and there is a shortage in lab
space with even more demand forecasted in the near future.
We will be building a new multi-purpose computer lab as a first
step in solving all the problems, fostering long-term
economic, social and environmental benefits.

extended periods of time, resulting in a waste of
power, associated with a financial cost and adverse impact on
the environment. Furthermore, this will depreciate
the machines at a faster rate, reducing overall lifespan and
increasing the frequency of replacement contributing to
the disposal of E-Waste. The new lab will consist of a high
speed network and computers with high speed
hardware including an additional Solid State Drive (SSD) used
to store the operating system, which enables
extremely fast boot time (≤ 20 sec) and login time (≤ 5 sec),
which allows to turn off computers after use, as it
takes only a few seconds to start up, saving power and
maximizing life span of equipment. This will enable
Ryerson to save on costs and improve the quality of service in a
sustainable manner.
-
based lectures, exams and workshops, for instance
Microsoft Excel training workshops have tight time slots, and
exams are split into many batches leading to higher
costs, making control & coordination difficult. The new lab
offers ample computing space for a vast range of
needs, including lab-based lectures, appointment based sessions
with Teaching Assistants, individual or group

work usage. Some machines will be dedicated for group work
during idle time, which will have customizable
hardware that allows to adjust fixtures accordingly to fit a small
group.
erson offers students and faculty members free access to
specialized software packages under a general license,
through a virtual platform, however the quality of interface,
performance and efficiency are questionable till date,
the new lab will provide students the opportunity to work in
groups or individually use software packages such as
SPSS, Auto Desk, SAS, and Ansys etc, with optimal
performance. The new sophisticated machine hardware and
software are also focused on catering the needs of high level
students specializing in graphic designing,
innovation, statistical applications, research and development
for which Ryerson is a known university.
certain days or times when there is extra ordinary
volume of activity, which the servers fail to manage. Examples
include, course intention periods and rolling out
results at a specific time. In this case our new lab is capable of
transforming certain powerful computers into a
pool of computing power, which can be used to assist the main

servers like a virtual server during those times,
which helps to manage the volume of activity effectively and
efficiently, preventing bottleneck situations and user
inconvenience.
lab will improve accessibility by approximately 50%
compared to the existing labs. About 4
workstations will be dedicated for disabled users, equipped with
perfect customizable ergonomics, including
adjustable fixtures, special hardware, peripherals and software
features etc, providing a comfortable user
experience and achieving perfect satisfaction, valuing diversity
at Ryerson University.
1.2 Objectives
We will be building a compact energy efficient multi-purpose
computer lab with ample computing space including cutting
edge technologies and comfortable ergonomics for individuals,
groups of students and accessible services.

This project will help Ryerson to minimize financial costs and
environmental impacts in the long-run through power-
efficiency and address capacity constraints. Quality of learning
& Student satisfaction will be improved sustainably.
The project should be completed by September 3, 2018 to be
functional for the fall 2018 semester, therefore we have a
critical schedule with no allowance for delays and minimal
slack time. We will meet/exceed all agreed customer
requirements on a maximum budget of $360,000.
We will be clearly communicating the status of the project to
our project sponsor after every deliverable is completed,
using a pro-active review approach to complete the lab
effectively and successfully on time and budget.
1.3 Schedule
Milestone Schedule
Milestone Due Date
Analysis Complete (Design & Measurements) April 8, 2018
Documentations Complete April 16, 2018
Demolition Complete April 27, 2018
Remodeling Complete August 3, 2018
Fixtures, Fittings & Furniture Received August 6, 2018

Computers & Equipment Received August 13, 2018
Networking & Configurations Complete August 21, 2018
All Installations Complete August 23, 2018
Testing Complete August 30, 2018
Compliance Audit Complete September 3, 2018
Project Completed & Project Sponsor signs off September 4,
2018
Start Date: April 1, 2018
End Date: September 4, 2018
The project will be completed in about 156 days ≈ 5 Months.
Note: We have accounted for concurrent activities and lead
times between activities.
1.4 Resource Requirements

Resource Requirements & Summary Budget
Activities &
Resources
Labour Required
Labour
($/Hr)
Cost of Material &
Equipment ($)
Total Cost
Analysis 5hrs x 2 people x 7 days $15 $150 $1,200
Documentation 5hrs x 2 people x 7 days $15 $150 $1,200
Demolition 8hrs x 4 people x 10 days $14 $5,520 $10,000
Remodeling 8hrs x 5 people x 100 days $14 $94,000 $150,000
Fixtures & Furniture
(50*$300)
- - - $15,000
Computers
(50*$2000)
- - - $100,000
Assistive Stations

(4*$4000)
- - - $16,000
Projectors
(2*$4500)
- - - $9,000
Networking 5hrs x 2 people x 3 days $20 $10,000 $10,600
Other Equipment &
Accessories
- - - $15,000
Installations 7hrs x 3 people x 17 days $14 $502 $5,500
Testing 6hrs x 2 people x 6 days $15 $120 $1,200
Compliance Audit 3hrs x 2 people x 3 days $15 $30 $300
Fixed Cost - - - $5,000
Total $340,000
We are given a budget of $360,000. Estimated total cost is
$340,000, indicating a potential surplus of $20,000, which we
are planning to allocate for risk management in case we need
contingency funding in an emergency, to overcome adverse
situations. We are confident that we can complete the project on
budget as we have use statistical techniques in

forecasting both opportunities and threats for budgeting and we
will be using Earned Value Management (EVM)
techniques in an ongoing basis, to make sure we are alw ays pro-
active in detecting and correcting potential problems,
along with regularly communicating the status of the project to
the sponsors will help us complete this project
successfully.
1.5 Stakeholders
The key stakeholders are our project team members, facilities
director (Sponsor), Ryerson’s senior management including
the Finance director, and our contractors/suppliers such as Bell,
Samsung, Epson, Sony, HID, Microsoft, & IBM etc.
The project manager has authority to directly report and get
approval from the Facilities director (Sponsor) and Finance
director. The project manager is responsible to lead the team
and get the project completed on time, on budget and on
scope, the PM is accountable for any delays or risks to the
senior management.

Project team member’s individual roles listed below:
Title Name
Project Manager Tasfeia
Communications Manager Tanvir Sra
Risk Manager Sama Hussain
HR & Scheduling Manager Yogya & Avani
Accounting & Finance Manager Daniyal & Shazaan
Operations Manager Jatin & Cynthia
1.6 Risks
Risk ID Risk
1 Delay in supply of computers & other equipment.
2 Risk of Injury on site
3 Adverse weather conditions can affect duration of renovation.
4 Platform mismatch, problems might arise integrating new
technologies with older platforms.
5 Risk of price fluctuations
6 Hardware performance issues/defects

7 Theft of equipment, materials or accessories.
8 Intruders causing damage to property while project is in
progress.
9 Minor scope changes requested by the client
10 Minor Software Bugs
The organization is very risk averse. We will be most concerned
or give priority to risks that have a PI Score of 0.09 and
higher, we will keep an eye on risks with a score of 0.04 – 0.08
as a second priority and we will accept risks with a score
of 0.03 or less. This is because we have a very critical time line
to complete the project and very minimal slack time.
1.7 Evaluation Methods
Project success is measured in terms of satisfying client’s scope
requirements, at the pre-specified time and budget.
Project sponsors will be matching and checking off the
acceptance criteria with actual performance, and if the scope is
satisfied it is the first criteria for success. Then the planned
schedule and actual schedule will be matched, if there is no
any adverse variance, this criterion will be a success too.
Finally the budgeted expenditure and actual spending will be
matched, if there is no any adverse variance, this criteria is
successful too. Therefore the sponsor will be satisfied and we

consider the overall project to be successful.
The Facilities Management Director and Finance Director of
Ryerson University are our sponsors and they will evaluate
the project at the end and sign off, once they are satisfied.
2 Scope Statement and WBS
2.1 Project Scope Statement
Our project is aiming to solve problems power efficiency,
computing power and space, accessibility, and capability of
resource pooling to support main servers during bottle neck
situations. Increasing student satisfaction, productivity and
minimizing long term costs.
We have selected Samsung as our supplier of computers. The
model to be used is Samsung ArtPC PULSE. It is powerful,
compact, durable, modular, stylish and eco-friendly. It has a
Silver rating in Electronic Product Environmental
Assessment Tool (EPEAT) and Energy star certified. The
modular design make it easier to upgrade hardware components
and expand the lifespan of the equipment.

Quantifiable Criteria include:
1. Cost: The project should be completed with a maximum
budget of $360,000 or less.
2. Schedule: Important criterion, project should be completed
by September 4th, 2018 to be functional in Fall 2018.
3. Scope and Quality: Equipment and materials should have
exact same brands and specifications pre specified in
the acceptance criteria. Floor area should be a minimum of 3000
Square feet etc, actual performance should
adhere to the quantifiable requirements specified in acceptance
criteria, for instance certification requirements
such as EPEAT and Energy Star etc. Total of 54 computers
including assistive workstations.
Acceptance Criteria
entrance and 2 fire exits, should have some free space for
students to work on laptops and for future expansion of
computers.
scheme of Ryerson and be visually pleasant.
fire exit to ensure convenience & safety.

Specifications:
-4Ghx (Turbo Boost), 8MB
Cache, 16GB RAM (DDR4), 512GB
SSD+1TB HDD, NVIDIA 4GB (GTX 1050).
440), 24”
Curved HDR Quantum Dot Display.
time ≤ 20 Sec & Login time ≤ 5 Sec.
be upgraded to the latest editions and be
compatible with 64 Bit platforms, to utilize hardware efficiently
achieving greater performance.
Lumens, Screen size 60”- 300”.
visibility.
ser printers and scanners should be used.

Project Deliverables
These are the main requirements to be completed on time and
budget for the successful completion of the project, from
Level 2 of WBS.
1. Analysis: Designing includes requirements & layout
planning, and measurements taken.
2. Documentation: This includes preparation and submission of
all necessary documents for this project.
3. Renovation: Includes demolition and remodeling of the lab,
longest activity takes about 110 days critical.
4. Installation: This includes the purchase of all equipment &
material, then complete installations.
5. Testing: This deliverable is complete when all components of
the lab are tested and a report is prepared.
6. Compliance Audit: This includes an audit being conducted to
make sure the lab is perfectly functional before the
project sponsors are invited to evaluate and sign off the project
on September 4th, 2018.
All scope requirements stated and agreed will be satisfied to the
best extent, in accordance with the acceptance criteria.
Project Exclusions

administrators due to misuse without reading user
manuals and relevant information.
roject by September 4th, 2018
we will not be responsible for any further changes or
adjustments.
fund for any improvements of the lab instead it will
be refunded to the project sponsor.
as our scope is only focused on the interior design
of the lab.
of third party software applications used.
3 Gantt Chart and Milestone Schedule

3.1 Gantt Chart
Tasks Start Date End Date Duration (Days) Predecessors
Analysis (1) 1-Apr-18 8-Apr-18 7 -
Designing (1.1) 1-Apr-18 6-Apr-18 5 -
Measurement (1.2) 6-Apr-18 8-Apr-18 2 1.1
Documentation (2) 9-Apr-18 16-Apr-18 7 1
Permits (2.1) 9-Apr-18 11-Apr-18 2 1
Design Documents (2.2) 11-Apr-18 12-Apr-18 1 2.1
Contractor Agreements (2.3) 12-Apr-18 15-Apr-18 3 2.2
Maintenance Documents (2.4) 15-Apr-18 16-Apr-18 1 2.3
Renovation (3) 17-Apr-18 5-Aug-18 110 2
Demolition (3.1) 17-Apr-18 27-Apr-18 10 2
Remodeling (3.2) 27-Apr-18 5-Aug-18 100 3.1
Installation (4) 6-Aug-18 23-Aug-18 17 3
Install - Fixtures & Furniture (4.1) 6-Aug-18 13-Aug-18 7 3
Install - Computers (4.2) 13-Aug-18 18-Aug-18 5 4.1
Networking (4.3) 18-Aug-18 21-Aug-18 3 4.2
Access Control System &Cameras (4.4) 21-Aug-18 23-Aug-18

2 4.3
Install - Other Equipment (4.5) 21-Aug-18 22-Aug-18 1 4.3
Testing (5) 24-Aug-18 30-Aug-18 6 4
Test - Hardware (5.1) 24-Aug-18 26-Aug-18 2 4
Test - Software (5.2) 26-Aug-18 28-Aug-18 2 5.1
Test - Network (5.3) 28-Aug-18 29-Aug-18 1 5.2
Prepare Testing Report (5.4) 29-Aug-18 30-Aug-18 1 5.3
Compliance Audit (6) 31-Aug-18 3-Sep-18 3 5
Conduct Audit (6.1) 31-Aug-18 2-Sep-18 2 5
Prepare Audit Report (6.2) 2-Sep-18 3-Sep-18 1 6.1
Milestone Due Date
Analysis Complete (Design & Measurements) April 8, 2018

Documentations Complete April 16, 2018
Demolition Complete April 27, 2018
Remodeling Complete August 3, 2018
Fixtures, Fittings & Furniture Received August 6, 2018
Computers & Equipment Received August 13, 2018
Networking & Configurations Complete August 21, 2018
All Installations Complete August 23, 2018
Testing Complete August 30, 2018
Compliance Audit Complete September 3, 2018
Project Completed & Project Sponsor signs off September 4,
2018
4 Project Budget
4.1 S-Curve

5.20%
19.24%
32.83%
46.87%
99.90%
100.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
April May June July August September
S-Curve

Period (Months)
C
u
m
u
la
ti
ve
P
ro
gr
es
s
(%
)
Table 1: Work Package Estimates

Work Package Labour Required
Labour
($/Hr)
Cost of Material &
Equipment ($)
Fixed Cost Total Cost
Analysis 5hrs x 2 people x 7 days $15 $150 $50 $1,250
Documentation 5hrs x 2 people x 7 days $15 $150 $50 $1,250
Demolition 8hrs x 4 people x 10 days $14 $5,520 $550 $10,550
Remodeling 8hrs x 5 people x 100 days $14 $94,000 $4000
$154,000
Installation -
Fixtures &
Furniture
(50*$300)
- - $15,000 - $15,000
Computers
(50*$2000)
- - $100,000 - $100,000
Assistive Stations

(4*$4000)
- - $16,000 - $16,000
Projectors
(2*$4500)
- - $9,000 - $9,000
Networking 5hrs x 2 people x 3 days $20 $10,000 $150 $10,750
Other Equipment &
Accessories
- - $15,000 - $15,000
Installation Cost 7hrs x 3 people x 17 days $14 $502 $50
$5,550
Testing 6hrs x 2 people x 6 days $15 $120 $100 $1,300
Compliance Audit 3hrs x 2 people x 3 days $15 $30 $50 $350
Total $340,000
Table 2: Work Package Time Profile

Work Package April May June July August September Total
Analysis $1,250 - - - - - $1,250
Documentation $1,250 - - - - - $1,250
Demolition $10,550 - - - - - $10,550
Remodeling $4,620 $47,740 $46,200 $47,740 $7,700 - $154,000
Purchase & Installation - - - - $171,300 - $171,300
Testing - - - - $1,300 - $1,300
Compliance Audit - - - - - $350 $350
Cumulative Total $17,670 $65,410 $111,610 $159,350 $339,650
$340,000 $340,000
Monthly (%) 5.20% 14.04% 13.59% 14.04% 53.03% 0.10%
100.00%
Cumulative Progress (%) 5.20% 19.24% 32.83% 46.87% 99.90%
100.00% -
Note: Expenses incurring across multiple periods have been
prorated based on number of days consumed each month.

5 Risk Assessment
5.1 Risk Management Plan
5.1.1 Risk Threshold
In our project the risk threshold will be a risk score 0.09, after
which it is high priority and of concern to us. Once the
score is 0.09 or higher we will take immediate action. We will
also consider risks with a score 0.04 and higher as a second
priority (Risk Averse).
5.1.2 Risk scoring
-Impact (PI) Matrix will be
used.
1. 0.01 ≥ Score ≤ 0.03 – Low Risk (Accept)
2. 0.04 ≥ Score ≤ 0.08 – Moderate Risk (Avoid/Transfer)
3. 0.09 ≥ Score ≤ 0.72 – High risk (Mitigate/Transfer/Avoid)
Value (EMV) to determine an accurate value for a
high risk event, which is beyond the risk threshold.
5.1.3 Risk Prioritization
The Probability-Impact (PI) Matrix will be used to determine
the risk score, which shows if risk is high, moderate or low,

then Risk response actions will be decided based on the
category. Main impact will be on schedule, followed by budget.
– 0.72 is high risk (Mitigate/Transfer/Avoid)
– 0.08 is moderate risk (Avoid/Transfer)
– 0.03 is low risk (Accept)
Probability Risk Score = Probability x Impact
0.9 0.05 0.09 0.18 0.36 0.72
0.7 0.04 0.07 0.14 0.28 0.56
0.5 0.03 0.05 0.1 0.2 0.4
0.3 0.02 0.03 0.06 0.12 0.24
0.1 0.01 0.01 0.02 0.04 0.08
0.05 0.10 0.20 0.40 0.80
5.1.4 Resources
The risk management team will comprise of internal project
team members only. The Project Manager (Tasfeia), Risk
Managers (Sama & Tanvir), HR & Scheduling Managers (Yogya
& Avani), Finance Managers (Daniyal & Shazaan), will
be involved in assessment and management of risk effectively,
field of experience and relevance are considered for the

choice.
5.1.5 Categories
Risk categories involved in our project are as follows:
– Other (Unpredictable & Very Unlikely)
5.1.6 Risk Register Template

Id Risk Description Prob. Impact Score Response
Revised
Prob.
Revised
Impact
Revised
Score
Status
5.2 Risk Assessment
5.2.1 Risk Identification

ID # Risk Description Type Category Probability Impact
1
Delay in
supply of
computers
Delivery dates may not be
met, as we changed supplier
from HP (Existing supplier
of Ryerson) to Samsung,
past records not available.
Threat Schedule Very Likely
Adversely affects overall
schedule & budget
2
Adverse
weather
condition
May cause delay in building

walls, affecting project
completion time.
Threat External Likely
If remodelling is delayed,
then overall project is
delayed.
(Budget &Schedule)
3
Inferior
Network
Performance
Performance not meeting
acceptance criteria.
Threat Technical Likely
Affects quality, if scope
requirements not met.
4
Platform
mismatch
Problems might arise

integrating new technologies
with older platforms.
Threat Technical Likely
Impacts budget, scope &
schedule
5
Risk of
Injury on
site
Workers might get hurt by
defective equipment and/or
unsafe wiring.
Threat
Health &
Safety
Likely
Impacts budget and
schedule.
6
Risk of price

fluctuations
Possible variability in price
of equipment and/or
materials.
Threat Cost Unlikely Negatively affect budget.
7
Theft of
items
Risk of items being stolen. Threat
External -
Other
Likely
Third party contractors or
workers stealing, has a
budget …
3/18/18
1
Project Management
Class – 9

Project
Risk Management
Uncertainty & Risk Analysis
Ø Projects are all about uncertainty:
§ Time required to complete a project
§ Availability and cost of key resources
§ The whims of clients
§ Actions taken by competitors
Ø Effective project management requires an ability
to deal with
uncertainty
Ø Can uncertainty be eliminated?
3/18/18
2
Learning Outcomes
Ø Identify project risks
Ø Determine quantitative or qualitative value of
project risks
and prioritize them
Ø Propose plans to mitigate such risks
Ø Monitor and control the risks
Ø Budget uncertainty and project risk management

Project Risk Management
According to PMBOK® Guide:
Ø Project risk: an uncertain event or condition that, if
it occurs, has a
positive or negative effect on at least one project
objective
Ø Risk management: the processes of identifying,
analyzing, monitoring
and responding to project risk in order to
§ Maximize probability and consequences of
positive events
§ Minimize probability and consequences of adverse
events
3/18/18
3
Risk Categories
Sources of
Risk
Outside the PM’s
Control
Within the PM’s
Control

Unpredictable Predictable Non-Technical Technical Legal
Government
Regulations
Natural
Hazards
Acts of
God
External Internal
Cost of
Money
Availability
of Raw
Materials
Quality
of Inputs
from Suppliers
Labor
Stoppages
HR
Availability
Health &
Safety
Cash
Flow
Technological
Change

Design
Problems
Technical
Operations
Planning
Maintenance
Licenses
Law Suits
Subcontractors’
Performance
Compliance
with Specs
Risk Categories Examples
Category Example
Technical Failure to meet customer performance
requirements
Schedule Vendor delay in delivery of critical
equipment
Cost Material cost escalate more than anticipated
Human resources May not have people available when
required to staff the project
External Inclement weather
Changes in government regulations
Sponsor/customer Delays in approval
Change in customer preferences
Other Ø Encountering more than expected rock formations
when

excavating
Ø Labor strike may occur during the peak of a
construction project
3/18/18
4
Risk Management Breakdown into Sub-processes
1. Risk management planning: Developing a plan
for risk management
activities
2. Risk identification: finding those risks that might
affect the project
3. Qualitative risk analysis: evaluating the seriousness of
the risk and the
likelihood it will affect the project
4. Quantitative risk analysis: developing measures for the
probability of the
risk and its impact on the project
5. Risk response planning: finding ways of reducing
negative impacts on the
project as well as enhancing positive impacts
6. Risk monitoring and control: maintaining records of
and evaluating the sub-
processes above in order to improve risk
management

Risk Management Planning
Ø A method for carrying out steps 2 through 5
Ø Must ensure that the necessary resources can be
applied in a timely
and well-organized manner
Ø The factors that cause uncertainty change
over time; therefore the
planning process is a continuous process
Ø Planning how to deal with uncertainty is an
organizational problem,
not specifically a project problem
Ø Many firms create a risk management group
whose job is to aid the
project management team in doing steps 2 through
5
3/18/18
5
Risk Identification
Scenario analysis
Ø Scenario analysis
§ Well-known method for identifying risk
§ Involves envisioning likely scenarios and
resulting outcomes
§ These types of risk can often be identified and

evaluated by project
stakeholders with previous experience in similar
projects
§ The following data should be obtained:
ü The probability of each risk event occurring
ü The range of possible outcomes
ü The probability of each outcome
ü The expected timing of each outcome
Risk Identification
Failure Mode and Effect Analysis (FMEA)
Ø It’s a structured approach to help identify,
prioritize, and better
manage risk.
Ø FMEA can be applied to projects using the
following six steps:
1. List ways project might fail
2. List consequences and evaluate its severity (S:
severity)
3. List cause and likelihood (L: likelihood)
4. Estimate the ability to detect each failure
(D: detectability)
5. Calculate the Risk Priority Number (RPN)
6. Sort the potential failures by their risk priority
number
3/18/18
6

FMEA Example
Ø The following table shows the results of a
FMEA conducted to assess the risk
of a new drug development project at
pharmaceutical company.
Failure
S
(Severity)
L
(Likelihood)
D
(Detectability)
RPN
Not effective 8 6 5 240
Not safe 8 4 5 160
Drug interacts with other drugs 6 3 8 144
Beat to market 7 3 2 42
Can’t produce in mass quantities 6 4 4 96
FMEA Example (Cont.)
Ø The most significant risk is the risk of
developing a new drug that is not
effective.
Ø It is unlikely that much can be done to reduce
the severity of this outcome
Ø Steps can be taken to reduce the likelihood of
the outcome or increase its

detectability:
§ Advanced computer technologies can be utilized to
generate chemicals
with more predictable effects
§ Earlier human clinical and animal trialscan be
used to help detect the
effectiveness of new drugs sooner
§ If both L and D could each be reduced by
one, the overall RPN would be
reduced from 240 to 160.
3/18/18
7
Ø Interviewing is a fact-finding technique for
collecting information in
face-to-face, phone, e-mail, or instant-messaging
discussions
Ø Interviewing people with similar project experience
is an important
tool for identifying potential risks
§ What are your company’s top risks, how severe
is their impact and how likely
are they to occur?
§ Who owns the top risks and is accountable for
results, and to whom do they
report?

§ What is the risk threshold in your projects?
§ How effective is your company in managing its
top risks?
Risk Identification
Interviewing
Risk Identification
Brainstorming
Ø A process for teams to generate ideasand to
find solutions on project issues
and problems.
Ø It can be accomplished either in a structured or
in an unstructured way:
§ Structured: When team members provide ideasin
turn
§ Unstructured: When team members provide ideasat
random
Ø What to do
1. Gather team members in a conference room
2. Make sure there is whiteboard, and colored
markers
3. Involving all members of the team will create
more input, and more input is
better
4. Team members need to spend time on idea
generation before each
brainstorming session

3/18/18
8
Risk Identification
Delphi Technique
Ø The Delphi technique is a group decision
process about the likelihood that
certain events will occur.
Ø The goal of the Delphi method is to obtain
a reliable response to a problem
from a group of experts.
Ø A series of questionnaires are sent either by
mail or email to a pre-selected
group of experts.
Ø In a Delphi study, the participants do not
interact with one another; their
responses are anonymous.
Ø Each round of questionnaires results in a
median answer.
Ø The process guides the group towards a
consensus.
Risk Identification Outputs
1. Risks: A risk is an uncertain event or
condition that, if occurs, has
positive or negative effect on a project
objective.

2. Triggers (or risk symptoms): They are indications
that a risk has
occurred or is about to occur.
§ Failure to meet intermediate milestones may be an
early warning signal of an
impending schedule delay.
§ A negative cost variance (EV – AC) after 10% of
project completion time may be
a warning signal that the project may go over
budget.
3. Inputs to other processes: Riskidentification may identify
a need for
further action in another area.
§ The WBS may not have sufficient detail to allow
adequate identification of risks
§ The schedule may not be complete or entirely
logical
Adapted from Figure 11-10, A Guide to the
Project Management Body of Knowledge
(PMBOK® Guide) - Fourth Edition, Project
Management Institute,
Inc., 2013. Copyright and all rights reserved.
Material from this publication has been reproduced
with the permission of PMI.
3/18/18
9
Qualitative Risk Analysis

Ø Qualitative Risk Analysis is the process of
assessing the impact and
likelihood of occurrence of identified risks.
Ø Used to prioritize risks according to their potential
effect on project
objectives (scope, time, cost, quality)
Ø Rapid and cost-effective way to prioritize risks lay
the foundation for
quantitative analysis and planning risk responses
Ø Organizations can enhance their performance by
focusing on and managing
high-priority risks
Ø Accurate data should be used in all analyses in
order to ensure results are
reliable, and useful
Risk Probability and Impact
Ø Risk probability and risk consequences may be
described in
qualitative terms such as very high, high, moderate,
low, and very
low.
Ø Risk probability is the likelihood that a risk will
occur
Ø Risk consequences is the effect on project
objectives if the risk
occurs

Ø Analysis of risks using probability and
consequences
helps identify those risks that should be
managed
aggressively
Adapted from Table 11-1, A Guide to the
(PMBOK® Guide) - Fifth
Edition, Project Management Institute, Inc., 2013.
Copyright and all rights reserved. Material
from this
publication has been reproduced with the permission
of PMI.
3/18/18
10
Probability/Impact Risk Rating Matrix
Ø A matrix may be constructed that assigns ratings
(very low, low, moderate,
high, and very high) to risks.
Ø Probability: The likelihood of occurrence
§ The ratio of the number of chances that an
event may happen, to the sum of the
chances of it both happening and not happening
§ It falls between 0.0 (no probability) and 1.0
(certainly)
Ø Impact: reflects the severity of risk’s effect on

the project objective
§ Ordinal (very low, low, moderate, high, very high) or
§ Cardinal
ü Linear scale: 0.1 / 0.3 / 0.5 / 0.7 /
0.9
ü Non-linear scale: 0.05 / 0.1 / 0.2 / 0.4 /
0.8
Risk Score = Probability x Impact
Organization
desires to avoid
high-impact risks.
Rating Likelihood Matrix
Ordinal Impact Cardinal
Very High > 80% 0.9
High 60% to 80% 0.7
Medium 40% to 60% 0.5
Low 20% to 40% 0.3
Very Low < 20% 0.1
Ø One-to-one correspondence of ordinal and
cardinal impact
3/18/18
11
Rating Impact Matrix

Ø Evaluating impact of a risk on major project
objectives
Ø The impacts can be assessed on a scale from
Very Low to Very High or on a
numerical scale (here cardinal and non-linear scale)
Project Very Low Low Moderate High Very High
Objective 0.05 0.10 0.20 0.40 0.80
Cost Insignificant
cost increase
<5% Cost
increase
5 - 10% Cost
increase
10 - 20% Cost
increase
> 20% Cost
increase
Schedule Insignificant
schedule
slippage
Schedule
slippage <5%
Overall project
slippage 5 -

10%
Overall project
slippage 10 -
20%
Overall project
schedule slips
> 20%
Scope Scope
decrease
barely
noticeable
Minor areas of
scope are
affected
Major areas of
scope are
affected
Scope
reduction
unacceptable
to the client
Project end
item is
effectively

useless
Quality Quality
degradation
barely
noticeable
Only very
demanding
applications are
affected
Quality
reduction
requires client
approval
Quality
reduction
unacceptable
to the client
Project end
item is
effectively
unusable
Adapted from Table 11-1, A Guide to the
(PMBOK® Guide) - Fifth Edition, Project
Management Institute, Inc., 2013.

Copyright and all rights reserved. Material from
this publication has been reproduced with the
permission of PMI.
Risk Score for a Specific Risk
Probability Risk Score = � × �
0.9 0.05 0.09 0.18 0.36 0.72
0.7 0.04 0.07 0.14 0.28 0.56
0.5 0.03 0.05 0.10 0.20 0.40
0.3 0.02 0.03 0.06 0.12 0.24
0.1 0.01 0.01 0.02 0.04 0.08
0.05 0.10 0.20 0.40 0.80
Impact on an Objective (e.g., cost, time, or scope)
(Ratio Scale)
Probability-Impact (P-I) Matrix
Ø Determining whether a risk is considered low,
moderate or high.
Project Management Body
of Knowledge (PMBOK® Guide) - Fourth Edition,
Project Management
Institute, Inc., 2013. Copyright and all rights
reserved. Material from
this publication has been reproduced with the
permission of PMI.
3/18/18

12
Probability-Impact (P-I) Matrix
Ø The P-I matrix can be developed using
cardinal or ordinal
scales.
Ø The organization must determine which
combinations of
probability and impact result in a risk’s
being classified as high
risk (red condition), moderate risk (yellow condition),
and
low risk (green condition).
Ø The risk score helps put the risk into a
category that will guide
risk response actions.
Outputs from Qualitative Risk Analysis
1. Overall risk ranking for the project: Risk ranking
may indicate the
overall risk position of a project relative to
other projects by
comparing the risk scores.
2. List of prioritized risks: Risks can be
prioritized by a number of criteria
including
§ Rank (high, moderate, and low)
§ WBS level
§ Immediate response or handled at a later date
3. List of risks for additional analysis: Risks classified as

high or
moderate would be prime candidates for more
analysis, specifically
quantitative risk analysis.
3/18/18
13
Quantitative Risk Analysis
Ø State outcomes as probability distribution and
use distributions to evaluate
the desirability of certain decisions
Ø Objective is to illustrate the risk profile of
the outcomes (e.g., profits,
completion dates, return on investment) on
investing in some projects
Ø Techniques for analysis include:
§ Expected value: When probability information is
available or can be
estimated, many risk analysis techniques use the
concept of expected value

of an outcome.
§ Simulation: Evaluating the desirability of certain
managerial decisions by
iteration and estimating probability distributions of
outcomes and key
parameters
Expected Value Analysis Example
Ø Find the best alternative given the cost
outcomes below. The probability of
rain is 0.3, clouds is 0.2, and sun is 0.5.
Ø Alternatives “c” and “d” have the lowest expected
cost.
Ø What if you base your decision on the best, and
the worst possible outcome
for each alternative?
Alternative State
Rainy Cloudy Sunny Expected Value
a 6 3 4
b 2 4 5
c 5 4 3
d 5 4 3
�×�.� + �×�.� + �×�.� = �.�
�×�.� + �×�.� + �×�.� = �.�
�×�.� + �×�.� + �×�.� = �.�
�×�.� + �×�.� + �×�.� = �.�
Worst case: � → �;� → �;� → �;� → � → either b, c,
or d

Best case: � → �;� → �;� → �;� → � → b
3/18/18
14
Decision Trees
Ø A decision tree is a decision support tool that uses a
tree-like
graph or model of decisions and their possible
consequences,
including chance event outcomes, resource costs,
and utility.
Ø Three types of “nodes”
§ Decision nodes - represented by squares (□)
§ Chance nodes - represented by circles (Ο)
§ Terminal nodes - represented by triangles
(optional)
Ø Solving the tree involves pruning all but the best
decisions at
decision nodes, and finding expected values of all
possible
states of nature at chance nodes
Decision
node
Chance
node Event 1
Event 2

Event 3
Decision Trees Example
Ø John Smith is a writer of romance novels.
A movie company and a TV
network both want exclusive rights to one of his
more popular works.
Ø If he signs with the network, he will receive a
single lump sum, but if
he signs with the movie company, the amount he
will receive depends
on the market response to his movie.
Ø What should he do?
Ø The list of payouts under each contract and
success probability in box
office are as follows.
3/18/18
15
Payouts and Probabilities
Movie company Payouts
Ø Small box office - $200,000
Ø Medium box office - $1,000,000
Ø Large box office - $3,000,000

TV Network Payout
Ø Flat rate - $900,000
Probabilities
Ø P(Small Box Office) = 0.3
Ø P(Medium Box Office) = 0.6
Ø P(Large Box Office) = 0.1
Payoff Table
Decisions
States of Nature
Small Box
Office
Medium Box
Office
Large Box
Office
Sign with
Movie
Company
$200,000 $1,000,000 $3,000,000
Sign with TV
Network $900,000 $900,000 $900,000
Prior
Probabilities

0.3 0.6 0.1
3/18/18
16
Decision Tree
Small Box Office
Medium Box Office
Large Box Office
Small Box Office
Medium Box Office
Large Box Office
Sign with Movie Co.
Sign with TV Network
$200,000
$1,000,000
$3,000,000
$900,000
$900,000

$900,000
Expected Value (Sign with Movie C.) =
�.�×��,�� + �.�×�,��,�� + �.�×�,��,�� =
$��,��
Expected Value
(Sign with TV
Network) =
�.�×��,�� +
�.�×��,�� +
�.�×��,�� =
$��,��
Information Technology Project
Management, Seventh Edition
Ø Simulation uses a representation or model of a
system to analyze the
expected behavior or performance of the system
Ø Monte Carlo analysis simulates a model’s
outcome many times to provide a
statistical distribution of the calculated results
Ø The model is run repeatedly based on
random choices of values from the
probability distributions of the input variables
Ø Outputs of the model are used to construct
statistical distributions of items
of interest such as costs, profits, and completion
dates.
Ø We can use Oracle Cristal Ball, a widely

used Excel Add-In to improve the
PM’s understanding of the risks associated with budget
uncertainty.
Ø The Oracle Cristal Ball is available with the
textbook.
Project Risk Simulation with Crystal Ball
Simulating Budgets and Cash Flows
3/18/18
17
PsychoCeramic Sciences, Inc.
Review from Class 2
§ PsychoCeramic, Inc. is a large producer of pots
and other fragile items.
§ The firm is considering the installation of a
new manufacturing line
that will allow more precise quality control on
the size and shape.
§ The plant engineering department has submitted
the project proposal
that estimates the following investment requirements:
§ Initial investment of $125,000 at the beginning of
2016
§ Additional investment of $100,000 to install
the machines at the end of 2016
§ Another $90,000 to add new material handling system
at the end of 2017

§ Maintenance expenditures about $15,000 every
second year starting from
2019
Review
§ Projected manufacturing savings and added profits
resulting from
higher quality are estimated to be $50,000 in
the first year of operation
(which is 2018), and to peak at $120,000 in
the second year of
operation.
§ The machinery will have a salvage value of
$35,000 after 10 years; the
project life.
§ It then follows a gradually declining pattern
presented below.
2018 2019 2020 2021 2022 2023 2024 2025
50,000 120,000 115,000 105,000 97,000 90,000 82,000 65,000
35,000
3/18/18
18
PsychoCeramic Sciences, Inc. (Review)
Fixed Inflow (No Uncertainty)

Cash Flow and Inflation Estimates
Ø Similar to our discussion in
scheduling, we assume budget/profit
estimate follows beta distribution
with the following estimations
§ Minimum (Pessimistic)
§ Most likely
§ Maximum (Optimistic)
Ø We also assume that the rate of
inflation (p) is normally distribution
with a mean of 2 percent and
standard deviation of 0.33 percent.
Inflow
Year Minimum Most Likely Maximum
2018 $35,000 $50,000 $60,000
2019 $95,000 $120,000 $136,000
2020 $100,000 $115,000 $125,000
2021 $88,000 $105,000 $116,000
2022 $80,000 $97,000 $108,000
2023 $75,000 $90,000 $100,000
2024 $67,000 $82,000 $91,000
2025 $51,000 $65,000 $73,000
2025 $30,000 $35,000 $38,000
Total $621,000 $759,000 $847,000
3/18/18
19

Cash Flow and Inflation Estimates (Cont.)
Ø In CB the cells that contain variables or parameters
that we make assumptions
about are defined as assumption cells
§ Inflows are variables
§ Inflation is parameter
Ø The cells that contain the outcomes (or results)
we are interested in forecasting
are called forecast cells
§ We want to predict the NPV of the project
Ø The forecast cell typically contains a formula
that is dependent on one or more of
the assumption cells
Ø We need to add a new column to capture
uncertainty in every year inflation rate
Ø With CB Add-In define each inflow based on
beta distribution and inflation rate
based on normal distribution
Cash Flow and Inflation Estimates (Cont.)
3/18/18
20
PsychoCeramic Example: Frequency Chart of Net
Present Value

PsychoCeramic Example: Summary Statistics
3/18/18
21
Crystal Ball Chart for Project Completion Time
Risk Response Planning
Ø Risk Response Planning is the process of
developing options and
determining actions to enhance opportunities and
reduce threats to the
project’s objectives.
Ø It includes the identification and assignment of
individuals or parties to take
responsibility for each agreed risk response.
Ø It must be appropriate to
§ Severity of the risk
§ Cost effective in meeting the challenge
§ Timely to be successful
§ Realistic within the project context
§ Agreed upon by all parties involved
§ Owned by a responsible person

3/18/18
22
Tools and Techniques for Risk Response Planning
Ø Several risk response strategies are available.
Ø The strategy that is most likely to be
effective should be selected for
each risk followed by specific actions to implement
the selected
strategy.
Ø There are four main risk response strategies
1. Avoidance
2. Transference
3. Mitigation
4. Acceptance
Risk Response Strategies
Threats
Avoid
Ø Eliminate a specific threat,
usually by eliminating its causes
Ø Change project plan to eliminate
the risk condition or protect
project objectives from the
impact

Ø Example: remove new
technology from the project
scope
Transfer
Ø Transfer the impact of a risk and
ownership of its response to a third
party
Ø It gives another party responsibility,
but it does not eliminate it.
Ø Use of insurance, performance bonds,
warranties, guarantees
Ø Use of a contract
Ø Example: use fixed-price contract to
transfer liability to seller
3/18/18
23
Threats
Mitigate
Ø Reduce the consequences of a risk
event by reducing its probability
and/or its impact to an acceptable

threshold
Ø Taking early action is more
effective than repair the
consequences if risk occurred
Ø Example: add 2 weeks to schedule
to allow for permit approval
Accept
Ø Do nothing due to below
threshold or cost of response
Ø If risks occur use backup plans
or contingency
Opportunities
Exploit
Ø Eliminate uncertainty that may
hinder an opportunity to be realized.
Ø Example: Allocate expertise to finish
early and collect on an incentive
Share
Ø Team up with a third party who is
best able to realize an opportunity
and reap the benefit.
Ø Example: Joint venture agreement

Enhance
Ø Increase the probability and/or impact
by identifying and maximizing key drivers
of the risk to ensure it occurs.
Ø Example: Hire cutting edge researchers
to be the first on the market to introduce
miracle drug
Accept
Ø Do nothing due to below threshold
or Cost of response
Ø If risks occurs use backup plans or
Contingency
3/18/18
24
Risk Assessment Matrix or Risk Register
Ø A tool for assessing and managing risks
Ø It includes potential risks, their potential impact,
likelihood of occurrence,
and response plan
Ø It helps to:
§ List the impact of the risk
§ Evaluate the likelihood of occurrence
§ Determine the degree of impact

§ Identify the action trigger
§ Name a person responsible
§ Create a response plan to avoid, mitigate,
transfer, or accept the risk
Successful Project Management, 6th Edition, Gido &
Clements
Risk Assessment Matrix Example
The significant risks and their associated information
for an outdoor
concert:
Successful Project
Management, 6th Edition,
Gido & Clements
3/18/18
25
Risk Analysis Example
Ø You are managing the project to move your
family to a new home.
Ø In talking to the family and friends you have
the following lists of risks:
§ You cannot find a new home in time
§ Mover’s truck breaks down

§ Fragile items break
§ More friends show up to move
Ø Which are project risks?
Risk Example
Probability Cardinal Definition
Low 1 < 30%
Medium 2 30% to 70%
High 3 > 70%
Risk Probability Scale
Objective Low (1) Medium (2) High (3)
Cost < $100 $100 to $1000 > $1000
Schedule < 1 day 1 to 3 days > 3 days
Scope None Minor Major
Quality None Poor Not usable
Risk Impact Scale
Id Risk Event Type Prob Impact Score Response
A Mover's truck breaks down Threat 1 2 2
B Family does not know how to pack Threat 3 3 9
C More friends to move Opportunity 2 3 6
Risk Register
3/18/18
26
Risk Example (Cont.)

1 2 3
3 3 6 9
2 2 4 6
1 1 2 3
Threats
Probability and Impact Matrix
Probability
Id Risk Event Type Prob Impact Score Response
A Mover's truck breaks down Threat 1 2 2 Accept
B Family does not know how to pack Threat 3 3 9
Transfer
C More friends to move Opportunity 2 3 6 Accept
Risk Register
Risk Monitoring and Control
Ø Risk control includes implementing risk response
plans and monitoring risks.
Risk response plans should be implemented as
appropriate when their
trigger point is reached.
Ø Risk monitoring involves:
§ Regularly reviewing the risk management matrix
throughout the duration of
the project
§ Regularly reviewing and evaluating all risks to
determine if there are any
changes to the likelihood of occurrence or the

potential impact of any of the
risks
§ Seeking to identify new risks
§ Tracking and documenting which risks actually
occurred and the impact of
those risks
2018-03-11
1
Project Management
Class – 8
Resource
Allocation
Learning Outcomes
Ø What is the fundamental trade-off between project
cost
and project time?
Ø Expediting a project
Ø Resource leveling
Ø How to allocate limited resources to specific
activities/projects when there are competing
demands for
the same limited resources?

Ø Case study review
2018-03-11
2
Expediting a Project
Ø Consider a “bridge construction” project.
Ø Digging the drainage ditch takes 10 days with a
team of 3
workers.
Ø There are 3 other workers that can be added if
they stop their
own task “concrete pouring”.
Ø They (i.e., 6 workers) can complete digging in 5
days at the cost
of delaying the task “concrete pouring”.
Ø The PM can also rent an excavator machine to
get the job done
in 2 days.
Ø What is the key trade-off in making the
decision?
Purchase and deliver equipment
Construct hospital
Develop information system

Install medical equipment
Train nurses and support staff
Select administration staff
Site selection and survey
Select medical equipment
Prepare final construction plans
Bring utilities to site
Interview applicants for
nursing and support staff
Organizing and Site Preparation Physical Facilities and
Infrastructure Level 1
Level 0
Level 2
Relocation of a Hospital
Expediting a Project: Example
2018-03-11
3
Relocation of Hospital

Activity List, Duration, and Precedence Relationship
Activity Immediate Predecessors
Activity times
(wks)
START 0
Organizing and Site Preparation
A. Selecting administrative staff start 12
B. Site selection and survey start 9
C. Select medical equipment A 10
D. Prepare final construction plans B 10
E. Bring utilities to site B 24
F. Interview applicants for nursing and support staff A 10
Physical Facilities and Infrastructure
G. Purchase and deliver equipment C 35
H. Construct hospital D 40
I. Develop information system A 15
J. Install medical equipment E, G, H 4
K. Train nurses and support staff F, I, J 6
FINISH K 0
K
6
C
10
G
35

J
4
H
40
B
9
D
10
E
24
I
15
FinishStart
A
12
F
10
0 9

9 33
9 19 19
59
22 5712
22
59 63
12 27
12 22 63
690
12
The Critical Path takes
69 weeks
Path Time (wks)
A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Developing the Schedule and Finding Critical Path
2018-03-11
4

Project Crashing
Project Crashing: Shortening (or expediting) some
activities within a
project to reduce overall project completion
time.
Ø Project Costs
ü Direct Costs: Labor, materials, and any other costs directly
related to
activities
ü Indirect Costs: Administration, depreciation, financial,
and other
overhead costs that can be avoided by reducing total
project time
ü Penalty Costs: If project extends beyond some specific
date.
Cost to Crash
Cost to Crash
Ø Normal time (NT) is the time necessary to complete an
activity
under normal conditions.
Ø Normal cost (NC) is the activity cost associated with
the normal
time.
Ø Crash time (CT) is the shortest possible time to
complete an
activity.

Ø Crash cost (CC) is the activity cost associated with
the crash
time.
�� =
�� − ��
�� − ��
2018-03-11
5
Which Activities to Crash?
Ø Which activities and for how long should
be crashed?
K
6
C
10
G
35
J
4

H
40
B
9
D
10
E
24
I
15
FinishStart
A
12
F
10
0 9
9 33
9 19 19
59

22 5712
22
59 63
12 27
12 22 63
690
12
Path Time (wks)
A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Which Activities to Crash?
Algorithm
Ø Which activities and for how long should be
crashed?
Ø Determining the Minimum Cost Schedule:
1. Determine the project’s critical path(s).
2. Find the activity or activities on the critical
path(s) with the lowest cost of
crashing per unit of time.
3. Reduce the time for this activity until…
a. It cannot be further reduced or
b. Until another path becomes critical, or
c. The increase in direct costs exceeds the savings

that result from shortening
the project.
4. Repeat this procedure until the increase in direct
costs is larger than the savings
generated by shortening the project.
2018-03-11
6
Hospital Example: Finding Cost to Crash
DIRECT COST AND TIME DATA FOR THE HOSPITAL
PROJECT
Activity Normal
Time (NT)
(weeks)
Normal
Cost
(NC)($)
Crash Time
(CT)(weeks)
Crash Cost
(CC)($)
Maximum
Time
Reduction

(week)
Cost of
Crashing per
Week ($)
A 12 $12,000 11 $13,000 1 1,000
B 9 50,000 7 64,000 2 7,000
C 10 4,000 5 7,000 5 600
D 10 16,000 8 20,000 2 2,000
E 24 120,000 14 200,000 10 8,000
F 10 10,000 6 16,000 4 1,500
G 35 500,000 25 530,000 10 3,000
H 40 1,200,000 35 1,260,000 5 12,000
I 15 40,000 10 52,500 5 2,500
J 4 10,000 1 13,000 3 1,000
K 6 30,000 5 34,000 1 4,000
Totals $1,992,000 $2,209,500
CC – NC
NT – CT
Analyzing Cost – Time Trade-Offs
Hospital Example
Ø Project completion time was 69 weeks (Critical Path
Analysis)
Ø Suppose that project indirect costs are $8,000
per week
Ø After 65 weeks, the Regional Hospital Board
imposes cost of $20,000
per weekif the hospital is not fully operational.

Ø Question: What is the saving per weekshortening
the project?
ü Saving per week(up to week65) = $28,000
ü Saving per week(beyond week65) = $8,000
2018-03-11
7
Analyzing Cost – Time Trade-Offs
Hospital Example
Ø Determine the minimum-cost schedule for the
Hospital project.
Ø Project completion time = 69 weeks
Ø Project cost = $2,624,000
Direct = $1,992,000
Indirect = 69($8,000) = $552,000
Penalty = (69 – 65)($20,000) = $80,000
A–I–K 33 weeks
A–F–K 28weeks
A–C–G–J–K 67 weeks
B–D–H–J–K 69 weeks
B–E–J–K 43 weeks
PROJECT
Activity Normal
Time (NT)

(weeks)
Normal
Cost
(NC)($)
Crash Time
(CT)(weeks)
Crash Cost
(CC)($)
Maximum
Time
Reduction
(week)
Cost of
Crashing per
Week ($)
A 12 $12,000 11 $13,000 1 1,000
B 9 50,000 7 64,000 2 7,000
C 10 4,000 5 7,000 5 600
D 10 16,000 8 20,000 2 2,000
E 24 120,000 14 200,000 10 8,000
F 10 10,000 6 16,000 4 1,500
G 35 500,000 25 530,000 10 3,000
H 40 1,200,000 35 1,260,000 5 12,000
I 15 40,000 10 52,500 5 2,500
J 4 10,000 1 13,000 3 1,000
K 6 30,000 5 34,000 1 4,000
Totals $1,992,000 $2,209,500
Hospital Example

Which Activity To Crash?
2018-03-11
8
Analyzing Cost – Time Trade-Offs: Hospital Example
STAGE 1
Ø Step 1. The critical path is B–D–H–J–K.
Ø Step 2. The cheapest activity to crash per
weekis J at $1,000.
Ø Step 3. Crash activity J by its limit of three weeks
because the critical
path remains unchanged. The new expected path times
are
A–C–G–J–K: 64 weeks
B–D–H–J–K: 66 weeks
B–E–J–K: 40 weeks
Ø The net savings are 3($28,000) – 3($1,000) =
$81,000.
Ø The total project costs are now $2,624,000 -
$81,000 = $2,543,000.
Path Time (wks)
A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43

Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
1
A
12
B
9
Start
G
35
E

24
STAGE 1
The critical path does not change
2018-03-11
9
PROJECT
Activity Normal
Time (NT)
(weeks)
Normal
Cost
(NC)($)
Crash Time
(CT)(weeks)
Crash Cost
(CC)($)
Maximum
Time
Reduction
(week)
Cost of
Crashing per

Week ($)
A 12 $12,000 11 $13,000 1 1,000
B 9 50,000 7 64,000 2 7,000
C 10 4,000 5 7,000 5 600
D 10 16,000 8 20,000 2 2,000
E 24 120,000 14 200,000 10 8,000
F 10 10,000 6 16,000 4 1,500
G 35 500,000 25 530,000 10 3,000
H 40 1,200,000 35 1,260,000 5 12,000
I 15 40,000 10 52,500 5 2,500
J 4 10,000 1 13,000 3 1,000
K 6 30,000 5 34,000 1 4,000
Totals $1,992,000 $2,209,500
STAGE 2
Ø Step 1. The critical path is B–D–H–J–K with 66
weeks.
Ø Step 2. The cheapest activity to crash per
weekis now D at $2,000.
Ø Step 3. Crash D by two weeks.
Ø The first weekof reduction in activity D saves
$28,000.
Ø Crashing D by a second weeksaves only
$8,000 in indirect costs.
Ø Updated path times are
A–C–G–J–K: 64 weeks and B–D–H–J–K: 64 weeks
Ø The net savings are $28,000 + $8,000 –
2($2,000) = $32,000.

Ø Total project costs are now $2,543,000 – $32,000 =
$2,511,000.
Path Time (wks)
A-I-K 33
A-F-K 28
A-C-G-J-K 64
B-D-H-J-K 66
B-E-J-K 40
2018-03-11
10
Finish
K
6
I
15
F
10
C
10
D
8
H
40

J
1
A
12
B
9
Start G35
E
24
STAGE 2
There are two critical paths
STAGE 3
Step 1. The critical paths are B–D–H–J–K and A-
C-G-J-K with 64 weeks
Step 2. Activities eligible to be crashed:
Finish
K
6
I
15
F
10

C
10
D
8
H
40
J
1
A
12
B
9
Start G35
E
24
A, B $8,000
A, H $13,000
C, B $7,600
C, H $12,600
G, B $10,000
G, H $15,000
K $4,000

2018-03-11
11
STAGE 3
Ø Step 1. The critical paths are B-D-H-J-K and A-
Ø Step 2. Activities eligible to be crashed:
(A, B); (A, H); (C, B); (C, H); (G, B); (G, H) or
to crash Activity K
ü Candidates are those whose costs of crashing
are less than the potential
savings; $8,000 per week.
Ø Step 3. We choose activity K to crash 1
weekat $4,000 per week.
Updated path times are: A–C–G–J–K: and B–D–H–J–K
with 63 weeks
Ø Net savings are $8,000 - $4,000 = $4,000
Ø Total project costs are $2,511,000 – $4,000 =
$2,507,000
Finish
K
5
I
15

F
10
C
10
D
8
H
40
J
1
A
12
B
9
Start
G
35
E
24
STAGE 3
2018-03-11

12
STAGE 4
Step 1. The critical paths are B–D–H–J–K and A-
Step 2. Activities eligible to be crashed:
A, B $8,000
A, H $13,000
C, B $7,600
C, H $12,600
G, B $10,000
G, H $15,000
Finish
K
5
I
15
F
10
C
10
D
8
H
40
J
1

A
12
B
9
Start G35
E
24
STAGE 4
Ø Step 1. The critical paths are still B-D-H-J-K
and A-C-G-J-K with 63 weeks
Ø Step 2. Activities eligible to be crashed: (B,C)
@ $7,600 per week.
Ø Step 3. Crash activities B and C by two
weeks. Updated path times are
A–C–G–J–K: 61 weeks and B–D–H–J–K: 61 weeks
Ø The net savings are 2($8,000) – 2($7,600) =
$800.
Ø Total project costs are now $2,507,000 – $800 =
$2,506,200.

2018-03-11
13
Analyzing Cost-Time Trade-Offs: Hospital Example
Stage Crash Activity
Time
Redu
ction
Resulting
Critical
Path(s)
Project
Duration
Project
Direct
Costs
Crash
Cost
Added
Total
Indirect
Costs
Total
Penalty
Costs

Total
Project
Costs
0 — — B-D-H-J-K 69 1,992.0 — 552.0 80.0 2,624.0
1 J 3 B-D-H-J-K 66 1,992.0 3.0 528.0 20.0 2,543.0
2 D 2
B-D-H-J-K
A-C-G-J-K
64 1,995.0 4.0 512.0 0.0 2,511.0
3 K 1
B-D-H-J-K
A-C-G-J-K
63 1,999.0 4.0 504.0 0.0 2,507.0
4 B, C 2
B-D-H-J-K
A-C-G-J-K
61 2,003.0 15.2 488.0 0.0 2,506.2
Resource Leveling
Ø When the project is large and contains many
resource over-allocations,
resource leveling must be accomplished:
Ø A technique in which start and finish dates are
adjusted based on resource
constraints with the goal of balancing demand for
resources with the

available supply.
Ø Purpose is to create a smoother distribution of
resource usage.
Ø Resource leveling aims to minimize the period-by-
period variations in
resource loading by shifting tasks within their slack
allowances.
Ø Leveling is done by delaying or splitting tasks
until the resources assigned to
them are no longer over-allocated.
2018-03-11
14
Activity Slack Allowance
K
6
C
10
G
35
J

4
H
40
B
9
D
10
E
24
I
15
FinishStart
A
12
F
10
0 9
9 33

9 19 19
59
22 5712
22
59 63
12 27
12 22 63
690
12
48 63
53 63
59 63
24 59
19 59
35 59
14 24
9 19
2 14
0 9
63 69

S = 0
S = 2
S = 26
S = 0
S = 36
S = 2
S = 2
S = 41
S = 0
S = 0 S = 0
S = LF – EF or LS – ES
Question: How long each
activity can be delayed without
delaying the entire project?
Resource Leveling Example
Ø Consider the following project.
Ø Find the project completion
time, all the paths from start to
end, and critical path.
Ø Find the number of required
resources (people) in every
week.

Ø Suggest a resource leveling
plan to smoothen the resource
allocation over project
schedule.
Activity
Immediate
Predecessor
Duration
(Week)
# of resources
(People)
A - 4 2
B - 4 1
C - 4 2
D A 2 5
E B 3 2
F C 2 2
G D 3 5
H G 5 3
2018-03-11
15
Resource Leveling Example (Cont.)
S
t
a
r

t
FI
N
IS
H
A
B E
F
G HD
C
Path
Completion
Time
ADGH 14
BE 7
CF 6
A (2)
D (5) G (5) H (3)
B (1) E(2)
C (2) F (2)
Resources (people) 5

5 5 5
9 9
7 5 5
3 3
3 3 3
Week 1 2
3 4
5 6 7
8 9
10 11 12 13 14
15
Over-allocated period
2018-03-11
16
A (2)
D (5) G (5) H (3)
B (1) E(2)
C (2) F (2)
5 5 5
9 9
7 5 5
3 3

3 3 3
Week 1 2
3 4
5 6 7
8 9
10 11 12 13 14
15
Over-allocated period
Activity slack
A (2)
D (5) G (5) H (3)
B (1) E(2)
C (2) F (2)
5 5 5
9 9
7 5 5
3 3
3 3 3
Week 1 2
3 4
5 6 7
8 9
10 11 12 13 14
15

Activity slack
7 7 5
5 5
Activity slack
5 5 55 5
We can hire 5
workers at the
beginning without
laying off and
hiring over time!
2018-03-11
17
Allocating Scare Resources to Several Projects
Ø When the allocating scarce resources is extended to
where several projects
are being carried out concurrently, the size and
complexity of the problem
increase
Ø With several projects, we can link them together
with pseudoactivities
Ø Pseudoactivities have duration but require no
resources

Ø The use of pseudoactivities allows a set of
projects to be linked and dealt
with as though it were a single project
§ The individual projects are interrelated by
specifying predecessor/successor
relationships
§ They appear to be parts of one project
Multiple Projects Connected with Pseudoactivities
Ø Project manager faces the
problem of choosing
between different
outcomes that result from
different priority rules
Ø Must also deal with
different arrangements
and durations of
pseudoactivities (i.e.,
leveling rule)
2018-03-11
18
Criteria of Priority Rules
There are many measurable criteria to help
select a priority rule
1. Schedule slippage

§ Amount project or set of projects delayed by
application of a leveling rule
§ The PM must trade-off penalty costs or displeasure
of clients against the
cost of adding resources
2. Resource utilization: extent to which
resources are over or underworked
3. In-process inventory: amount of unfinished work in
the system
Ø The minimum slackrule is probably the best overall
priority rule according to
research.
Ø It gives the best combination of minimum project
slippage, minimum
resource idle-time, and minimum in-process inventory.
Problems with Traditional Project Management
Ø When planning for a project, estimates for task
durations are required.
Ø To increase the probability and high-confidence
that the task completing on
time we consider additional safety time beyond the
work content time
required to be embedded within the task duration.
Ø The more safety in a task the more there is a
tendency to behave in the
following ways:
§ Not starting the task until the last moment
(Student Syndrome)
§ Delaying (or pacing) completion of the task
(Parkinson’s Law)

Ø As a result, the safety which was included at
the planning stage is wasted
and tasks over-run.
2018-03-11
19
Goldratt’s Critical Chain
Ø Critical Chain Project Management was developed by
Eli Goldratt in
response to many projects being dogged by
poor performance
manifested in
§ Longer than expected durations
§ Frequently missed deadlines
§ Increased costs in excess of budget
§ Substantially less deliverables than originally promised
Ø Goldratt’s focus in the Critical Chain is on a
single project with multiple
demands on a scarce resource
Ø The logic extends to the multiproject case without
alteration
Goldratt’s Critical Chain (Cont.)
Ø Consider the three AOA
network diagrams.
Ø In scenario 1, there is only 1
path.

Ø In scenario 2, completion of
BCDE depends on three
activities.
Ø In scenario 3, there are two
completely independent paths
each consisting of 5 tasks.
2018-03-11
20
How Long?
Ø Each task takes 10 days
Ø What is the completion time
for each project?
§ Allthree would have the same
duration of 50 days
Ø Simple project with five
tasks takes the same time as
complex one with 11 tasks!
Part of Problem
Ø Part of the problem is the assumption that
the activity times are
known with certainty
Ø Assume all activities are normally distributed

§ Mean of 10
§ Standard deviation of three
Ø Each is simulated 200 times
2018-03-11
21
Analysis
Ø This example clearly demonstrates how the
commonly made
assumption of known activity times in
practice can lead to quite
unrealistic project deadlines
Ø The results would have been even more dramatic
had the activities
required some common resources
Ø Similarly, the results would have been more
dramatic and realistic had
a nonsymmetrical distribution been used to model
the activity times
Multitasking
Ø Multitasking is assigning team members to multiple
projects and
having them allocate their time across these projects
Ø There is typically a penalty or cost associated
with switching from

working on one project to another
2018-03-11
22
Multitasking (Cont.)
Ø Alternative Gantt Charts for Projects A and B
Switching from project to
project is likely to extend
activity times. Eliminating
such switching costs further
increases the benefits
associated with the Gantt
chart shown in Figure (b).
Resolving These Problems
Ø Goldratt suggests that the key to resolving this is to
schedule the start
of new projects based on the availability of
bottleneck resources
Ø He further suggests that time buffers be created
between the
bottleneck resource and the resources that feed it
Ø He also suggests reducing the amount of safety
time added to
individual tasks and then adding some fraction of the
safety time
reduced back into the system as safety buffer

for the entire project
2018-03-11
23
The Critical Chain
Ø Another limitation is the dependency
between resources and tasks is often
ignored
Ø Using traditional approaches, A1-C1 is the
critical path
Ø What if A1 and A2 are not independent
Ø Then path A1-C1 increases to 22 days, or
path A2-B1 increases to 18 days
If A1 is done first è A2-B1 will be finished in 7
+ 5 + 6 = 18
If A2 is done first è A1-C1 will be finished in
5 + 7 + 10 = 22
Addressing Problem
Ø Need to consider both precedence relationships
and resource
dependencies
Ø Goldratt proposes thinking in terms of the longest
chain of
consecutively dependent tasks where such dependencies

can arise
§ Referred to as critical chain
Ø There are two potential sources that can delay
the project
§ Delay in the tasks that make up the critical
chain
§ Delay in activity feeding the critical chain
that results in delay of the
critical chain
2018-03-11
24
Project and Feeder Buffers
Project Buffer: A project buffer is inserted at
the end of the project network
between the last task and the completion date.
§ Any delays on the longest chain of
dependent tasks will consume some
of the buffer but will leave the completion
date unchanged and so
protect the project.
Feeding Buffers: delays on paths of tasks feeding
into the longest chain can
impact the project by delaying a subsequent
task on the Critical Chain.

§ To protect against this, feeding buffers are
inserted between the last
task on a feeding path and the Critical Chain.
§ The feeding buffer is typically recommended to
be half the size of the
safety time taken out of the feeding path.
Project and Feeder Buffers
Project
buffer
Feeding
buffer
Feeding
buffer
2018-02-25
1
Project Management
Class – 6
Budgeting the
Project
Learning Outcomes
Ø What is project cost management process?

Ø Defining different project costs and how to
estimating
project costs
Ø Defining project budget and discussing
different methods
of project budgeting
2018-02-25
2
Project Cost Management Process
Ø In cost management process, costs are estimated using
resource
planning.
Ø The estimated costs are budgeted by an
organization, and the project
manager controls the budget.
Ø A project manager has to control schedule,
performance, scope, value,
and resources in order to control the costs.
Resource
Planning
Cost
Estimating
Budgeting CostControl

Source: Project Management Process, Technology,
and Practice by Ganesh Vaidyanathan
Resource Planning
Ø The planning of the resources used to execute
the project
Ø To accomplish resource planning:
§ List the required resource
§ Quantify the required resource
§ Construct a resource schedule, and
§ Level the resources
2018-02-25
3
List Resources
Ø List all required resources based on WBS.
Each task listed in WBS demands
particular skills or knowledge. Based on this
information, resources can be
identified and listed.
Ø Labor: Identify all the roles involved in undertaking
the project, including all
full-time, part-time and contracting roles.

Ø Equipment: Identify all of the equipment
involved in undertaking the
project; may include personal computers,
photocopiers, mobile phones,
telecommunications equipment, etc.
Ø Materials: Identify all non-consumable materials to
complete project
activities such as office materials and materials
required for construction
including lumber, steel and concrete.
Quantify Resources
Ø All identified resources are subject to some
specification:
Ø Labor: List skills and experiences required by all
roles and quantify how many of such resources are
needed.
Ø Equipment: List the specification of all equipment,
the total quantity needed, and dates of
requirement.
Ø Materials: List the specification of all required
materials and the total quantity.
2018-02-25
4

Construct Schedule
Equipment and Materials Resource Schedule
Activity Description Required
resources
Required
resources
Timeframe Requirements
per week
Quantity consumed
per week
D Project planning Frank PC, MS
Office, MS
Project,
Printer
11/24/10 to 12/14/10 40 hrs
D Prototype design Ian PC, AutoCad 12/15/10 to ¼/11
40 hrs
Jake PC, AutoCad 12/15/10 to ¼/11 40 hrs
Katie PC, AutoCad 12/15/10 to ¼/11 40 hrs
E Prototype
implementation
Linda Wood, Nails
& Screws
2/16/11 to 3/22/11 40 hrs Wood: 300 ft
Fasteners: 100
Glue: 5 lbs.

Mary Wood, Nails
& Screws
2/16/11 to 3/22/11 40 hrs Wood: 300 ft
Fasteners: 100
F Testing of prototype Nancy Tester 3/23/11 to 4/19/11
40 hrs
Oliver Tester 3/23/11 to 4/19/11 40 hrs
G Presenting prototype to
customer
Pam PC, MS
PowerPoint
4/20/11 to 5/3/11 40 hrs
Source: Project Management Process, Technology,
and Practice by Ganesh Vaidyanathan
Resource Leveling
Ø When the project is large and contains many
resource over-allocations,
resource leveling must be accomplished:
§ A technique in which start and finish dates are
adjusted based
on resource constraints with the goal of balancing
demand
for resources with the available supply.
§ Purpose is to create a smoother distribution of
resource usage.

Ø Resource leveling aims to minimize the period-by-
period variations in
resource loading by shifting tasks within their slack
allowances.
Ø Leveling is done by delaying or splitting tasks
until the resources assigned to
them are no longer over-allocated.
2018-02-25
5
Project Costs
Ø Cost is a resource expended to achieve a specific
objective; in our
case, a project.
Ø Cost management in projects (i.e., budgeting) is
the process by which
companies control and plan the costs of
implementing projects.
Ø Before a project is started, the anticipated
costs should be identified.
Ø Profits are the revenues of an organization minus
the costs borne by
the organization, including project costs.
Ø In order for an organization to increase its
profits, its project costs

have to decrease, its revenues increase, or both.
Ø Therefore, it is important to identify different
project costs.
Copyright © 2013 Pearson Education, Inc. Publishing
as Prentice Hall
Project Costs (Cont.)
Ø Direct costs: Direct material and laborcosts used solely
for a project
Ø Indirect costs: Any material and laborcosts that are
not used in a single
project
Ø Fixed costs: Remain constant regardless of changes in
the level of project
activities (rent, insurance, property taxes, …)
Ø Variable costs: Vary in direct proportion to
changes in the level of project
activities (mainly Direct material and direct labor
cost)
Ø Overhead costs: Primarily those indirect costs
associated with project
implementation (laboratories, health insurance, paid
leave time, …)
Ø General and administrative costs: Costs primarily
associated with general
management and administration of the project

as Prentice Hall
2018-02-25
6
Cost Estimation
Ø Estimating is the process of determining the
cost
of a project.
Ø In order to have an accurate project cost
estimate:
§ Have an accurate estimate on the number of
people needed
§ Have an accurate estimate of time to
complete the tasks
Ø Project estimates are derived by totaling the
estimates for individual project elements.
Work Element Costing
Ø Determine resource requirements and then costs for
each task
§ Fixed costs
§ Labor time and laborrate
§ Equipment time and equipment rate
§ Overhead, general, sales, and administrative
Ø Example: A certain task is expected to require

§ 16 hours of laborat $10 per hour
§ Required materials cost $235
§ The organization charges overhead for the use of
utilities, indirect labor, and
so forth at a rate of 50 percent of direct
labor.
§ The total task cost will be
$�� + �� × $��/�� ×�.� = $��
2018-02-25
7
Project Budget
Ø A budget must be developed in order to obtain
the resources needed to
accomplish the project’s objectives
Ø A budget is a plan for allocating organizational
resources to the project
activities
Ø A budget acts as a tool for upper management
to monitor and guide the
project
Ø Recall that project planning process was about
dividing plan’s elements to
smallest possible pieces that could be sequenced,
assigned, scheduled,
and budgeted.

Ø The project budget is the project plan, based on
the WBS, expressed in
monetary terms and it becomes a part of the project
charter.
Budgeting
Ø Budgeting is forecasting what resources the project
will require, what
quantities of each will be needed, when they will be
needed, and how
much they will cost.
Ø Most businesses employ experienced estimators
who can forecast
resource usage very well.
§ A bricklayer can usually estimate the number of
bricks required to construct a
brickwall of given dimensions.
§ A painter can estimate the number of hours
needed to paint a wall of given
dimensions
Ø Budgeting a project is more difficult than
budgeting more routine
activities
§ Estimating the number of hours needed to
develop control system for a new
military aircraft is a difficult task

2018-02-25
8
Budgeting Problems
Ø Project are unique activities
§ No history to aid estimators
§ The estimation of similar past projects are
not necessarily the same
Ø Projects may be multi-year with cost escalations
§ Changes in technology, materials, prices
Ø Organization tradition impacts project budgeting
§ How overhead and indirect costs are charged
§ Specific legal issues and ethical codes
Ø Project managers see costs differently than accountants
§ Accountants treat costs linearly
§ Unexpected overhead charges, indirect expenses may
suddenly appear
when PM least expect it
Methods of Budgeting: Top-Down Budgeting
Ø Based on collective judgments and experiences of
top and middle managers
concerning similar past projects
§ Managers estimate the overall project cost by
estimating the costs of major tasks
§ Lower level of managers split up the budget among
the tasks under their control
§ They continue until all the work is budgeted

Ø Advantages
§ Overall budget costs can be estimated with fair
accuracy
§ Errors in funding small tasks need not be
individually identified
Ø Disadvantage
§ The decision made by the upper managers
might be inaccurate due to limited
knowledge causing potential for underperformance
§ Order of Magnitude: -25% +75%
2018-02-25
9
Methods of Budgeting: Bottom-Up Budgeting
Ø Work breakdown structure (WBS) identifies
elemental tasks
Ø Those responsible for executing these tasks estimate
resource requirements
Ø Advantage
§ Clear and detailed information
§ Get involved all employees → Higher level of
morale and motivation
Ø Disadvantage
§ Top management has little influence over budgeting
process
§ Risk of overlooking tasks by the lower-level
managers

§ Time consuming and costly
Methods of Budgeting: Parametric Estimating
Ø Project broken down to major elements (WBS
Level 1 or 2)
Estimate = quantity x rate
Ø Advantage
§ More accurate than the top-down
§ Quick to do
Ø Disadvantage
§ Missing costs
§ Based on historical information
2018-02-25
10
Example – Top Down
Ø You are a general contractor and this is your
first meeting with a
potential client who wants to add a second
floor on to their house.
Your past 3 second floor renovations cost:
1. $320,000
2. $350,000
3. $330,000
Ø What do you tell the client?

�� + �� + ��
�
= ��
-25% and 75% => 250K to 583K
Example – Bottom Up
Ø The detail working drawings are now done and
you are preparing the
detail estimates. You have contacted the suppliers and
have the
following prices:
§ Sub trades: $200,000
§ Material: $50,000
§ General Labour $50,000
Ø In addition there is a 10% fee for overhead and
20% for profit and
contingency (excluding overhead)
Ø What do you tell the client? �� + �� + �� =
��
→ �� + �.� + �.� ×�� = ��
→ -5% and 10% => 370K to 430K
2018-02-25
11
Example – Parametric

Ø After you first meeting, you now have a better
idea of what has to be
done:
§ The second floor is about 1,000 sq ft of
new construction
§ There is renovation of 500 sq ft on the first
floor
Ø Based on your records, you have the following rates
§ Second floor new construction: $200/sf
§ First floor renovation: $300sf
Ø What do you tell the client?
2nd floor → $��×�,�� = ��
1st floor → $��×�� = ��
→ -10% and 25% => 315K to 440K
Improving Estimates and Forecasts
Ø Let us discuss a number of ways for
improving the process of cost
estimating and a way of measuring its accuracy.
§ Forms
§ Learning curves
§ Tracking signals
Ø These improvement can be applied to almost all
of the areas
in project management that concern estimating or
forecasting
any aspect of a project that is measured
numerically.

2018-02-25
12
Forms
Ø A form for project resource needs might include
information about:
§ People – managers, technical and non-technical
§ Materials – facilities, equipment, tools, space
§ Special services
Ø And might identify:
§ Person to contact and how should be contacted
§ When needed
§ How many/much needed
§ Whether available
Form for Gathering Data on
Project Resource Needs
Ø The information can be
collected for each task on an
individual form and then
aggregated for the project as a
whole.
2018-02-25
13

Learning Curves (Motivation)
Ø A firm wins a contract to supply 25 units (that
has never produced) of a
complex electronic device to a customer.
§ The PM knows if they were to build many
such devices it would
take 4 hours of direct laborper unit produced.
§ The required time to produce the initial units
will take much longer
than 4 hours each!
§ The PM estimates that building the prototype may
take as high as
10 hours, but applying this estimate to all 25
units give a too high
result!
Learning Curves
Ø Humans learn when they repeat a task.
Ø It has been found that unit performance improves by
a fixed percent
each time total production doubles.
Ø Each time the output doubles, the worker hours
per unit decrease by a
fixed percentage of their previous value.
Ø This percentage is called the learning rate.
r
n nTT 1=

Tn = the time required to complete the nth unit
T1 = the time required to complete the first unit
r = exponent of learning curve; ��(��
��)
��
2018-02-25
14
Learning Curves (Example)
Ø �B = �C�E; � =
GHI J.K
GHI L
= −0.3219
Ø Building the prototype takes 10 hours
T1 = 10 (1)-.3219 = 10 (1) = 10 hr
T2 = 10 (2)-.3219 = 10 (.80) = 8 hr
T3 = 10 (3)-.3219 = 10 (.7021) = 7.02 hr
T4 = 10 (4)-.3219 = 10 (.6400) = 6.4 hr
.
T23 = 10 (23)-.3219 = 10 (.3644) = 3.644
T24 = 10 (24)-.3219 = 10 (.3594) = 3.594
T25 = 10 (25)-.3219 = 10 (.3547) = 3.547
ØFor every doubling of output, the time of the
new output is 80% of the prior output.
Tracking Signals

Ø Random error: there is a roughly equal
chance that estimates are
above or below the true value
§ Random errors cancel out
Ø Bias: if the over/under chances are not equal or
the over/under errors
are not the same size
Ø A tracking signal number can reveal if there is a
systematic bias in cost
and other estimates and whether the bias is positive or
negative
Ø By observing their own errors a project
manager can learn to make
unbiased estimates
28
2018-02-25
15
Tracking Signals
Example
Ø If the cumulative percent
error at the bottom is
positive, it means the
actuals are usually greater
than the estimates.

Ø The forecaster is unbiased if
the sum of the ratios is
about zero.
Ø The forecast underestimates
if the ratio is positive and
overestimates if it is
negative.
Tracking Signals
Example (Cont.)
Ø Mean Absolute Ratio (MAR)
is the running average of
the absolute ratio values.
Ø The Tracking Signal (TS) is
the ratio of the running sum
of the ratio values (Column
D) divided by the MAR.
Ø TS warns when there are
unexpected departures of
the actuals from the
forecasts; the larger bias,
the higher TS.
2018-02-25
16
Earned Value Management

§ Earned Value Management (EVM) is an
industry standard method of
measuring a project's progress at any given point in
time, forecasting
its completion date and final cost, and analyzing
variances in the
schedule and budget as the project proceeds.
§ It is primarily used to measure and track costs and
schedules in a
project.
§ EVM is a snapshot in time, which can be
used as a management tool as
an early warning system to detect deficient
progress.
§ The analysis uses “work in progress” to
indicate the future of a project.
Earned Value Management Definitions
§ Planned Value (PV): Budgeted amount of cost
for work scheduled to be
accomplished on a given activity for a given
period of time
§ Earned Value (EV): Budgeted amount of cost
for completed work of a given activity
for a given period of time
§ Actual Cost (AC): Actual amount spent in
completing the work accomplished within
a given time period
§ Cost Variance (CV): The cost variance compares

deviations only from the budget
and does not include schedule into account
§ Schedule Variance (SV): The schedule variance
compares deviations only from the
schedule and does not include cost into account
§ Cost Performance Index (CPI): Ratio of earned
value to actual cost; if CPI>1 ,
project under budget
§ Schedule Performance Index (SPI): Ratio of
earned value to planned value; if SPI
>1,
then project ahead of schedule
2018-02-25
17
Earned Value Management Definitions (Cont.)
Earned Value Earned Value Equation
PV: Planned Value Planned completion % * Budget
at completion
EV: Earned Value Actual completion % * Budget
at Completion
AC: Actual Value Actual costs
CV: Cost Variance EV – AC
SV: Schedule Variance EV – PV
CPI: Cost Performance Index EV / AC
SPI: Schedule Performance Index EV / PV
EAC: Estimate at Completion (AC / EV) *
BAC (Budget at completion)

ETC: Estimate to Complete EAC – AC
VAC: Variance at Completion Budget at Completion
– EAC
EVM Example
§ TRSM outsources the renovation of the
conference theatre to ABC
company.
§ The ABC team has suggested the following plan to
install 1000 theatre
seats to TRSM:
o 100 seats every day
o Budgeted cost per seat $30
o Total budget $30,000
2018-02-25
18
EVM Example
Ø After 2 days…
§ 140 seats were installed (the team found that the
bolts and nuts for
the seats were not match with the holes dug in
floor by the previous
team)
§ Total cost was $5,000 (the team had to rent a
special machine at
$400/day to resize the holes)

§ Simple EVM calculation:
→ Earned value = $��,��×��/�� = $�,��
→ Planned value = ��×$�� = $�,��
→ Actual cost = ��×$�� + �×�� = $�,��
EVM Example – After 2 Days
We spent this much (AC)
We should have
been here! (PV)
We achieved
this value (EV)
2018-02-25
19
EVM Example – Cost Variance & Performance
Cost Variance:
CV = EV – AC
= $4,200 – $5,000
= – $800 < 0
We are over budget and
have spent $800 more
than anticipated!
Cost Performance Index:

CPI = EV / AC
= $4,200 / $5,000
= 0.84
EVM Example – Earned Value Situation
We have achieved
this much value…
But we should have
achieved it much earlier!
2018-02-25
20
EVM Example – Schedule Variance & Performance
Schedule
variance in days
Schedule Variance in dollars:
SV =EV – PV
= $4,200 – $6,000
= – $1,800 < 0
We are late and have
only performed
4200/6000 = 70% of the
work planned!

Schedule Performance Index:
SPI = EV / PV
= $4,200 / $6,000
= 0.70
EVM Example – Forecasting Cost at Completion
Budget at completion
BAC = 30,000 Estimate at completion
EAC = BAC / CPI
= 30,000 / 0.84
= 35,714
Variance at Completion:
BAC = $30,000
EAC = $35,714
VAC = - $5,714
We expect to be almost
$6000 over budget!
2018-02-25
21
EVM Example – Forecasting Duration at Completion
Project slip 4.29 days
Cost overrun
= $5,714

Duration at completion
= Duration / SPI
= 10 days / 0.70
= 14.29 days
Note: Better to review
plan vs actual on Gantt
chart to predict end date.
2018-02-04
1
Project Management
Class – 4
Project Scope
Learning Outcomes
Ø Establishing project objective and defining project
scope.
Ø Prepare a project scope document
Ø What is scope creep and how to deal with it
Ø The basis of project plan – “project charter”
Ø How to define what activities need to be done,
and who will be
responsible for them? (Develop a work breakdown
structure)

Ø Mind mapping for project planning
2018-02-04
2
Establish Project Objective
Ø The planning process is based on the project
objective, which
establishes what is to be accomplished.
Ø The project objective is stated in the project
charter that comes from
request for proposal (RFP).
Ø The project objective is usually defined in
terms of the end product or
deliverable, schedule, and budget.
Ø It requires completing the project work scope
and producing all the
deliverables by a certain time and within budget.
Establish Project Objective (Cont.)
Ø The project objective should include the
following elements:
1. Expected benefits that will result from
implementation of the project
and define success. It establishes why the project
is being done and
may include verbs such as “to increase”, “to

expand”, “to reduce”, “to
save”, ”to establish”, etc.:
§ To increase sales volume by 5,000 units annually
§ To expand customer base in European markets by 60
percent
§ To double the number of donors
§ To reduce annual overhead costs by $150,000
2018-02-04
3
Establish Project Objective (Cont.)
2. Primary project end product or deliverable,
such as a
mobile app with shopping capability, a nationwide
marketing campaign, a dormitory complex, or a medical
monitoring device.
3. Date by which the project is required to be
completed, such
as by June 30, 2017, or in 18 months.
4. Budget within which the project must be
completed.
Establish Project Objective
Examples
§ To increase emergency roomcapacity by 20% and reduce
average

patient waiting time by 50% through a
reconfiguration, and process
improvement project to be completed in 12 months
and with a
budget of $400,000.
§ To expand market share by 3% by introducing a
new portable food
preparation appliance within 10 months with a
budget of $2 million.
§ To meet new environmental regulatory requirements by
installing a
new filtration system within 15 months and with a
budget of $3.2
million.
2018-02-04
4
Defining Project Scope
Ø The project scope defines what needs to be
done:
§ Allthe work to produce all the project deliverables
to meet the
acceptance criteria
§ Accomplish the project objectives
Ø The project scope document usually contains
the following sections:

1. Customer requirements:
§ The functional, operational, and performance
specifications or
capabilities that must be met for the project
deliverables.
§ May include specifications regarding size, color,
weight, or performance
parameters such as speed, processing time.
Defining Project Scope (Cont.)
2. Statement of the work (SOW): describes the work to
be done in
detail.
3. Deliverables are the products or outputs that the
project team or
contractor will produce and provide to the client
during and at the
completion of the performance of the project.
4. Acceptance criteria
§ Allproject deliverables must be described in great
detail including the
quantitative measures or references to specifications,
standards, or codes
§ It helps assure the quality of the deliverable
and avoid misunderstanding
§ The criteria will be the basis for the client
agreeing that a deliverable is
acceptable

2018-02-04
5
Project Scope Creep
Ø Scope creep refers to uncontrolled
changes or continuous growth in a
project’s scope.
Ø This can occur when the scope of a
project is not properly defined,
documented, or controlled.
Ø If budget, resources, and schedule are
increased along with the scope, the
change is usually considered an
acceptable addition to the project, and
the term "scope creep" is not used.
Sources of scope creep
1. Vagueness: When there is no clearly-defined and
controlled project
scope, the project will mutate.
§ Combat it: Lay out all project boundaries in
the Project Scope
Statement that goes into the Project Initiation Document.
2. Weak Leadership: Stakeholders may try to change
the scope to suit
their needs if they sense that you lack experience,
or are not a strong

project manager.
§ Combat it:
ü Stand your ground when people demand to
inflate the scope.
ü Communicate strongly through body language during
meetings.
2018-02-04
6
Sources of scope creep (Cont.)
3. Differing Stakeholder opinions: While stakeholders
may want the
same end product, their motivations vary wildly.
§ Combat it:
ü Limit the number of stakeholders.
ü When demands increase, determine their motivations to
arrive at
a common ground.
4. Late involvement: Ifyou involve your customers late in
the process,
they will give you feedback you didn’t anticipate.
Instant scope creep.
§ Combat it: Collaborate with your clients early and often,
so you deliver
exactly what they need and want.

Dealing with Scope Creep
Get Approval before stuck with Scope Creep!
Hi Client Awesome,
Thanks so much for the ideason adding “X” to
our project. We’re glad
you’re happy with our work so far and that you’re trusting us to
get
even more involved in your brand’s success.
We’d be happy to add “stuff not in scope
of work” to the project scope.
We’ll send over a revised scope of work for
your approval. Once we have
that, we’ll send you estimated delivery times and add the
additional
work to the project’s final billing installment.
You’ll receive that revised scope shortly.
2018-02-04
7
Project Scope and Project Charter
Ø Project scope and project charter can seem like
one and the same
sometimes.
Ø They are both usually contained early in the project
management plan.
Ø They have a slight difference in purpose:
§ Project charter contains the rationale for the project,

the reasons for its
existence, who initiated it, and why.
§ Project charter serves the PM as a map of
the route from project start to
finish.
§ Project scope is very much a secondary
function of the project charter.
§ Project scope tries to encompass the full scope
of the project in a
paragraph or two without elaboration on project
risk management,
resource requirements, constraints, etc.
Project Charter
Ø Once a project is selected, it is formally
authorized using a document
referred to as a project charter, sometimes
called a project
authorization or project initiation document.
Ø This document serves a number of purposes
§ Provides sponsor approval to go forward with
the project
§ Commits the funding for the project
§ Summarizes the key conditions and parameters
for the project
§ Establishes the framework for further elaboration
of the project
scope.

2018-02-04
8
Categories of Elements Required in the Project
Charter
1. Purpose
2. Objectives
3. Overview
4. Schedules
5. Resource requirements
6. Personnel and stakeholders
7. Risk management
8. Evaluation methods
Purpose
Ø It describes the Business Case for the project
§ Strategic reasons for the project
§ Expected profitability
§ Competitive effects
§ Desired scope
§ Any other technical results
Ø The intent of business case is to
communicate to project team
members and stakeholders the reasons for the project
2018-02-04
9

Objectives
Ø Another name is project mission statement
Ø A detailed description of the…
§ Primary end product/service and deliverables
§ Due date
§ Budget
Ø Communicate to project team members what will be
done to achieve
the overall project objectives
“To expand market share by 3% by introducing a
new portable food
preparation appliance within 10 months with a
budget of $2 million”
Overview
Ø It is intended for senior management
Ø Brief description of the project together with
§ Deliverables
§ List of major Milestones and significant
events in the project schedule
§ Any constraints on the project scope
§ Expected profitability and competitive effects
§ Technological and managerial approaches
§ Agreements with the client or any third party
including
ü Reporting requirements
ü Technical specifications of deliverables (e.g.,
acceptance criteria)
ü Delivery date
ü Any incentives (due to quick delivery) or penalty
(due to default in delivery)

2018-02-04
10
Schedule and Resource Requirements
Ø Schedule
§ Summary of schedules and milestones
§ The major tasks in the project listed in
Work breakdown structure (WBS)
§ Time to complete each task
§ Detailed discussion in next class
Ø Resource requirements
§ Estimates of project expenses (both Capital
and operating)
§ Costs associated with each task
§ Overhead and fixed charges
§ Appropriate account numbers to be charged with
the relevant cost items
§ Detailed discussion in next class
Personnel and Stakeholders
This section describes:
Ø Stakeholders, sponsor, project manager, and some
team members
Ø It notes any special skill requirements and
necessary training
Ø Special legal arrangements

§ Security clearance
§ Non-disclosure agreements
Ø Combined with the schedule, it may also note the
time-phasing of
personnel requirements
2018-02-04
11
Risk Management
Ø Listing of potential disasters (major and minor):
§ Late subcontractor deliveries
§ Bad weather
§ Unreasonable deadlines
§ Equipment failure
§ Changes in project scope by client
Ø Contingency plans are described
§ Does not stop disasters
§ Softens the impact
Evaluation Methods
Ø Project evaluation procedures and quality
standards
Ø Project evaluation criteria in different dimensions:

1. Project efficiency in meeting the budget and
schedule
2. Customer satisfaction
3. Business success related to external projects in
measuring commercial success
and market share
4. Future potential for the sponsor/client (e.g., new
market, developing new
technology, etc.)
Ø At the end of the project, the evaluation
appraises and audits the project against
the goals and objectives set for it during the
selection process.
Ø It is useful to conduct an evaluation at a
number of crucial points during the
project life cycle, specially for multi-phase
projects.
2018-02-04
12
The Planning Process
Ø Techniques to develop project plan and project
charter are
fundamentally similar. All of them
§ Use a systematic analysis to identify and
list the things that must be

undertaken in order to achieve the project’s
objectives
§ Test and validate the plan
§ Deliver it to the user
Ø Depending on end product/service and project
objectives the
procedure to prepare project charter may differ
§ An R&D project would need a more extensive risk
analysis comparing to
planning process for computer software
§ New pharmaceutical project would need extensive
testing (toxicity and
efficacy)
The Planning Process Example
Planning Process for a Computer Software
1. Develop and evaluate the concept of the project
2. Carefully identify what project deliverables must
have to be successful
3. Create a system – Build a prototype deliverable
4. Test the prototype – If necessary, cycle back
and modify the prototype
5. Integrate the deliverable into target system
6. Validate the deliverable
7. Let client test it
8. Make sure client understands operating and
maintenance
requirements

2018-02-04
13
Sorting Out the Project
The Work Breakdown Structure (WBS)
Ø Failing to identify all important tasks is a primary
contributor to the
failure of a project to achieve its cost and
time objectives.
Ø WBS is a hierarchical decomposition of the
project work scope into
work packages that produce the project deliverables.
§ A primary purpose of the WBS is to ensure
that no task is overlooked
§ Every task, no matter how small, should be
listed along with material and
human resources
§ The major work tasks defined in the SOW
section along with the detailed
list of deliverables provide the basis for creating a
WBS.
Create Work Breakdown Structure
Ø PM starts with the major activities that must be
completed to achieve
the project objective(s). Usually between 5 and
15. We call these
Level 1 activities.

Ø Each Level 1 activity would be delegated to
an individual or functional
group. PM may also take one or more Level 1
tasks.
Ø The delegatee dealswith the task as if it is
itselfa project and lists a
specific set of Level 2 tasks required to
complete each Level 1 task.
Ø The process continues; someone or some group is
delegated
responsibility to prepare an action plan of Level
3 subtasks.
2018-02-04
14
Create Work Breakdown Structure (Cont.)
Ø Create a WBS in graphic chart format for a
community festival project.
Ø The PM is Lynn who breaks the project to 7
Level 1 activities.
§ Promoting the festival (kept to Lynn)
§ Finding volunteers (delegated to Beth)
§ Preparing games (delegated to Steve)
§ Offering rides to guests (delegated to Pat)
§ Entertainment (delegated to Jeff)
§ Food (delegated to Bill)
§ Services to guests (delegated to Jack)

WBS for Consumer Market Study Project
Graphic Chart Format
Source: Successful Project Management
2018-02-04
15
WBS for Consumer Market Study Project
Indentured List Format
WBS # DESCRIPTION RESPONSIBLE DELIVERABLES
Consumer Market Study Jim
1.0 Questionnaire Susan
1.1 Design Susan Questionnaire approved
1.2 Responses Steve All completed responses received
2.0 Report Jim
2.1 Software Andy Application software working
2.1 Report Jim Final report
Ø What task in what level does WBS number “7.5.4”
refer to?
Extensions of the Everyday WBS
Ø WBS generally oriented towards deliverables
Ø It can be reshaped with some additional data often not
included in
the WBS
1. Estimates of resources required for each task

2. The estimated time required to accomplish each
task
3. The information about who has the
responsibility for the task
4. Data that will allow tasks to be sequenced so
that the set may be
completed in the shortest possible time.
Ø We refer it as “modified WBS” which
increases its orientation toward
planning and administration
2018-02-04
16
The Importance of Activity Sequence
Ø The first step to calculate the project completion
time is defining the
sequence of activities.
Ø Activity “A” is predecessor of activity “B”
(or “B” is successor activity for “A”)
when working on “B” cannot be started unless
“A” has been completed.
Ø All the following activities are predecessor for
activity “Paint the walls”:
§ Clear the floor area near the wall and cover it
§ Remove pictures from the wall
§ Clean dirt, oil, stain from the wall
§ Fill and smoothen any cracks or holes in

the wall
§ Mask any surrounding areaswhere this paint is
not wanted
A Modified WBS for Improving Staff Orientation
2018-02-04
17
RACI Matrix
Ø RACI Matrix is a table to help organize the
project team
Ø Project tasks derived from the WBS listed in rows
and departments and
individuals in the columns
§ Responsible: Completes the task (does the work).
The responsible person
can be thought of as the task worker.
§ Accountable: Manages the task. This can include
tracking progress,
escalating issues and signing off on deliverables.
§ Consult: The individual or department who should be
consulted about the
task.
§ Inform: The individual (or group) who should be
informed about the
progress/completion of the task.

RACI Matrix Example
Ø There must be at least one “A” in every row.
Ø A particular individual/department can be assigned
multiple
responsibility links (e.g., being both accountable
and responsible).
2018-02-04
18
A Whole-Brain Approach to Project Planning
Ø Mind mapping is a visual approach that closely
mirrors the way the
human brainrecords and stores information
Ø It helps tap the creative potential of entire
project team, which helps
increase both the quantity and quality of ideas
generated.
Ø It helps team members get involved in the
planning process.
Ø Example: Consider a project launched at a
graduate business school
to improve its part-time evening MBA program
for working
professional.
§ The mind mapping exercise is initiated by taping

a large sheet of
paper on a wall.
Whole-Brain Approach to Project Planning
Example
b) Team members can brainstorm to identify the
major tasks that must
be done to accomplish the goal.
1. Define the role of Working Professional Programs
(WPPs)
2. Generate ideasfor improving current programs
3. Generate ideasfor diversification
4. Evaluate the ideasgenerated
GENERATE IDEAS FOR
BREAKTHROUGH
PERFORMANCE IN PART-
TIME PROGRAM
a) The process begins by writing the
project goal in the center of the page.
2018-02-04
19
Example (Cont.)
Ø Major tasks branch off from project goal.
Generate ideas

for improving
current program
Define role
of WPPs
Generate
ideasfor
diversification
Evaluate
ideas
GENERATE IDEAS FOR
BREAKTHROUGH
PERFORMANCE IN PART-
TIME PROGRAM
Example (Cont.)
Ø Components in the mind
map are continuously
broken into more detailed
tasks.
Ø See how the “define role of
WPPs” task was broken
down into more detailed
tasks.
Ø It simplifies creating the
WBS!

2018-02-04
20
An IS Example: Internet Applications Development
for ABC Office Designs
ABC Office Designs
§ Large number of sales representatives
§ Sell office furniture to major
corporations
§ State assignments in four regions
§ Management monitor state and
regional sales
§ Build Web-based IS system to track
prices, inventory, and competition
Project
§ Project manager identified (Beth)
§ Characterizing WBS
§ Responsibility assignment matrix
completed
§ List of tasks compiled and
predecessors identified (next class)
§ Network diagram created (next class)
IS Example: WBS

Source: Successful Project Management, Gido
2018-02-04
21
IS Example: Task List and Predecessors
Next Class
IS Example: Network Diagram
Ø In the next class we discuss how to use the
precedence relationships
between activities and depict a network diagram;
the first step for
project scheduling and budgeting.
2/11/18
1
Project Management
Class – 5
Scheduling the
Project

Learning Outcomes
Ø Program Evaluation and Review Technique
(PERT) and
Critical Path Method (CPM)
Ø Establishing precedence relationships and activity
sequence
Ø Developing Project Schedule
Ø Finding critical path, critical time and activity slack
time
Ø Calculating probabilistic activity times, and
probability of
completing the project on time
2/11/18
2
Introduction
Ø A schedule is a listing of a project's milestones,
activities, and
deliverables, usually with intended start and finish
dates.
Ø The schedule can be prepared in several formats
1. Gantt charts
2. PERT network

3. CPM network
PERT and CPM Networks
Ø PERT and CPM developed independently in 1950’s
Ø Program Evaluation and Review Technique
(PERT) is a statistical tool
§ By a team from U.S. Navy, Booz-Allen Hamilton,
and Lockheed Aircraft
§ Probabilistic activity durations
Ø Critical Path Method (CPM)
§ By Morgan Walker from Dupont De Nemours Inc.
§ Deterministic activity durations
§ Includes both time and cost estimates to allow
time/cost trade-offs
Ø Both employ networks to schedule and display
task sequences
2/11/18
3
The Language of PERT/CPM
Ø Activity: A task or set of tasks required by the
project and use
resources and time.
Ø Event: An identifiable state resulting from completion
of one or more
activities

§ Consumes no resources or time
§ Predecessor activities must be completed
Ø Milestones: Identifiable and noteworthy events
that mark significant
progress, for example
§ Deliverables that meet deadlines can be milestones
§ The usage of time or resources can be
milestones
The Language of PERT/CPM (Cont.)
Ø Network: A diagram of nodes (activities or events)
and arrows
(directional arcs) that illustrate the technological
relationships of
activities
Ø Path: A series of connected activities between two
events
Ø Critical path: The set of activities on a path that, if
delayed, will delay
the completion date of the project
Ø Critical Time: The time required to complete all
activities on the critical
path
2/11/18
4

The Importance of Activity Sequence
Ø The first step to calculate the project completion
time is defining the
sequence of activities.
Ø Activity “A” is predecessor of activity “B” (or
“B” is successor activity for “A”)
when working on “B” cannot be started unless
“A” has been completed.
Ø All the following activities are predecessor for
activity “Paint the walls”:
§ Clear the floor area near the wall and cover it
§ Remove pictures from the wall
§ Clean dirt, oil, stain from the wall
§ Fill and smooth any cracks or holes in
the wall
§ Mask any surrounding areaswhere this paint is
not wanted
Building the Network
Ø There are two ways of displaying a project
network
§ Activities on arrows (AOA) network
ü The activities are shown as arrows and events
as nodes
ü Generally more difficult to draw but depicts the
technical
relationships of the activities well
§ Activities on nodes (AON) network

ü Each task is shown as a node and the
technological relationship is
shown by the arrows
Ø AON network usually associated with CPM
Ø AOA network usually associated with PERT
2/11/18
5
Establishing Precedence Relationships
Precedence Relationships: Determining
the sequence for undertaking activities.
Sample AON Network
S
t
a
r
t
FI
N
IS
H
Task Predecessor
A –
B –
C A
D B

E B
F C, D
G E
A
B
C
D
E
F
G
2/11/18
6
Sample AOA Network
Task Predecessor
A –
B –
C A
D B
E B
F C, D
G E
S

t
a
r
t
FI
N
IS
H
1 3
2 4
A
B
C
E
D
F
G
Purchase and deliver equipment
Construct hospital
Develop information system
Install medical equipment

Train nurses and support staff
Select administration staff
Site selection and survey
Select medical equipment
Prepare final construction plans
Bring utilities to site
Interview applicants for
nursing and support staff
Organizing and Site Preparation Physical Facilities and
Infrastructure Level 1
Level 0
Level 2
Relocation of a Hospital
Owner: Project Manager
Owner: Mr/Mrs X Owner: Mr/Mrs Y
Owner: Mr/Mrs X1
Owner: Mr/Mrs X2
Owner: Mr/Mrs X3
Owner: Mr/Mrs X4
Owner: Mr/Mrs X5

Owner: Mr/Mrs X6
Owner: Mr/Mrs Y1
Owner: Mr/Mrs Y2
Owner: Mr/Mrs Y3
Owner: Mr/Mrs Y4
Owner: Mr/Mrs Y5
Finding the Critical Path and Critical Time
Relocation of Hospital (WBS)
2/11/18
7
Relocation of Hospital (Activity Sequence)
Activity Immediate Predecessors
Activity times
(wks)
START 0
Organizing and Site Preparation
A. Selecting administrative staff start 12
B. Site selection and survey start 9
C. Select medical equipment A 10
D. Prepare final construction plans B 10

E. Bring utilities to site B 24
F. Interview applicants for nursing and support staff A 10
Physical Facilities and Infrastructure
G. Purchase and deliver equipment C 35
H. Construct hospital D 40
I. Develop information system A 15
J. Install medical equipment E, G, H 4
K. Train nurses and support staff F, I, J 6
FINISH K 0
FinishStart
A
B
C
D
E
F
G
H
I
J
K
A —

B —
C A
D B
E B
F A
G C
H D
I A
J E,G,H
K F,I,J
Immediate
Predecessor
Relocation of Hospital (Diagramming)
2/11/18
8
Developing the Schedule
Earliest start time (ES) – the earliest finish time of
the immediately
preceding activities
Earliest finish time (EF) – the earliest start time plus its
estimated
duration EF = ES + t
Latest finish time (LF) – the latest start time of
the activity that
immediately follows.
Latest start time (LS) – the latest finish time minus
its estimated duration

LS = LF – t
Activity Slack – the maximum length of time an
activity can be delayed
without delaying the entire project LF – EF or
LS – ES
T U
T U
Developing the Schedule (Cont.)
Latest finish
time
Latest start
time
Activity
Duration
Earliest start
time
Earliest finish
time
0
2
12
14

A
12
2/11/18
9
FinishStart
A
B
C
D
E
F
G
H
I
J
K
Path Time (wks)

A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Consider the sequence of
activities (paths) between a
project’s start and finish.
K
6
C
10
G
35
J
4
H
40
B

9
D
10
E
24
I
15
FinishStart
A
12
F
10
0
Earliest start
time
12
Earliest finish time
0 9
9 33

9 19 19
59
22 5712
22
59 63
12 27
12 22 63
69
Earliest start time (ES) – the
earliest finish time of the
immediately preceding activities
EF = ES + t
Relocation of Hospital (Cont.)
2/11/18
10
K
6
C
10

G
35
J
4
H
40
B
9
D
10
E
24
I
15
FinishStart
A
12
F

10
0 9
9 33
9 19 19
59
22 5712
22
59 63
12 27
12 22 63
690
12
The Critical Path takes
69 weeks
Path Time (wks)
A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Relocation of Hospital (Cont.)
Notes on Sample Project

Ø All activities, and thus all paths, must be
completed to finish the
project
Ø The shortest time for completion of the
network is equal to the
longest path through the network (in this case B-D-H-
J-K)
Ø If any activity on this path is even slightly
delayed, the project will be
delayed
Ø Question: How long each activity can be delayed
without delaying the
entire project?
2/11/18
11
K
6
C
10
G
35
J

Latest start time
Latest finish time
Latest finish time (LF) – the
latest start time of the activity
that immediately follows.LS = LF – t
Developing the Schedule
Developing the Schedule: Activity Slack
K
6
C
10
G
35
J
4
H
40
B
9

D
10
E
24
I
15
FinishStart
A
12
F
10
0 9
9 33
9 19 19
59
22 5712
22
59 63
12 27

12 22 63
690
12
48 63
53 63
59 63
24 59
19 59
35 59
14 24
9 19
2 14
0 9
63 69
S = 0
S = 2
S = 26
S = 0
S = 36

S = 2
S = 2
S = 41
S = 0
S = 0 S = 0
S = LF – EF or LS – ES
Question: How long each
activity can be delayed without
delaying the entire project?
2/11/18
12
Managerial Implications
Ø The primary attention of the project manager
must be to activities on
the critical path
Ø If anything delays one of these activities, the project
will be late
Ø Projects are easier to manage when there is
project slack
Ø Please verify the impact of the following delays
in “relocation of
hospital” project completion time:
§ Project F delayed by 15 weeks

§ Project H delayed by 7 weeks
§ Project A by 5 weeks
The Gantt Chart
Ø Henry Gantt developed the Gantt chart around
1917
Ø It displays project activities as bars measured against
a horizontal time
scale
2/11/18
13
The Gantt Chart (Cont.)
Ø Gantt charts are easy to draw
Ø It can contain a considerable amount of
information and is an excellent
communication device about the state of a project.
Ø Problems arise when several tasks begin at
the same time and have the
same duration
§ Technical dependencies are harder to see on a
Gantt chart
§ Can make it hard to find critical path
Ø PERT/CPM methods are often used as complements to

Gantt charts
Precedence Diagramming
Ø One of the shortcoming of PERT/CPM
network method is that it does not
allow for leadsand lags between two activities.
§ An activity can start as soon as its predecessor
activities are completed.
§ What if a follow-on activity cannot begin
until a certain amount of time after
its predecessor is completed.
§ For example, a successor may have to wait for
paint to dry or cement to
harden.
Ø We may need to define the following relationship
§ Finish to start (F to S): Finish of Activity A
to start of Activity B
§ Start to start (S to S): Start of Activity A to
start of Activity B
§ Finish to finish (F to F): Finish of
Activity A to finish of Activity B
§ Start to finish (S to F): Start of Activity A
to finish of Activity B
2/11/18
14
Precedence Diagramming Conventions

Calculating Probabilistic Activity Times
Ø In CPM analysis each activity time is treated as a
random variable
derived from a beta probability distribution.
Ø The most likely time estimate (m) is the mode
of beta distribution.
Ø Therefore, it is the time with the highest
probability of occurrence.
a m bMean
Time
a m b
Mean Time
3σ 3σ
2/11/18
15
Calculating Probabilistic Activity Times (Cont.)
Ø Estimate “a” is such that the actual duration of
the task will be “a” (or
lower) in less than 1 percent of the time.
§ Thus “a” is an optimistic estimate
Ø Estimate “b” is such that the actual finish
time will be “b” (or greater)
in less than 1 percent of the time
§ Thus “b” is a pessimistic estimate

Ø Estimate m is the most likely time
a m bMean
Time
Ø The mean of the beta distribution for each
activity time can be
estimated by
te =
a + 4m + b
6
Ø The variance of the beta distribution for each
activity is
σ2 =
b – a
6
2
Statistical Analysis
2/11/18
16
Ø Suppose that the project team has arrived at
the following time estimates
for activity B (site selection and survey) of the

Hospital project:
a = 7 weeks, m = 8 weeks, and b = 15 weeks
a. Calculate the expected time and variance for activity
B.
b. Calculate the expected time and variance for the
other activities in
the project.
Statistical Analysis: Hospital Example
�� =
� + �×� + ��
�
=
��
�
= � �� =
�� − �
�
�
= �.��
b. The following table shows the expected activity
times and variances for this project.
Time Estimates (week) Activity Statistics
Activity Optimistic (a) Most Likely (m) Pessimistic
(b) Expected Time (te) Variance (σ2)

A 11 12 13 12 0.11
B 7 8 15 9 1.78
C 5 10 15 10 2.78
D 8 9 16 10 1.78
E 14 25 30 24 7.11
F 6 9 18 10 4.00
G 25 36 41 35 7.11
H 35 40 45 40 2.78
I 10 13 28 15 9.00
J 1 2 15 4 5.44
K 5 6 7 6 0.11
Statistical Analysis: Hospital Example (Cont.)
2/11/18
17
Ø Central limit theorem: Sum of the independent,
identically distributed random
variables follows a normal distribution.
Ø The sum of the expected activity times on
each path is the mean of a normal
distribution
Ø Because the activity times are independent,
the variance of the time distribution
for critical path:
Analyzing Probabilities
�� = ∑
��

��
�
� = ��
�� = O ��
��
�
�
Analyzing Probabilities (Cont.)
Ø To analyze probabilities of completing a project
by a certain date T
Ø Focus on the critical path
Ø Use the z-transformation formula
��
� � ≤ � = � � ≤
� − ��
��
� = � �
Equivalent to
2/11/18
18
Ø Calculate the probability that Hospital will become
operational in 72

weeks, using the critical path.
Ø The critical path B–D–H–J–K has a length of
69 weeks.
TE = 9 + 10 + 40 + 4 + 6 = 69
weeks
Ø From the previous calculations, we obtain the
variance of path B–D–
H–J–K:
σ2 = 1.78 + 1.78 + 2.78 + 5.44 + 0.11 = 11.89
weeks
Critical Path Analysis
� � ≤ �� = � � ≤
�� − ��
��.��
= � � ≤ �.�� ≅ �.��
operational in 72
weeks, using near critical path A–C–G–J–K.
Ø The critical path A–C–G–J–K has a length of
67 weeks.
TE = 12 + 10 + 35 + 4 + 6 = 67
weeks
Ø From the previous calculations, we obtain the
variance of path A–C–
G–J–K:

σ2 = 0.11 + 2.78 + 7.11 + 5.44 + 0.11 = 15.55
weeks
Near Critical Path Analysis
� � ≤ �� = � � ≤
�� − ��
��.��
= � � ≤ �.�� ≅ �.��
2/11/18
19
The Probability of Completing the Project on
Time
Ø Can the project be completed in X
days/weeks/months?
Ø Completing a project by a specified time
requires that all the paths in
the network be completed by the specified time
Ø Determining the probability that a project is
completed by a specified
time requires
§ Calculating the probability that every single
path is finished by the
specified time
§ Multiplying these probabilities together

§ This requires the assumption that the paths
are statistically independent
The Probability of Completing the Project on
Time
operational in 72 weeks.
§ Identify all paths from start to finish
§ Find the probability of each path finishes in 72
weeks
§ Multiply all probabilities together
Path TE σ2 σp Z Probability
A-I-K
A-F-K
A-C-G-J-K
B-D-H-J-K
B-E-J-K
33
28
67
69
43
9.22
4.22
15.55
11.89
14.44
� =
�� − ��

��
3.03
2.05
3.94
3.45
3.80
12.87
21.46
1.27
0.87
7.63
1
1
0.90
0.81
1
Probability that Hospital will become operational in
72 weeks = 1*1*0.9*0.81*1 = 0.73
1/27/18
1
Project Management
Class – 3
The Manager,
The Organization, &

The Team
Learning Outcomes
Ø Selecting a project manager, describing his/her
roles and
responsibilities
Ø Discuss the necessary competencies to be an
effective project
manager
Ø Different project organizations and fitting
projects into the
parent organization
Ø Project team management
1/27/18
2
Selecting Project Manager
Ø Project manager is usually selected after project is
selected
Ø The PM is selected through interview between
senior management
and prospective PM.
Ø Once selected, the PM and/or a senior
manager calls a launch
meeting of stakeholders, and the knowledgeable people

to begin the
project planning
The Project Manager’s Roles
Facilitator
Ø Compare a Project Manager with a functional
manager (head of
manufacturing or marketing division)
1. Managing well-established unit vs. multidisciplinary
environment
§ Must ensure that those working on project
have the appropriate
knowledge, resources, and time to accomplish their
responsibilities
§ Being facilitator by resolving conflicts between
members of
project team, the team and senior manager and
different
functional managers, etc.
2. Analytical Approach (leading to local-optima) vs.
Systems Approach
(finding a global optima)
1/27/18
3
Ø Must communicate effectively with the various
stakeholders of the
project

Ø Problems arise when some of parties propagate
communications that
may mislead other parties!
Communicator
Ability to Handle Stress
Ø The PM need to be able to handle the stress
that can arise from work
situations.
Ø Stress is likely to be high when a project
is in jeopardy of not meeting its
objective because of
§ A cost overrun
§ A schedule delay
§ When changes in scope are requested by the
client
§ When conflict arises within the project team
Ø The PM can improve her or his ability to
handle stress by keeping physically
fit through regular exercise, good nutrition, and a
healthy lifestyle.
1/27/18
4
Globalization and Virtual Project Manager

Ø In recent decades, the international dispersion of
industry, namely “globalization”, has been significantly
increased!
Ø Companies may outsource the subprojects for
different reasons
§ Cost savings
§ Advanced skills
§ Focus
Ø For example, Boeing has global supplier partner
teams
for 787 Dreamliner aircraft.
Boeing’s
Global
Strategy Yields
Competitive
Strategy
Ø Boeing’s strategy for its 787 Dreamliner is
unique from both an engineering and a global
perspective.
Ø The global nature of both technology and
the
aircraft market meant finding exceptional
developers and suppliers, wherever they
might be.
Ø Boeing teamed with more than 20
international suppliers to develop

technologies and design concepts for the 787.
Ø Boeing has worked with General Electric and
Rolls-Royce to develop more efficient engines.
1/27/18
5
Boeing’s Global Strategy Yields Competitive
Strategy
Firm Country Component
Rolls-Royce UK Engines
BAE Systems UK Electronics
Alenia Aeronautics Italy Upper centre, fuselage and
horizontal
stabilizer
Kawazaki Heavy Industries Japan Forward fuselage, fixed
section of wings
Toray Industries Japan Carbon fibre for wing and tail
units
Chengdu Aircraft Group China Rudder
Labinel France Wiring
Saab Sweden Cargo and access doors
(Cont.)
Ø It brings different problems specially in
communication.
Ø So much of the project communication is
conducted via emails, by

telephone or video conferencing:
§ In written and voice-only communications, the
communicators
cannot see one another.
§ We miss the facial expression and body
language that let us know
if our messages are received and with what level of
acceptance.
§ Communicators rely on feedback
§ For virtual projects to succeed, communication
between project
manager and project team must be frequent, open,
and two-way
1/27/18
6
Pros and Cons
Globalization
§ Adds a dimension of complexity
§ Changes project dynamics
§ Requires awareness of factors
ü Cultural differences
ü Currency
ü Codes and regulations

ü Business organization
ü Political relations
ü Workforce availability
Helpful Competencies
§ Foreign language skills
§ Knowledge of
ü Cultures
ü Geography
ü International economics
§ Awareness of
ü Customs and etiquette
ü Geopolitical environment
§ Technology adoption and translation
software
PM’s Responsibility to Senior Management
Ø Must keep senior management up to date on
the state of the project
Ø Particularly important to keep management informed of
any problems
affecting the project, or any likely to affect
the project in the future
Ø In many situations, the problems are out of
human being’s control:
Ø Bad weather conditions in a construction
project
Ø Political problems and conflicts in virtual
projects

Ø The timing of information should be at
the
earliest point a problem seems likely to occur.
Ø A golden rule for anyone is ”Never let the
boss be surprised”
1/27/18
7
Responsibility to the Client
Ø The project manager is also responsible to
the client
Ø Clients often want changes to the project
§ Cost, schedule, scope change
§ Cost of changes often exceed client’s expectations
Ø Project manager must be certain the client
understands the impact of
the changes on the project’s goals of delivery
time, cost, and scope
It’s PM’s job to balance the line between
defending your
team and the project, and making your clients happy.
The Project Manager’s Responsibilities to the
Project
Ø Acquiring resources

§ The farther one proceeds up the managerial
ladder, the easier, faster,
and cheaper a job appears to be completed!
§ It is the project manager’s responsibility to ensure
the project has the
appropriate level of resources
Ø Fighting fires and obstacles
§ Early obstacles linked to need for resources
§ Later fires associated with technical problems, supplier
problems, and
client problems
1/27/18
8
Project
(Cont.)
Ø Leadership and making trade-offs
§ Trade-offs are between cost, schedule, scope, and
risk
§ Scope is usually the most important, followed by
schedule and cost
§ Another type of trade-off occurs between projects
ü At times, two or more projects may compete for
access to the same
resource

ü If a single PM has two projects in the same
part of the project life cycle
and makes such a trade-off, it does not matter
which product wins
ü A PM managing two or more projects should
plan/schedule such that the
projects are in different phases of their life cycles
Project
(Cont.)
Ø Negotiation, conflict resolution, and persuasion
§ During the project life cycle, PM encounter many
occasions to interact with
the sponsor, stakeholders, client, the the
subcontractor, vendors, end users
of the project’s end product.
§ The PM cannot meet these responsibilities (e.g.,
acquiring resources,
leadership) without being a skilled negotiator
and resolver of conflict
§ Success depends on the project manager’s skill at
convincing others to
accept the project and changes
1/27/18
9

Developing Project Manager Competence
Delegation
Ø You can do anything, but not everything!
Ø Delegation involves empowering each team member to
achieve the
expected results for his or her area of
responsibility.
Ø It is more than just assigning tasks. It includes
giving
§ Responsibility for accomplishing job objectives
§ Accountability for accomplishing the results
§ Authority to make decisions and take actions
Ø The PM should not tell the individuals how to
do the task. That should be
left up to the team members to make them
creative.
Ø That said, the PM should be available to coach
and advise individuals when
needed.
Delegation (Cont.)
Ø Various degrees of
delegation.
Ø In most cases, the project
manager should delegate
to highest degree.
Ø A lower degree of

delegation might be
advisable if there was a
critical problem meeting
the objectives (e.g., cost
overrun)
Degree of Delegation
Source: Successful Project Management by Gido &
Clements
1/27/18
10
Delegation (Cont.)
Ø The PM can use a checklist for
rating his/her effectiveness at
delegation
Ø It can be used by the PM as a
self-assessment instrument
Ø Or, the PM may choose to
have the project team
complete the checklist in
order to get feedback on
her/his effectiveness at
delegation.
Clements

Managing Changes
Ø The one thing you can be sure will happen during
a project is change.
Ø Despite the best-laid plans, changes will still occur.
§ Initiated by the customer or sponsor
§ Initiated by the project team, including
subcontractor, consultants, and vendors
§ Caused by unanticipated occurrences during the
performance of the project
§ Required by the users of the project results
Ø At the start of the project, the PM needs to
establish a change control system
§ How changes will be documented, approved, and
communicated
§ How the appropriate team members estimate the
effects on the project cost and
schedule
§ A status report of all pending, approved, and
rejected changes should be available
1/27/18
11
Case Study: Codeword
Ø Codeword is a medium-size firm that designs
and manufactures electronic
systems for the mass transit industry.

Ø At Codeword, PMs report to general manager
while other people report to their
functional manager.
Ø Jack, with a BSc in electrical engineering, has
worked for 12 years for the
company, and, due to his excellence record,
currently has been asking for an
opportunity to be a project manager for a
$15 million project.
Ø Jack works with the functional managers to get
the best people available
assigned to the project.
Ø With Jack’s position as senior electronics
engineer vacant, the manager of
electrical engineering hires Alfreda with a PhD in
electrical engineering and 8
years of experience.
Case Study: Codeword (Cont.)
Ø Alfreda joined Codeword with high salary; more than
Jack is making!
Ø She is assigned to Jack’s project full time as
the senior electronics engineer.
Ø Jack takes special interest in Alfreda’s work and
asks for several meetings where
most of them turn into monologues, with Jack suggesting
how Alfreda should do
the design and paying little attention to what she
says.

Ø When Alfreda asks Jack why he is spending so
much more time reviewing her
work, Jack responds:
“I don’t have to check theirs. I know
how they work since I have worked with them in
other projects. You are the new kid on the block,
and I want to be sure you understand
the way we do things here, which may be
different than at your previous employer.”
1/27/18
12
Case Study: Codeword (Cont.)
Ø In other occasion, when Alfreda shows Jack what
she thinks is a creative
design approach to lower the cost of system,
Jack responds:
“I don’t even have a PhD and I can see that
that doesn’t work. Just stick to basic
engineering.”
Ø During a business trip with Dennis, another
engineer assigned to the project
who has worked with Jack for 6 years, Alfreda
says:
“Jack is acting more like the electronics
engineer for the project than the project

manager…. I am planning to discuss the matter
with manager and I would never
taken the job with Codeword if it will go like
this”
Discussion
Ø Do you think Jack is ready to serve as a
project manager? Why or why not?
§ Jack has the potential to be a very good project
manager. However,
§ A PM’s responsibilities to project include
ü
ü
Ø How could Jack have prepared for his new role?
§ He should attend training specific to his new
role to familiarize himself with
the new demands of the role.
§ Trust and use high degree of delegation since
Alfreda is highly educated and
has 8 years of experience
1/27/18
13
Discussion (Cont.)

Ø What is the major problem with the way Jack
interacts with Alfreda?
§ Jack is accustomed to working with his buddies
and Alfreda is new
§ She is more educated than Jack and makes more
money than him as well.
Ø What should the electrical manager do?
§ Call Jack in and have a talk with him and
afterwards he might have a meeting
with both of them together
§ Reassure Jack of
§ Act as a
§ Reassure Alfreda that
§ Have frequent, brief discussions with each of them
More on “Why Projects?”
Ø Why organizations choose to conduct so much
of their work as
projects?
1. Emphasis on time-to-market
§ Being competitive in the market (XBOX 360
project by Microsoft)
§ Cutting time to launch (reducing both laborand
overhead cost as
well as sooner return on the investment)
2. Need for specialized knowledge from a variety
of areas
§ Product development/design is a multidisciplinary
area where

people can work in project in different teams
1/27/18
14
More on “Why Projects?” (Cont.)
3. Explosive rate of technological change
§ Implementing the necessary technological changes
usually
requires multi-firm, multi-industry and multinational
projects
4. Need for accountability and control
§ Upper-level managers lack ability to cope with large-
scale and
rapidchange in their organizations and would like to
delegate the
implementation of changes to PMs by defining
projects
5. Rapid growth of globalized industry
§ Globalization involves the integration activities carried
out by different firms
located in different countries/continents.
Pure Project Organization
Ø Consider the construction of a football
stadium.

Ø A contractor assigns a PM and a team of
construction specialists:
§ One may design and plan electrical system
§ One may design and plan mechanicals
§ Another parking and landscaping
Ø The supplies, equipment, and workers arrive
just when
they are needed.
Ø They do the work, complete the project and
disband.
Ø Once the project is completed & accepted by
the client
§ Equipment returned
§ Local workers paid off
§ The PM and the specialists return to their
parent firms and wait for the next job
1/27/18
15
Pure Project Organization (Cont.)
Pure Project: Pros and Cons
Ø Effective and efficient for large projects
§ Different functional groups work in parallel
§ There is always work for each member of the
laborforce
§ Expensive for small projects

Ø Resources available as needed
Ø Although there is a broad range of
specialists, but
§ They may have limited technological depth and
lack specific knowledge
§ Requires hiring a consultant to help
§ May require high levels of duplication in certain
specialties for different
parallel projects
Ø Short lines of communication
Ø Risk of Projectitis; suffering from due to deep
attachment with a project
1/27/18
16
Functional Project Organization
Ø Suppose we need to install a new production
machine in an operating
production line
§ Removal of the old machine
§ Integration of the new machine
into the production system
§ Organize the project as an
attachment to manufacturing
division

Functional Project: Pros and Cons
Ø Unlike to pure project organization, the functional
project is embedded
in project’s home functional group
§ It has immediate, direct, and complete contact
with the most important
technologies it may need with in-depth access
§ Fractional resource problem is minimized, e.g.,
the part-time workers
can be easily added
Ø Projectitis will be minimal
Ø Lines of communication outside functional department
can be slow
Ø Project rarely given high priority
1/27/18
17
Matrix Project Organization
Ø The idea is to capture the advantages of
both the pure project and the
functional project organizations as well as to avoid
their associated
problems.

Two distinct
levels of
responsibility
in a matrix
organization:
Different Levels of Matrix Project Organization:
Weak Matrix
Project Management Institute, A Guide to the
Project Management Body of Knowledge,
Edition, Project Management Institute Inc., 2013.
Figure 2-2, page 23.
Ø People from
different
divisions should
be coordinated
to do the job.
Ø The PM is more
a coordinator
rather than a
PM.
1/27/18
18
Balanced Matrix

Ø The primary project is defined in a
functional division, but it requires people
from other functional divisions.
If the project requires deep technological features
and knowledge, then a
balanced matrix is better than weak.
Strong Matrix
Ø Many individuals assigned full-time to the project
and there is a PM who
needs to coordinate the project.
1/27/18
19
Project Organizational Structure
Comparison

Acquiring the Project Team
Ø One of the first things that project manager
must do is to obtain and put together
a project team.
Ø Considerations to take into account when
assembling a team:
§ What expertise, experience, or skills needed
§ How many of each type are required
§ When they will be needed
ü Acquire entire team at the beginning for smaller
projects
ü Assemble team members as needed for larger
projects
Ø Greatest constraint is the availability of the
right resources at the right time
1/27/18
20
Project Kickoff Meeting

§ PM schedule project kickoff meeting
§ Held as early as possible (during forming)
§ Provides opportunity for team to know
each other
§ Clarify roles and responsibilities
§ Opportunity for the PM to describe
protocols and plans
§ Allow time for questions and comments
§ There are six general parts to the project
kickoff meeting:
Project Team Development
Ø In many projects, people who have
never worked together are assigned to
the same project team.
Ø Depending on the type of organization it
may be difficult to manage and
coordinate new people working
together!
Ø This group of individuals must develop
into an effective team to successfully
achieve the project objective.
Ø The following four stages of team
development have been identified.
Clements

1/27/18
21
Forming
§ Initial stage of team development
§ Individuals get introduced and familiar
§ Positive expectations
§ Define and plan the tasks; little work
accomplished
§ Members depend on PM to provide
direction and structure
§ Lots of questions
§ What purpose?
§ Who are others?
§ What are they like?
The sense of team generally weakens and
then strengthens again as team members
learn to work with one another
Storming
§ Start to apply their skills to work
§ Tasks may be larger than
anticipated
§ Increasing dissatisfaction with
dependence on PM

§ Team members begin to test the
limits and flexibility of the PM
§ Conflict emerges and tension
increases
§ Motivation and morale are low
§ Members express individuality
Work begins to progress slowly.
1/27/18
22
Norming
§ Relationships have settled and
interpersonal conflicts resolved
§ Team has accepted its operating
environment
§ Control and decision making are
transferred to the project team
§ Trust begins to develop
§ Team members give and ask for
feedback
§ PM minimizes his/her directing role
and takes on a more supportive role

Work performance accelerates
and productivity increases
Performing
§ High commitment to achieve project
objective
§ Communication is very open
§ Collaboration and willingness to
help each other
§ Team feels fully empowered
§ PM fully delegates responsibility and
authority
§ PM concentrates on project
performance w.r.t budget, schedule
and scope
§ Project manager is mentor
Work performance is high
1/27/18
23
Barriers To Team Effectiveness
Ø The following are barriers that can hinder project
team effectiveness:
1. Unclear vision and objective

§ The PM needs to articulate the project
objective, scope, quality
requirements, budget, and schedule for team members
§ A vision of project result and the benefits of
the work by each member
should be articulated
§ Periodical review meetings are helpful to discuss
the project objective
2. Unclear definition of roles and responsibilities
§ Individuals may think their roles are ambiguous
§ They may think their responsibilities overlap with others
§ The PM should meet individually each team member
to explain his/her
roles and responsibilities
Barriers To Team Effectiveness (Cont.)
3. Lack of project structure
§ Individual may feel that everyone is working in a
different direction
§ The connection is known by the PM but
not necessarily each member
§ Tools like network diagram helps
4. Poor communication
§ When team members lack knowledge about what is
happening on the project
§ Review meetings should be hold to share
information
§ Each member should be asked to give a
brief status of their work

5. Turnover of project team members
§ When team composition changes often
§ Project team with small number of individuals
and long-term assignments will
be more efficient than a team with large number of
individuals and short-term
assignments
1/27/18
24
Rate Team Effectiveness
Ø A checklist like this can help
organizations to keep track of
how well project teams are
working.
9/12/18
1
Project Management
Class – 2
Project Selection
Selecting Projects; Meeting Organizational

Objectives
Ø Although every project begins with a
proposal, not every proposal become
a project!
Ø Project selection is process of evaluating
projects and choosing them so firm
objectives are met
Ø Ensure that several conditions are considered
1. Is the project potentially profitable?
2. Is the project required?
3. Does firm have the skills to complete the
project?
4. Does it have capacity to carryout the project?
5. Can project be economically successful?
9/12/18
2
Screening of Projects
Ø Projects are selected based
on qualitative and/or
quantitative models.
Ø Today, we discuss the most
common models.
Ø Multiple criteria may be
applied until the team is
satisfied that all selected

projects align with the overall
business strategy.
as Prentice Hall
Project Selection
Ø Projects can be categorized as one of the
following:
vCompliance: Projects that are essential to meet new
requirements
imposed by internal and external entities
§ Internal entities may be executive management
§ External entities may be government regulations
and requirements
§ “Must do” projects; if not implemented, may face
penalties
vEmergency: Projects that are needed to meet
emergency conditions;
may be “must-do” projects; if not implemented,
organizations may not
be fully operational to fulfill their core
competencies
9/12/18
3
Project Selection (Cont.)
vMission Critical: Critical to the mission of a

company
§ If not completed, would cause immediate,
unacceptably negative
impact to business
vOperational: Projects that are needed to support
current operations
§ Increase process efficiency
§ Reduce product cost
§ Improve performance and other metrics
vStrategic: Projects that are essential to support long-
range mission
(increase revenue, increase market-share)
Selection Methods
Ø There are many different methods for selecting
projects, and may be
grouped into two fundamental types
1. Nonnumeric: does not use numbers for evaluation
a) Sacred cow
b) Operating/competitive necessity
c) Comparative benefits (Q-sort method)
2. Numeric: uses numbers for evaluation
a) Financial assessment methods
b) Financial options and opportunity costs
c) Scoring methods
9/12/18

4
Nonnumeric Selection Methods
Sacred cow
§ The CEO or other executive senior may suggest a
potential product or
service that the organization might offer to
customers.
§ It becomes a “sacred cow”which will be shown
to be technically, if not
economically, feasible!
§ Whatever the selection process, the project will be
approved!
Operating/competitive necessity
§ This method selects any project that is
necessary for continued operation of
a group, facility, or the firm itself.
§ The company may invest in a new
product/service which is not profitable
but to be competitive and keep its share in
market!
Nonnumeric Selection Methods (Cont.)
Comparative benefits (Q-sort method)
§ You need to select projects from a list.
§ Based on the desired criteria, separate the
projects into three subsets; good,
fair, poor.
§ If there are more than 7 or 8 members in a

subset, divide the group into two
subsets; e.g., “good-plus” and “good-minus”.
§ Continue subdividing until no set has more than 7
or 8 members.
§ Rank-order the items in each subset
§ Arrange the subsets in order of rank, and the
entire list will be in order.
9/12/18
5
Nonnumeric Selection Methods (Cont.)
Original deck
18 Projects
Good level
13
Poor level
5
High Good
9
Low Good
4
High Good
plus 4
High Good

minus 5
Rank members in each subset.
Arrange the subsets.
Numeric Selection Methods
§ Most firms select projects on the basis of
their expected economic
value to the firm.
§ We discuss the most widely used methods:
1. Payback period
2. Discounted cash flow
3. Real Option analysis
4. Scoring methods
9/12/18
6
Payback Period
§ The initial fixed investment in the project
divided by the estimated annual
net cash inflows from the project.
§ A project requires an investment of $100,000.
§ It is expected that the project returns a net
cash inflow of $25,000 each year.
§ What is the payback period?
§ The payback period is often considered a
measure of risk to the firm.

§ The longer the payback period, the greater
the risk!
Payback period =
��
��
= ��,��
��,��
Discounted Cash Flow
§ What is the drawbacks of the payback period
method?
1. It ignores the time value of money
2. It ignores any returns beyond the payback period
§ The discounted cash flow method considers
§ The time value of money
§ The inflation rate
§ The firm’s return-on-investment
§ The annual cash inflows and outflows are
collected and discounted to
their net present value (NPV) using the
organization’s rate of return
9/12/18
7
Cash Flow:
The difference between cash received from sales and other

sources, and
cash outflow for labor, material, overhead, and taxes.
Present Value:
The sum, in current value, of all future cash
flows of an investment
proposal.
Ø The current value is calculated based on a
given interest rate (discount
rate)
� = � � = � � = � � = �
REVENUE
COST
What’s the value of project
at time � = �?
Time Value of Money
9/12/18
8
The basicformula:
Ft = Cash Flow received t periods later in the
future

k = rate of return
pt = inflation rate for period t
Vt = Net Present Value (Worth) of the cash flow
�@ =
�@
1 + � + �@ @
Discounted Cash Flow (DCF)
where
�G = The initial investment
�@ = The net cash flow in period �
� = The required rate of return
�@ = Rate of inflation for period �
�� = −�� + P
��
� + � + ��
�
�U�
9/12/18
9

Ø Orang, Inc. is considering two different projects
with different initial
investments and future inflows.
Ø Based on discounted cash flow analysis, which
project is preferred.
DCF Analysis for Multiple Investments
The rate of return k = 8%, and inflation rate p
= 2%
Cash Flows
YEAR Project A Project B
0 - $20,000 - $30,000
1 $10,000 $15,000
2 $10,000 $15,000
3 $10,000 $15,000
� = � � = � � = �� = �
��
��
20K
10K 10K 10K
30K
15K 15K 15K

9/12/18
10
Decision ➨CHOOSE B
8.7302
)1.01(
15000
)1.01(
15000
)1.01(
15000
30000
5.4868
)1.01(
10000
)1.01(
10000
)1.01(
10000
20000

32
32
1
1
=
+
+
+
+
+
+-=
=
+
+
+
+
+
+-=
PVB
PVA
PVB

§ PsychoCeramic, Inc. is a large producer of pots
and other fragile items.
§ The firm is considering the installation of a
new manufacturing line
that will allow more precise quality control on
the size and shape.
§ The plant engineering department has submitted
the project proposal
that estimates the following investment requirements:
§ Initial investment of $125,000 at the beginning of
2016
§ Additional investment of $100,000 to install
the machines at the end of 2016
§ Another $90,000 to add new material handling system
at the end of 2017
§ Maintenance expenditures about $15,000 every
second year starting from
2019
9/12/18
11
§ Projected manufacturing savings and added profits
resulting from
higher quality are estimated to be $50,000 in

the first year of operation
(which is 2018), and to peak at $120,000 in
the second year of
operation.
§ The machinery will have a salvage value of
$35,000 after 10 years; the
project life.
§ It then follows a gradually declining pattern
presented below.
2018 2019 2020 2021 2022 2023 2024 2025
50,000 120,000 115,000 105,000 97,000 90,000 82,000 65,000
35,000
9/12/18
12
Ø Future cash flows associated with the investments
can be estimated with high degree of certainty
Ø The rate of return does not change over time
Ø When there is high uncertainty (e.g. with the future
demand) other methods should be used - such as
real options.
Assumption of the Discounted Cash Flow Method

Opportunities arise in the future because…
Ø DCF does not take into account opportunities or
uncertainties in the future.
Ø Market uncertainties unfold in the future:
ü Demand forecasts improve
ü Economic risks realize (e.g. inflation, currency
changes, etc.)
ü Competitors’ decisions are observed
ü Customers’ needs are assessed, etc.
Ø Operational / Technical uncertainties unfold
ü Product or Service designs improve
ü Costs decrease as firm move on learning curve
ü Bugs or technical problems are solved, etc.
9/12/18
13
Real Options Analysis – Motivation
Ø Firm can react to opportunities in the future:
ü The opportunity to invest in the expansion of
a firm's factory after having more accurate
demand forecast.
ü The new market development in future after
some market uncertainties resolved.
Ø Real Option Analysis enables us to consider

the
impact of future opportunities in our current
decisions.
Ø Bell is planning to introduce VIDEO-ON-DEMAND
in major
metropolitan areasin Canada.
Ø This is a highly uncertain market.
Ø Launching in Toronto: Launching in Toronto
requires an
investment of $1 Million/year for 2 years.
Ø Revenue from Toronto market is $2 Million
(which will
come in the second year)
Real Options Analysis – Bell (Cont.)
9/12/18
14
Ø Two years later, the market uncertainty
will be resolved.
Ø There are two outcomes:
ü Excellent scenario
ü Poor scenario
Ø Expansion to other metropolitan Areas:
ü Expansion requires an investment of $3
Million/year for 2 years

ü After 2 years, in third year, expected revenue
will be $5 Million. It can
go up or down by 50% depending the scenario as
follows:
ü If excellent => Revenue increases by 50% (i.e., revenue
= $7.5 m)
ü If poor => Revenue decreases by 50% (i.e., revenue =
$2.5 m)
Toronto Phase Expansion Phase
Year 2015 2016 2017 2018 2019
Investment
Revenue
Bell is planning to introduce VIDEO-ON-DEMAND in
major
metropolitan areasin Canada. This is a highly
uncertain
market.
Launching in
Toronto
Market
Uncertainty
resolves
Expansion to other
metropolitan

Areas
$1 M $1 M
$2 M
$3 M $3 M
$7.5 M if Excellent
$2.5 M if Poor
9/12/18
15
Two Steps in Project Planning Analysis
STEP-1: Identification of Phases
Ø How many stages are there in the project
planning horizon?
Ø What type of uncertainties unfold?
Ø What type of decisions firm make?
STEP-2: Valuation
Ø How do we value decisions in the future?
Ø How do we carrytheir effects to the current
period?
Ø Why can’t we just use DCF?
Example: Oz Toys’ Capacity Planning Program
Ø Oz Toys’ management is considering

building a new plant to
exploit innovations in process technology.
Ø About three years out, the plant’s capacity may be
expanded
to allow Oz Toys’ entry into a new market
(2019-2022 =>
Expansion Phase).
Ø Hence, initial investment buys the right to expand
(or not) in
3 years (2016-2018 => New plant).
9/12/18
16
Example: Oz Toys’ Capacity Planning Program
DCF Analysis
Phase 1 2016 2017 2018 2019 2020 2021 2022
Revenue 21.2 25
Investment 145 12.2 15
Cash Flow -145 9 10
Discounted Cash Flow (@12%)
Revenue 11 57.8 61.8 678
Investment 382 23.1 24.3 26.7
Cash Flow -371 34.7 37.5 651.3
Revenue 21.2 25 11 57.8 61.8 678
Investment 145 12.2 15 382 23.1 24.3 26.7
Cash Flow -145 9 10 -371 34.7 37.5 651
à NPV (Total)

-145.00 8.04 7.97
-264.07 22.05 21.28 329.97
-145.00 8.04 7.97 -264.07 22.05 21.28 329.97
-19.81 => Based on DCF, not to invest in
whole project
A Fact: Expansion Phase Comes with Less
Uncertainty
Consider the following Phase-1 and Phase-2 Cash Flows.
Phase-1
Phase-2
Terminate
Terminate
Technical & Market
Uncertainties resolve
Phase 1-Cash Flows 2016 2017 2018 2019 2020 2021
2022
Revenue 21.2 25
Investment 145 12.2 15
Cash Flow -145 9 10
Phase 2-Cash Flows 2016 2017 2018 2019 2020 2021

2022
Revenue 11 57.8 61.8 678
Investment 382 23.1 24.3 26.7
Cash Flow -371 34.7 37.5 651.3
9/12/18
17
Need to Take into Account the Future Flexibility
Ø We need to recognize the flexibility in the second
phase:
ü DCF of Phase 2 will be calculated at the
time the decision will be
made.
ü Phase 2 will only be undertaken if it is
positive
Ø Valuing flexibility in the second phase requires a
different technique
ü A discretionary investment is similar to a
call option
ü Call option: Right (not obligation) to acquire
Ø Black-Scholes is often used to value these
options.
Future Business Opportunity and Call Option

Ø Characteristics of a business opportunity
can be mapped onto a
template of a call option.
Project
Total revenue / contribution margin for
discretionary phase S
Total investment for discretionary phase X
Length of time the discretionary phase may be
deferred T
Riskiness of Revenue of the discretionary
phase (usually measured per year) σ
Time value of money (interest rate) k
Black-Scholes Formula
Two numbers suffice
� =
�
�
� = �� ×�
A table that gives the Black-
Scholes’ call option value as
a fraction of S
9/12/18
18

Future Business Opportunity and Call Option
Ø The number “A” indicates discretionary phase’s
Profitability Index.
Ø The value of discretionary phase can go up
or down over time
Ø The magnitude of the total change (also known
as cumulative
volatility) is captured by “B”
Ø σ measures volatility or riskiness of project
Ø How to measure σ?
§ Use Monte Carlo simulation to simulate a
probability distribution for
the project’s returns
§ Gather historical data on returns in the same or
related industries
§ 20-30% per year is not remarkably high for a
single project.
Valuing Second Phase
Phase 2
Year
2000 2001 2002 2003 2004 2005 2006
Revenue 11 57.8 61.8 678
Discounted Revenue (@12%) 7.83 36.73 35.07 343.50
S à PV (Revenue) 423.13
Investment 382 23.1 24.3 26.7
Discounted Investment (@12%) 272 14.7 13.788 13.5
X à PV (Investment) 313.9
� =

�
�
=
��
��
= �.�� = �� ×� = �� ×�.� = �.��
9/12/18
19
Valuing Project based on Real Option Analysis
Black-Scholes Formula
Ø Rows: B
Ø Columns: A
Ø The option value of phase 2 is
(roughly)
Option Value (Phase 2) = 38% of S =
.38 x $423 M = $157 M
Ø The value of the expansion program is
PV (Phase 1) + Option Value (Phase 2) =
-129 + 157 = $28 M
1.20 1.25 1.30 à 1.35 1.40
0.55 29.2 31.0 32.8 34.5 36.1
0.60 30.9 32.6 34.3 35.9 37.5
0.65 32.6 34.2 35.8 37.4 38.9

à 0.70 34.2 35.8 37.3 38.8 40.3
0.75 35.9 37.4 38.9 40.3 41.7
Bell – Example
Ø Suppose Discounted Cash Flow is 15%.
Ø The payout can go up or down by 50%.
Ø What is the Video-On-Demand project valuation
for Bell?
Toronto Phase Expansion Phase
Year 2015 2016 2017 2018 2019
Investment
Revenue
$1 M $1 M
$2 M
$3 M $3 M
$5 M with
9/12/18
20
Bell – Example
Toronto phase Expansion phase
Scoring Method

Ø The project may be selected for funding based
on different criteria; not
necessarily financial profitability.
Ø You may need to list the multiple criteria of
significant interest to
management.
Ø A selection committee consisting of senior
managers weight each
criterion and check off which of the criteria is
satisfied.
Ø Those projects that exceed a certain number
ma be selected for
funding.
9/12/18
21
The Weighted Scoring Method
Ø The general mathematical form of the weighted
scoring method is
�� = P��
�
�U�
where

Si = The total score of the ith project
sij = The score of the ith project on the jth criterion
wj = The weight or importance of the jth criterion
Using a Weighted Scoring to Select Wheels
§ Suppose you you are about purchasing a car.
§ You have two primary criteria of equal
importance; cost and reliability.
§ You have limited budget and would like to
spend no more than $4,200.
§ Beyond these two criteria, you consider everything
else a “nicety” such
as comfort, appearance, etc., with half importance.
§ You can consider a set of scales for your
three criteria as follows
Criterion
Scores
1 2 3 4 5
Cost >$5,000 $4,000-$5,000 $3,000-$4,000 $2,000-$3,000
<$2,000
Reliability poor Mediocre Ok Good Great
Niceties None Few Some Many Lots
9/12/18
22

§ How to find the weights for different criteria?
§ Cost and reliability have the same importance
§ Nicety has half importance
§ Let Y indicates the weight for cost
� + � +
�
�
� = � ⇒ � = �.�
§ You have identified three possible cars to purchase:
1. Besty for $3,400 with mediocre reliability and fair
appearance and
design
2. Minicar for $4,100, good reliability, but needs
some body work
3. Old Japanese Import for $2,900.
Ø You need to score each of the cars on each of
the criteria, calculate
their weighted scores, and sum them to get a total.
Ø Therefore, it appears that the “Import” with a
total weighted score of
3.0 may best satisfy your need for basictransportation.
Criteria and Weights
Alternative Car Cost (0.4) Reliability (0.4) Niceties
(0.2) Total
Besty �×�.� = �.� �×�.� = �.� �×�.� = �.� 2.8
Minicar �×�.� = �.� �×�.� = �.� �×�.� = �.� 2.6

Import �×�.� = �.� �×�.� = �.� �×�.� = �.� 3.0
1/14/18
1
Project Management
Class – 1
Introduction
Scholastic and Harry Potter
Scholastic: an American publishing, education and media
company known
for publishing, selling, and distributing books
and educational materials for
schools, teachers, parents, and children.
Ø Founded in 1920, with $1.9 billion in
revenues in 2011
Ø With offices in 16 countries around the globe
Worldwide release of Harry Potter and the
Deathly Hallows
Ø In early 2007
Ø Upon the author finished writing of the book,
Scholastic’s printers
should arrange to make sure that the book would
be ready by the
release date!

1/14/18
2
Ø The timing was tricky for Scholastic to ship
copies simultaneously
around the globe to minimize the risk of
someone leaking the
book’s ending!
Ø To save time, Scholastic bypassed its warehousing
Ø Shipping directly from printers to big retailers
like Amazon.com
Ø GPS transponders were used to alert Scholastic by e-
mail if the
driver veered off the designated route
Ø Close to 90% of sales of such special books
occur in the first week!
Ø Think about customizing and coordination of all
operations and
supply chain processes across multiple partners:
Ø Printing
Ø Distribution
Ø Retailing
Ø The goal:
To ensure that the last book in the Harry Potter

series reached the
final customers no more than a few hours before
July 21, 12:01 A.M.
(release deadline)
Ø Scholastic did a great job; transported 12 million
copies in a short
time window
1/14/18
3
Learning Objectives
Ø What is a Project and Project Management?
Ø Different types of projects
Ø Project management vs. general management
Ø Project Success and Failure
Ø Statement of Work
What is a project?
Interrelated set of activities with a definite
start and end point, which results in a unique
outcome for a specific allocation of resources.
PMI defines “A project is a temporary endeavor
undertaken to create a unique product or

service”
Business projects:
Ø Building a stadium
Ø Creating advertising campaigns
Ø Developing new service/product
Projects in everyday life:
Ø Planning wedding
Ø Remodeling bathroom
Ø Writing a scientific paper
1/14/18
4
What is PMI?
Worldwide organization for the promotion of Project
Management
Ø Over 700,000 members, credential holders and
volunteers in 195 countries
around the world
Ø Maintains and administers Project Management
Professional (PMP®), Certified
Associate in Project Management (CAPM®) and 6
other certifications
Ø The PMI provides services including the development
of standards, research,
education, publication, networking-opportunities in
local chapters, hosting

conferences and training seminars in project
management.
Southern Ontario Chapter (SOC)
Ø More than 4,500 members
Ø Dinner meetings, breakfast meetings, Continuing Ed,
etc.
Ø www.soc.pmi.on.ca
Defining Project Management
According to PMI:
“The application of
knowledge, skills, tools, and
techniques to a broad range
of activities in order to
meet the requirements of a
particular project”
1/14/18
5
Types of Projects
Computer-related Projects
Computer related hardware and software projects
Ø Computer hardware related projects include
§ Computer assembling projects
§ Video related projects

§ Web services projects
§ Data center projects
Ø Computer software projects include
§ System software projects
§ Programming software projects
Types of Projects
Healthcare
Ø Projects focus on improving patient care and
service delivery while
increasing innovation and efficiency:
§ Adding a new ICU intensive care unit to a
hospital
§ Removing an old equipment and installing a
new one
Ø Healthcare projects are complex in nature because
stakeholders include:
§ Doctors, Pharmaceutical and Insurance companies
§ Payers: Individuals, businesses, government
organizations
§ Hospitals, delivery networks, and individual clinics
Ø One of recent challenges is adopting
advanced technology
1/14/18
6

Types of Projects
New Product Development
Ø Firms use new product development process as
the first stage in
generating and commercializing new products to
maintain or grow
their market share.
Ø The project manager’s task is to coordinate
deployment of a product
or new releases, coordinate testing of such new
products and
releases, and coordinate pilots with potential product
users.
Ø Priority of development objectives, planned timing,
sequence of
development activities, major project milestones
and prototypes are
mechanisms for coordination among team members.
Ø Four years after the introduction of Xbox,
Microsoft needed
to quickly design, develop, and produce a new
product.
Ø Sony’s PlayStation 2 was dominating the video
game market.
Ø Microsoft needed a new product to compete
with the
impending release of PlayStation 3.
Ø Developing such a product (Xbox 360) is a

project of massive
proportions!
Managing Effective Projects: XBOX 360
1/14/18
7
The project consisted of four phases:
1. Design: Collaborative effort between Microsoft and
many other firms
including
Ø IBM for processor chips design
Ø Astro Studios for console and controller design
Ø ATI for graphics chip
2. Analysis: Getting an estimate of future sales for a
new product
Ø Historical patterns for PS1, PS2 and Xbox
3. Development: Capacity planning decisions need closely
work with other
firms
Ø Flextronics; Wistron
Ø Once initial production began, Microsoft added
Celectica to increase production
capacity (first-mover advantage comparing to PS3)
Ø 10,000 workers in china were involved in
production

4. Launch: Gained an early lead in terms of market
share due to launching
one year ahead of PS3
Ø Xbox 360 was released in 36 countries in the
first year
Ø Sales exceeded expectations; 10 million units in
the first year!
1/14/18
8
Types of Projects
Construction
Ø Small (home) to Large (Airports)
Ø Construction projects are often time-consuming.
Ø Require several phases and may involve:
§ Financial organizations
§ Government agencies
§ Engineers and architects
§ Insurance companies
§ Attorneys
§ Contractors, material suppliers, and builders.
Construction Projects Failure
Ø The planned 150-story Chicago Spire
§ Would have been 2,000 feet tall to rank as the
tallest tower in west was

supposed to be finished by 2012.
§ Luxury condominiums priced between $75,000 to
$40 million
§ After digging 76-foot-deep hole, the project stopped
in 2009 due to credit
crisis for construction projects worldwide
Ø Work was stopped on the kilometer-tall Nakheel
Tower in Dubai (a
$75 billion worth project) because the contractors
complain of not
being paid.
1/14/18
9
Comparison of Project Management and General
Management
Ø The knowledge to manage general business
functions (production
manager, marketing manager, sales manager, …) is not
enough to
manage projects!
Dimension Project Management General Management
Type of work activity Unique Routine
Management Approach Ability to adopt to change
Manage by exception
Planning Critical Important

Budgeting Start from Scratch
Multiple budget periods
Modify budget from
previous budget period
Sequence of Activities Must be determined Often
predetermined
Location of Work Crosses organizational units Within an
organization unit
Managerial Hierarchy Informal Well defined
The Life Cycle of Projects
Ø All organisms have a life cycle, they are
born, grow, wane, and die
§ So do projects
Ø Some projects follow an S-shaped curve
§ They start slowly, develop
momentum, and then finish slowly
Ø Other project follow a J-shaped curve
§ They start slowly , proceed slowly,
and then finish rapidly
1/14/18
10
How to Measure Project Success?

§ You want to renovate the basement during summer
holidays!
§ Is it a project?
§ What makes you feel satisfied at the end of
the project?
Sydney Opera House
Ø The world's biggest planning disaster
Ø Initial budget estimation $7 million
Ø Opera House ended up costing more
than $100 million
Ø 1400 percent blowout; makes it the
most expensive cost blowout in the
history of megaprojects
Ø It took more than a decade to
construct
Failure in Cost
1/14/18
11
What is “The Big O”?
Ø For the 1976 Summer Olympic Games
Ø For the games it was only half built!
Ø Initial cost evaluation: $134 million
Ø Total cost (at the time of games begin): $264

million
Ø In Nov. 2006, the cost is finally paid in full:
$1.61
billion
Ø The second most expensive stadium ever built
(after Wembley Stadium in London)
Ø “The Big Owe” or “The big Mistake”
Failure in Time
Channel Tunnel
Ø A 31 mile tunnel running underneath the
English Channel between the UK and France
Ø Construction of the tunnel started in 1988
Ø Project took approximately 20% longer than
planned (at 6 years vs. 5 years)
Ø It came in 80% over-budget (at 4.6 billion
pounds vs. a 2.6 billion pound forecast)
Ø Poor initial design and changed specifications
Ø Miscommunication between French and
English teams
Failure in Design
1/14/18
12

Project Management Triangle
Ø The Project Management Triangle is
the traditional means of measuring
project success with the project
manger balancing between three key
constraints usually with defined
tolerances:
§ Time: the time to complete the project
§ Cost: the budget available
§ Scope: the scope and quality of final
deliverable
Balancing Project Constraints
Resources
Risk
Customer
Satisfaction
Scope
Quality
Stakeholder
Schedule
Budget
1/14/18

13
Project Failure Factors
Ø Project success dealswith the impacts of a
project’s final product on
stakeholders.
Ø The following factors may lead to overall project
failure:
§ Contracts and legal agreements
§ Politics and conflicts
§ Decreased Profitability
§ Unrealistic goals
§ Competitive disadvantage
§ Client dissatisfaction
Six Factors of Project Success
Impact of six factors on project success
Factors Impacts
Scope Increase in scope can lead to increased time,
increased cost, better
or worse performance, increase in resources, and
increase or
decrease in value
Time Tight time constraint can lead to increased cost,
reduced scope,
reduced performance, increase in resources, and reduced
value
Cost Tight budget constraint can lead to increased
time, reduced scope,

reduced performance, increase or decrease in
resources, and
reduced value
as Prentice Hall
1/14/18
14
Six Factors of Project Success
Impact of six factors on project success
Factors Impacts
Resources Unskilled, less, faulty, bad quality
resources lead to increased
time, reduced performance, reduced value, higher
costs, and
short of scope
Performance Stringent performance measures can lead to
increased time,
increased scope, increased cost, increase or decrease in
resources, and increase or decrease in value
Value Expected value measures can lead to
increased scope, increased
time, increased cost, demand for better resources, and
better or
worse performance

as Prentice Hall
Initial Project Proposals
Ø Where the idea of a project come from?
§ Simply in response to customer order (project-
oriented firm)
§ Can be proposed by an employee as a
suggestion
§ By a department in response to a problem at
hand
§ By R&D department as a future product
§ As a strategic intent from the strategy plan of
the organization
§ It should be prepared as project proposal with
Statement of Work
(SOW) document that indicates
§ Perceived benefits by year
§ Estimated budgets needed by year
§ High-level schedule
1/14/18
15
Statement of Work (SOW)
Ø SOW describes the work to be done in detail
and will be used in
project charter in the future and in all project
documents.

Ø SOW should be clear, concise, and complete.
Ø SOW needs to provide the organization
Ø A list of equipment or materials necessary to
implement the project
Ø Start and end dates of the project
Ø Schedules
Ø Any applicable standards
Ø Acceptance criteria
Statement of Work (SOW) – Example
Ø Company XYZ, Inc.
Ø Project Proposal for a new product development
laboratory
§ Statement of Work
A new product development laboratory (PDL) is
proposed. The PDL will be
located in building A200 inside the R&D campus
of company XYZ, Inc. A diverse
team of professionals from Material Management,
Research and Development,
Marketing, and Information Systems will design
and test new technology
products in the new laboratory.
§ Business Rationale
The new lab will house new equipment that will
help us to develop a strategic
change in existing materials that can result in
major cost savings. This project
might be the difference between future market
success and failure.
1/14/18

16
§ Equipment
1. Data Acquisition System (DAS) capable of
sampling 172 channels
2. Computer systems capable of receiving sensor
data from DAS
3. Software to analyze data received from DAS
4. Desks and chairs
5. Client computers (4) + printers
§ Benefits
Year 0 Year 1 Year 2 Year 3 Year 4 Total
Revenues from
new products
$0 $1,000,000 $4,500,000 $7,500,000 $10,000,000 $23,000,000
Total benefits $0 $1,000,000 $4,500,000 $7,500,000
$10,000,000 $23,000,000
§ Cost
§ Schedule: Initial product design has started
already. The laboratory needs to be in
place as soon as possible.
§ Acceptance Criteria
o The size of the lab should be at least 2,000
ft2

o The reliability of the installed equipment should
be at least 850 hours
o The new equipment should be able to
measure the hardness of Aluminum by 1
inch thickness
Year 0 Year 1 Year 2 Year 3 Year 4 Total
Renovations of
building
$3,000,000 $0 $0 $0 $0 $3,000,000
Equipment and IT $0 $6,000,000 $0 $0 $0 $6,000,000
Maintenance $0 $1,000,000 $0 $4,000,000 $500,000 $5,500,000
Total Costs $3,000,000 $7,000,000 $0 $4,000,000 $500,000
$14,500,000
1/14/18
17
Group Project – Statement of Work
§ Your team is responsible for preparing a project
management plan for
written submission (Final Report).
§ You can start working on your project by
preparing the Statement of
Work.
§ The final report should include the statement of
work.
§ It is strongly recommended to

§ Start forming your team
§ Choose your project
§ Work on deliverables each weekbased on the
theory discussed in the class
Next Week
Class 2 Project Selection
Ø Sections 1.5, 1.6, 1.7
Assignment 1 – Project Statement of Work due in
2 weeks
Ø Start forming your groups
<<Project Name>>
<<Project Name>>
Team Name:
Course: GMS450-011
Date Submitted:
Note:
Please modify the cover page, headers and footer to reflect your
project and team.

Contents
1 Project Charter 3
1.1 Purpose 3
1.2 Objectives 3
1.3 Schedule 3
1.4 Resource Requirements 3
1.5 Stakeholders 3
1.6 Risks 3
1.7 Evaluation Methods 3
2 Scope Statement and WBS 4
2.1 Project Scope Statement 4
2.2 Work Breakdown Structure (WBS) 4
3 Gantt Chart and Milestone Schedule 5
3.1 Gantt Chart 5
3.2 Milestone Schedule 5
4 Project Budget 6
4.1 S-Curve 6
4.2 Supporting estimates 6
5 Risk Assessment 7
5.1 Risk Management Plan 7
5.1.1 Risk Threshold 7
5.1.2 Risk scoring 7
5.1.3 Risk Prioritization 7
5.1.4 Resources 7
5.1.5 Categories 7
5.1.6 Risk Register Template 7
5.2 Risk Assessment 7
5.2.1 Risk Identification 7
5.2.2 Qualitative Analysis 8
5.2.3 Quantitative Analysis 8
5.2.4 Risk Response 8
5.2.5 Risk Register 9
Version Control 10
1 Project Charter1.1 Purpose
What is the organizational strategic objective the project is
meant to achieve?

· What are the high-level project description and boundaries?
· What is the business rationale for the project?1.2 Objectives
What is the organizational strategic objective the project is
meant to achieve?
· What is the justification?
· What are the high-level requirements?1.3 Schedule
When will things be done?
· What is the milestone schedule? (A maximum of 12
milestones)
· What is the completion time of the project?1.4 Resource
Requirements
How much money is required?
Which kind, and how many, of equipment, materials, and labor
is required?
· What is the summary budget?
· What are the budget constraints?1.5 Stakeholders
Who is involved in the project?
· Who are the key stakeholders for the project?
· Who is the assigned project manager, responsibility, and
authority level?
· Who are the project sponsor and other persons involved in
authorizing the project charter?1.6 Risks
What are the major project (not business) risks? Project risks
are those events that impact the project objectives, the measure
of success, typically on time, on budget, and on scope.
· What are the high-level risks?
· What is the risk appetite of the organization?1.7 Evaluation
Methods
What is success for the project and how will it be measured?
· What are the measurable project objectives and related success
criteria?
· What are the project approval requirements (i.e. what
constitutes project success, who decides the project is
successful, and who signs off on the project)?2 Scope Statement
and WBS2.1 Project Scope Statement
The project scope statement defines the project, i.e., what needs

to be done? It addresses and documents the characteristics and
boundaries of the project and its products and services and
outlines methods of acceptance and scope control. The project
scope statement must be clear as it forms the basis upon which
decisions will be made throughout the project lifecycle. It
provides a common understanding of project scope for all the
stakeholders and undergoes refinement as changes are approved
and are integrated into the scope of the project.
The project scope statement includes the following information:
1. Detail Product scope description
· What are the project and product aiming to achieve?
· What are the characteristics of the product or service
described in the project charter?
· What are the quantifiable criteria that must be met for the
project to be considered successful? Note that objectives should
include cost, schedule, and quality measures that are
quantifiable. Quantifiable metrics are more easily attained than
unquantifiable objectives.
2. Product acceptance criteria
· What checklist will the client use to check if requirements
have been fulfilled to their satisfaction?
3. Project requirements and deliverables
· List and description the major deliverables of the project
whose full and satisfactory delivery would mark the completion
of the project. This should be focused on project deliverables
that would be at level 2 of the WBS.
4. Project exclusions
· What is in and out of scope?
· Exclusions should be listed because anything not explicitly
included is implicitly excluded.
5. Project constraints and assumptions
The WBS should be in the tree hierarchy format shown in
Module 4 and contain a between 40 to 50 boxes which include
between 20 and 30 work packages that fits on one page. Some

of the branches, but not all should go down 4 levels (0, 1, 2, 3),
where Level 0 is the Project box. The boxes should contain the
WBS Number and title.3 Gantt Chart and Milestone Schedule3.1
Gantt Chart
Prepare a Gantt chart, as described in Module 5, using the WBS
from section 2.2. For this project, there is no need to break the
work packages in the WBS into activities. The Gantt chart
should contain the same number of rows as the WBS. The
following information should be on the Gantt chart:
· WBS Number
· Description
· Start date
· End date
· Predecessors
· Assigned resources
· The critical path
The Gantt chart can be done using MS Project or Excel. The
timeline should be adjusted so the Gantt chart is only one page
wide.
The milestone schedule contains a maximum of 12 milestones
and the due date for each milestone.
4 Project Budget4.1 S-Curve
Prepare the project budget and display it as a S-Curve, as
discussed in Module 6. Refer to 4.2 for more details on how to
prepare the S-Curve.
Show the supporting information that was used to create the
project budget. As a minimum, this should include 2 tables. The
first showing for each work package the development of the
estimate (usually quantity multiplied by the rate). The second
table showing the estimate for each work package (e.g., level 1
or level 2 activities) spread across the time period for the
project (the S-Curve is taken from the total of the columns of
this table). Remember the S-Curve is a cumulative graph

Sample Table 1 Work Package Estimates
Work Package
Quantity
Rate
Costs
Fixed Costs
Total
Work Package A
Total A
Total
Project Total
Sample Table 2 Work Package Time Profile
Work Package

Period 1
Period 2
Period n
Total
Work Package A
Total A
Total
Project Total
Cumulative Total
Period 1
Period 1 + Period 2

Note
1. Total from Table 1 equals Total from Table 2
2. Project Total from Table 1 equals Project Total from Table
25 Risk Assessment5.1 Risk Management Plan
This Risk management plan describes how risks will be
assessed, managed, and control for your project. It is a process
document and does not list risk events. For this project the risk
management plan should answer the following questions:5.1.1
Risk Threshold
What is the risk threshold in qualitative analysis that will
determine which risks will be subjected to quantitative
analysis?5.1.2 Risk scoring
What scoring and interpretation methods will be used for the
type of qualitative and quantitative risk analysis being
performed? (See Module 9)5.1.3 Risk Prioritization
How are risks prioritized according to their potential
implications for meeting project objectives? (See Module
9)5.1.4 Resources
Who will lead, support and make up the risk management team
for each type of action in the risk management plan? Will these
people be from within the performing organization or
independent of it?5.1.5 Categories
What are the risk categories that will be used for the project?
(find an example in slides of Module 9)5.1.6 Risk Register
Template
Below is a sample risk register template. The risk register
template should be blank, it is just a template that is used
during the risk assessment.
Id
Risk
Description
Prob.
Impact
Score
Response
Revised Prob.

Revised Impact
Revised Score
Status

5.2 Risk Assessment
A complete risk assessment needs to be done for the project
resulting in a complete risk register as described in Module
9.5.2.1 Risk Identification
Complete the table below, for 10 risk events
Id
Risk
Description
Type
Category
Probability
Impact
[Sequence number]
[Risk title]
[Brief description of the risk event[
[Opportunity or Threat]
[Based on section 5.1.5]
[A description of the probability of the risk occurring]
[A description of the impact of the risk]

5.2.2 Qualitative Analysis
Complete the table below with the risks sorted by risk score,
highest first.
Id
Risk
Probability
Impact
Score
[Sequence number]
[Risk title]
[As per section 5.1.2]
[Probability x Impact]

5.2.3 Quantitative Analysis
Complete a quantitative analysis for one risk that is above the
risk threshold. The quantitative analysis can be done using an
of the tools discussed in class. Possible options are:

· Determine the impact of dollars of one of the risk events
through simulation using Crystal Ball as described in Chapter
4.5 of the text book. To do this you will have to pick a risk
event that impacts a number of work packages.
· Use expected monetary value to come up with the risk value
for a risk event
· Run a simulation
5.2.4 Risk Response
Complete the table below, for 10 risk events
Id
Risk
Response
Revised Prob.
Revised Impact
Revised Score
[Sequence number]
[Risk title]
[Opportunity: Exploit, Share, Enhance, Accept
Threat: Avoid, Transfer, Mitigate, Accept]
[Revised Probability x Revised Impact]

Remember all risk events with a risk score less than the risk
threshold for the project should be accepted.5.2.5 Risk Register
Complete the risk register template that was described in
section 5.1.6, by using the results in sections 5.2.1, 5.2.2, 5.2.3,
and 5.2.4.Version Control
Version
Date
Author
Change
<<Team name>> 7
Statement of Work: Event Planning Expansion Project
Statement of Work: Event Planning Expansion Project

1 Statement of Work1.1 Description
Salud is an event planning business that intends to
specialize in wedding planning to expand our client base. Two
primary deliverables of this project are to fulfill a client’s
personal criteria for an “ideal wedding” and to execute it in an
organized and timely manner. It is also fundamental that we are
able to stay within our projected budget. By integrating a
milestone schedule, we can assure that our deliverables are
completed and reported to the client in a timely manner. This
will ensure that they are updated regularly and will enable the
internal staff to comprehend the status of the project.
After acquiring the necessary resources, the next step requires
reservations with third-party vendors - this can occur in a 30-
day time frame. The company would implement a review panel
of all potential vendors to finalize an appropriate vendor that
meets the needs of the client. When a milestone has been met,
our client would be notified immediately. An example of this
process is shown in figure 2.4 where the time frame of October
1 to October 5, 2018, entails confirmation that the client has
decided on a particular vendor and the release of funds required
to reserve the vendor. This coordination enables us to reduce
risk, increase resource coordination, and reduce costs. In
addition, this will minimize process loss; more individuals
assigned to a task will equate to a larger effort exerted and
higher costs to complete a project task. Reducing inefficiencies
are fundamental to reduce cost and increase the overall profit.

In brief, the deliverables for the following project include an
initial project proposal, task delegations, resource acquisitions,
vendor reservations, and project finalization. 1.2 Business
Rationale
A wedding is a ceremony to celebrate the union of two
individuals in a legal and spiritual manner. Recent studies
demonstrate that the average cost of a wedding in North
America is approximately $30,000 (Riley, 2008). One-third of
the costs are associated with the venue, which is a significant
indicator of the costs of the goods and services required to host
a wedding. This also demonstrates the attractiveness of current
industry trends. Salud’s predisposition implements a cost-saving
strategy in multiple dimensions including the venue, services,
and wedding products (decorations, props, etc.) in bulk as we
have existing suppliers and partnerships. This new market we
intend to capture will increase Salud’s overall market share by a
projected 10% which will allow us to segue into planning other
event types. The overall diversification of our portfolio will
positively impact shareholder morale and increase our stock
valuation, thus increasing company value. For this project to be
successful, we are anticipating approximately a 40% profit
margin juxtaposed to industry competitors that earn 15%
(Francis, 2015). This is due to our ability to leverage our pre -
existing position, and our project will increase both overall
market share and operating profit significantl y. Overall, the
financial plan strategically positions us to adapt swiftly to the
ever-changing market demands.
Salud has a longstanding relationships with its vendor, Fairmont
Hotels, as it has been the venue of choice for previously
planned weddings. Fairmont hotel is established in twenty-four
countries; we have chosen Hawaii as a target destination as it
focuses on one specific target market where we can execute
deliverables efficiently. The deliverables include providing the
clients with a comfortable place to stay within the hotel. Third
party catering, cosmetic, photography, floral, and printing
services will be required to meet the clients personal

expectations, while maintaining the creative component of the
event.1.3 Resources
The amount of money required to complete this project is
approximately $20,800.00 (refer to summary budget in figure
1.3). This budget was created to cover the costs of the initial
business plan and process of the project. This budget includes
wage expenses for the following staff: research and
development, legal department, marketing department, event
planners, marketers, and vendors. Every booking requires
percentages of the profit to be given to our partners, per
contracts; partners include: Fairmont Hotel, a catering service,
makeup/hair services, photography/videographer services, DJ
music service, invitations (printing service company), floral
company, and officiant services. Budget constraints faced
during this project can be a change in service fees provided by
our partners. If their rates rise, the percentage of profit that
belongs to the partner company will also increase. Last minute
cancellations are also difficult to take into consideration when
forming a budget. Financial precautions can be taken to best
avoid this, such as including a statement in the contract which
requires cancellation fees to cover additional costs.
In reference to deliverables in 2.1, the resources that would
entail more financial investment from the budget would include
labour and equipment. Leading to cost of labour, the projected
expenses of an estimated $15,000 to $20,000 would include the
cost of the venue, event planning staff, in addition to the
reservations of catering, videographer and photographer,
entertainment.
To elaborate, catering service costs will cover the food,
beverages, and staffing; for our wedding planning, we will offer
cocktail-style plating for the reception and a formal plated style
for the dinner. The average cost of the catering services is
approximately $4000, according to Wedding Wire. However, the
destination wedding package offered in Hawaii will require
higher food costs based on the location and level of plating; the
average cost per guest is $312. Catering expenses vary

depending on the client’s tastes and preferences in terms of
style and quality.
Photography and videography services will average about $5000
based on the package; the company will offer additional
services such as photo albums, editing, staffing, and premium
prints. Travel costs will be considered extra expenses for the
client. In addition, the company should have a direct connection
with a printing service which individually caters to the needs of
all clients. The DJ music service will not be a large expense for
the wedding, as the average cost often ranges from $1000 to
$1500. This expense will cover the cost of equipment, music,
service, lighting, and operational costs. The floral company
would offer packages including the bouquet, labor and
production, flower processing, and delivery. This is
approximately 10% of the wedding budget, although certain
types of flowers will require higher flower arrangement
expense. The average cost of the floral services is $1400. In
terms of officiant services, typically clients will prefer
experienced ministers, which is an estimated $200 to $500.
However, this expense can increase if clients request custom
ceremony scripts or wedding rehearsals prior to the wedding
day.
Some budget constraints include what the client has estimated
for their ideal wedding event, which should incorporate all the
essential, including the services our business offered.
Furthermore there will be opportunities where vendors meet the
needs of client however will not be in consideration in the event
their services are outside the projected budget spending. This
will require additional time to explore options available as
mentioned on the milestone schedule in figure 2.3, yet to
summarize the primary budget constraint will be influenced by
the projected budget agreed upon by the client.
Budget Categories
Budget Amount

Stationery (Invitations, thank you notes)
$600.00
Entertainment
$1300.00
Cosmetics and Florist
$1900.00
Attire Purchases (groom and bride apparel, accessories)
$3000.00
Venue Reservation
$5000.00
Photography Services (includes Videographer)
$4000.00
Events management staff
$5000.00
Total
$20,800.00
Project Milestone Schedule
Initial proposal (outlines budget available for project and
objectives towards project accomplishment)
Start date: September 14, 2018
End date: September 19, 2018
Initial team meeting for task delegations
Consolidate necessary resources for project implementation
(communicate with professional event planners, marketers,
quality control, and vendors)
Acquire vital reservations with other third parties (venue,

catering, makeup, photographer, DJ, and floral services)
Secondary team meeting for progress check-in and projected
budget spending
End date: October 1, 2018
All necessities for project completion have been completed
prior to project implementation
Start date: October 1, 2018
Project implementation
Start date: October 5, 2018
1.5 Acceptance Criteria
Acceptance Criterion
Venue
Criteria:
· Capacity must not exceed the amount of expected guests
· Must include the on-site services included in the projected
budget (such as catering, DJ staff, photographers, etc)
· Accessible for majority of guests
· Supply a team of staff for venue decoration and receive client
approval 7 days prior to event day
· Cost should be within the projected budget
Catering Services

Criteria:
· Must accommodate to the volume of guests at the venue of
choice, offers variety of meal options which include guests with
dietary restrictions
· Should provide a final menu of catering options for client
approval
· Cost should be within projected budget
Cosmetic services
Criteria:
· Must be willing to travel to guests’ desired destination
· Offer a cosmetic specialist who resides in the local area of the
venue or within close proximity of guests
Photography/Videography services
Criteria:
· Able to travel to meet the client’s needs with photography
coverage
· Must be present at the event for photography coverage
· Acquire additional staff for both services
· Should provide a portfolio of past professional experience
DJ music services
Criteria:
· Must provide sample of past professional experience for client
approval
· Comply with client’s request for music
· Must be willing to travel to the event and provide their own

DJ equipment
· Should have their own technical support staff on site in the
event of any malfunctions
Printing services
Criteria:
· Should be able to print invitations in bulk by an expected
deadline
· Provide samples of previous invitations or offer custom
invitations at a reasonable price per bulk order
Floral services
Criteria:
· Provide list of available floral sets
· Supply custom orders for client based on their taste and
preferences
· Provide samples of past professional experience to meet
client’s needs
NTC Consulting Group 2

2018-11-141Project ManagementClass – 10Project Q

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2018-11-141Project ManagementClass – 10Project Q