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PROJECT MANAGEMENT
Project management is the discipline of planning, organizing, and
managing resources to bring about the successful completion of
specific project goals and objectives.
It is often closely related to and sometimes adjunct with program
management.
A project is a temporary endeavor, having a defined beginning and
end (usually constrained by date, but can be by funding or
deliverables), undertaken to meet particular goals and objectives,
usually to bring about beneficial change or added value.
The primary challenge of project management is to achieve all of the
project goals and objectives while honoring the predetermined project
constraints.
Typical constraints are scope, time, and budget. The secondary—and
more striving —challenge is to optimize the allocation and integration
of inputs necessary to meet pre-defined objectives.
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Project Management Office
The Project Management Office (PMO) in a business or professional
enterprise is the department or group that defines and maintains the
standards of process, generally related to project management, within
the organization.
The PMO is the source of documentation, guidance and metrics on
the practice of project management and execution.
A PMO can be one of three types from an organizational exposure
perspective:
1. enterprise PMO,
2. organizational (departmental) PMO, or
3. special–purpose PMO.
Role of a Project Manager
These three main responsibilities of a project manager are:
1. planning,
2. organizing, and
3. controlling.
Performing these responsibilities requires many skills. Some of these
necessary skills will be outlined.
1. Planning
The planning function includes defining the project objective and
developing a plan to accomplish the objective.
Working with the sponsor is beneficial in many ways. For example,
the sponsor is the person responsible for the resultant project and
thus has a stake in the success of the project.
The project manager must also develop a plan to accomplish the
objective.
The project manager should include project team members in this
phase.
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2. Organizing
The organizing function involves identifying and securing necessary
resources, determining tasks that must be completed, assigning the
tasks, delegating authority, and motivating team members to work
together on the project.
The project manager must then determine what tasks must be
completed.
Once this has been done, the tasks should be assigned to project
team members or subcontractors.
The project manager may also delegate authority to certain team
members to oversee task completion via supervision of those
assigned the tasks.
Finally, the project manager must motivate members of the project
team to work together in order to complete the goal.
Conflicts may arise and often will occur when individuals working
together come from departments with different goals.
3. Controlling
The controlling function involves tracking progress and comparing it
with planned progress.
Progress reports should be used to measure performance, as well as
identify areas for improvement.
Skills
Effective project managers must possess a variety of skills in addition to
general management skills. These skills include, but are not limited to:
Analytical thinking: the ability to understand overall visions, as well as
minute details
Leadership: the ability to inspire team members to execute the
plan and successfully complete the project
Communication: the ability to communicate clearly, effectively, and
regularly
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Interpersonal: the ability to develop a relationship with each team
member in order to know what motivates them, how
they think things are going, what concerns they have,
and how they feel about things
Problem-Solving: the ability to anticipate problems, recognize them
when they arise, and solve them quickly and
efficiently
Human resources: the ability to interview and choose team members
with the proper skills and knowledge
Project Life-Cycle
A collection of generally sequential, non-
overlapping product phases whose
names and numbers are determined by
the executing and control needs of the
organization. The last product life cycle
phase for a product is generally the
product’s deterioration and death.
Generally, a project life cycle is contained
within one or more product life cycles.
The project life cycle defines the
beginning and the end of a project and
various milestones within it.
During the life cycle of a project there will be accomplishments made
at each phase. The completion of these accomplishments results in
the creation of a ‘‘deliverable,’’ a tangible, verifiable product of the
work being done on the project.
These may be products that are delivered external to the project or
something needed for other project work to take place, which are
considered to be ‘‘internal deliverables.’’
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In a project’s initial phase, cost and staffing levels are low. At this
phase there is the greatest chance that the project will never be
completed.
Project life-cycle
Influence-time relationship in projects
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PROJECT SELECTION
ESTIMATE CLASSIFICATIONS
Estimate classifications are commonly used to indicate the overall maturity
and quality for the various types of estimates that may be prepared; and
most organizations will use some form of classification system to identify
and categorize the various types of project estimates that they may prepare
during the life cycle of a project. Unfortunately, there is often a lack of
consistency and understanding of the terminology used to classify
estimates, both across industries as well as within single companies or
organizations.
AACE identifies five classes of estimates. A Class 5 Estimate is associated
with the lowest level of project definition, and a Class 1 Estimate is
associated with the highest level of project definition. The following table
shows the five classes of estimate.
Cost estimate classification
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PHYSICAL DIMENSIONS METHOD
The method uses the physical dimensions (length, area, volume, etc.) of
the item being estimated as the driving factor. For example, a building
estimate may be based on square meters or cubic meters of the building;
whereas pipelines, roadways, or railroads may be based on a linear basis.
This method depends on historical information from comparable facilities.
Consider the need to estimate the cost of a 3,600-m2
warehouse. A recently
completed warehouse of 2,900 m2
in a nearby location was recently
completed for KD 623,500, thus costing KD 215/m2
. The completed
warehouse utilized a 4.25-m wall height, thus containing 12,325 m3
and
resulting in a cost of $50.59/m3
on a volume basis ($623,500/12,325 m3
).
In determining the cost for the new warehouse, we can estimate the new
3,600 m2
warehouse using the m2
basis at $774,000 ($215/m2
x 3,600m2
).
However, the new warehouse will differ from the one just completed by
having 5.5-m-high walls; so we may decide that estimating on a volume
basis may provide a better indication of costs. The volume of the new
warehouse will be 19,800 m3
(3,600 m2
x 5.5m), and the new estimate will
be $1,002,000 (rounded to the nearest $1,000).
Pricing also includes adjustments to costs for specific project conditions.
Depending on the specific cost information used in preparing the estimate,
material costs may need to be adjusted for location, materials of
construction, or to account for differences between the item being installed
and the item you may have an available cost for. Labor hours may require
productivity adjustments for a variety of conditions such as weather,
amount of overtime, interferences from production, material logistics,
congestion, the experience of the labor crews, the level of contamination
control, etc. Labor rates may also need to be adjusted for location, crew
mix, open shop versus union issues, and specific benefit and burden
requirements.
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Example 1: Use the provided time index table to estimate the cost of a
building that contains 4,500 m2
of floor area. The
building is to be built two years from now. A building
that contains 6,800 m2
of floor area in a similar
location had a cost of KD 1,321,800 two years ago.
Solution:
Cost = Historical cost X size adjustment factor X Time
adjustment factor
Historical cost = KD 1,321,800
Size adjustment factor = 4,500/6,800 = 0.662
Time adjustment factor = (1+i)n
where;
i = inflation annual rate
n = number of years in difference
From historical data in table:
Time factor = 126/110 = (1+i)3
i = 0.046 = 4.6%
Time adjustment factor = (1+0.046)4
= 1.198
Estimated cost = KD 1,321,800 X 0.662 X 1.198 = KD 1,048,287
COMPOUND-AMOUNT FACTOR
Given a present sum P invested for N interest periods at interest rate i,
what sum will have accumulated at the end of the N periods? You probably
noticed right away that this description matches the case we first
encountered in describing compound interest. To solve for F (the future
sum); we use:
F = P (1 + i)N
Based on this equation a present value of $20,000 at interest rate of 12%
may be evaluated after 15 years by substitution in the equation as follows:
Year Index
3 years ago 110
2 years ago 120
1 year ago 128
Current year 126
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F = 20,000 (1 + 0.12)15
= $ 109,471
Because of its origin in the compound-interest calculation, the factor (1 +
i)
N
is known as the compound-amount factor. Like the concept of
equivalence, this factor is one of the foundations of engineering economic
analysis. Given this factor, all other important interest formulas can be
derived.
To specify how the interest tables are to be used, we may also express that
factor in a functional notation as (F/P, i, N), which is read as "Find F, given
P, i, and N." This factor is known as the single-payment compound-
amount factor. When we incorporate the table factor into the formula, the
formula is expressed as follows:
F = P (1+i)N
= P(F/P, i, N)
Thus, where we had F = $20,000(1.12)15
, we can now write F =
$20,000(F/P, 12%, 15). The table factor tells us to use the 12%-interest
table and find the factor in the F/P column for N = 15. Because using the
interest tables is often the easiest way to solve an equation, this factor
notation is included for each of the formulas derived in the upcoming
sections.
COMPOUND-AMOUNT FACTOR:
Find F, Given A, i, and W
Suppose we are interested in the future amount F of a fund to which we
contribute A dollars each period and on which we earn interest at a rate of i
per period. The contributions are made at the end of each of the N periods.
If an amount A is invested at the end of each period for N periods, the total
amount F that can be withdrawn at the end of N periods will be the sum of
the compound amounts of the individual deposits. This could be calculated
as per:
),,/(
1)1(
NiAFA
i
i
AF
N
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The following table shows the different statuses for discrete compounding
formulas with discrete payments.
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Example 2:
A feasibility study is being prepared for a project with KD 2,400,000 initial
cost and KD 360,000 equivalent uniform annual running cost. What is the
required net annual income to satisfy MARR of 15% return, assuming the
life-cycle of the project is 20 years?
Solution:
Assume the required annual income is Y:
Present value of accumulated annual income at discount rate 15% =
Present value of accumulated expenses at discount rate 15%
Y(P/A, 15%, 20) = 2,400,000 + 360,000 ((P/A, 15%, 20)
6.2593 Y = 2,400,000 + 360,000 * 6.2593
6.2593 Y = 4,653,348
Y = 743,429 KD/year
INTERNAL RATE OF RETURN
The internal rate of return (IRR) is the most difficult equation to calculate all
the cash flow techniques. It is a complicated formula and should be
performed on a financial calculator or computer. IRR can be figured
manually, but it’s a trial-and-error approach to get to the answer.
Technically speaking, IRR is the discount rate when the present value of
the cash inflows equals the original investment. When choosing between
projects or when choosing alternative methods of doing the project,
projects with higher IRR values are generally considered better than
projects with low IRR values.
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Example 3:
Compare the IRR for the shown data of projects A and B. Using PW
values. Assume that all expenses are incurred at the end of the year.
Assume discount rate; i=5%.
Project A Project B
Cash Flow Cash Flow
Year 1 (20,000) (10,000)
Year 2 (1,000) (4,000)
Year 3 5,000 3,000
Year 4 20,000 15,000
Solution:
Assume IRR=5% for both projects:
Project A Project B
PV@5% PV@5%
Year 1 (20,000) (10,000)
Year 2 (952) (3,810)
Year 3 4,535 2,721
Year 4 17,277 12,958
860 1,869
IRR > 5% for both projects
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Try IRR = 8%
Project A Project B
PV@8% PV@8%
Year 1 (20,000) (10,000)
Year 2 (926) (3,704)
Year 3 4,287 2,572
Year 4 15,877 11,907
(763) 776
IRR for Project A is less than 8%
IRR for Project B is more than 8%
By several trials it is found to have IRR for project A 6.5% and IRR for project B is
10.4%.
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THREE-POINT ESTIMATES
Three-point estimates, use three estimates that are averaged to come up
with a final estimate. The three estimates are the most likely, optimistic,
and pessimistic.
You’ll want to rely on experienced people to give you these estimates. The
most likely estimate assumes there are no disasters and the activity can be
completed as planned. The optimistic estimate is the fastest time frame in
which your resource can complete the activity. And the pessimistic estimate
assumes the worst happens and it takes much longer than planned to get
the activity completed. You’d average these three estimates to come up
with an overall estimate.
In this approach the mean and standard deviation are calculated as per the
following equations:
6
4 cpessimistilikelymostXoptimistic
Mean
6
deviationStandard
optimisticcpessimisti
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Example 4:
It is required to estimate the cost of a parking deck with capacity of 550
cars. The following table shows the cost of eight decks with different
capacities adjusted for time and location. Using the three-point-estimate
method, find the expected cost of the parking deck.
Deck
Cost
KD
No. of
cars
Unit cost
KD/car
1 141,200 150
2 372,250 250
3 266,500 260
4 476,480 320
5 474,600 350
6 804,080 460
Solution:
Calculate unit cost/car for each deck:
Deck
Cost
KD
No. of cars
Unit cost
KD/car
1 141,200 150 1,358
2 372,250 250 1,489
3 266,500 260 1,025
4 476,480 320 1,489
5 474,600 350 1,356
6 804,080 460 1,748
Average unit cost /car =
6
748,1356,1489,1025,1489,1358,1
=1410.8 KD/car
Minimum (optimistic) unit cost /car = 1,025 KD/car
Maximum (pessimistic) unit cost/car = 1,748 KD/car
Expected mean value =
6
748,18.410,1*4025,1
= 1,402.7 KD/car
Total estimated cost of the deck = 1402 * 550 = 771,100 KD
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ORGANIZATIONAL PROJECT MANAGEMENT MATURITY
MODEL
The Organizational Project Management Maturity Model or OPM3 is a
globally recognized best-practice standard for assessing and developing
capabilities in Portfolio Management, Program Management, and Project
Management. It was published by the company Project Management
Institute Incorporated (PMI). OPM3 provides a method for organizations to
understand their Organizational Project Management processes and
measure their capabilities in preparation for improvement. OPM3 then
helps organizations develop the roadmap that the company will follow to
improve performance.
OPM3 covers the domains of Organizational Project Management, the
systematic management of projects, programs, and portfolios in alignment
with the achievement of strategic goals. Organizational Project
Management; the three domains are Project Management, Program
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Management and Portfolio Management. OPM3 uniquely integrates these
domains into one maturity model.
OPM3 offers the key to Organizational Project Management (OPM) with
three interlocking elements:
Knowledge - Learn about hundreds of Organizational Project
Management (OPM) best practices.
Assessment - Evaluate an organization’s current capabilities and
identify areas in need of improvement.
Improvement - Use the completed assessment to map out the steps
needed to achieve performance improvement goals.
As with other PMI Inc. standards, OPM3’s intent is not to be prescriptive by
telling the user what improvements to make or how to make them. Rather,
OPM3 provides guidelines regarding the kinds of things an organization
may do in order to achieve excellence in Organizational Project
Management.
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CAPABILITY MATURITY MODEL INTEGRATED
Capability Maturity Model Integration (CMMI) is a process improvement
approach that helps organizations improve their performance. CMMI can
be used to guide process improvement across a project, a division, or an
entire organization.
CMMI in software engineering and organizational development is a
trademarked process improvement approach that provides organizations
with the essential elements for effective process improvement.
According to the Software Engineering Institute (SEI, 2008), CMMI helps
"integrate traditionally separate organizational functions, set process
improvement goals and priorities, provide guidance for quality processes,
and provide a point of reference for appraising current processes."
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CMMI currently addresses three areas of interest:
Product and service development — CMMI for Development (CMMI-
DEV),
Service establishment, management, and delivery — CMMI for
Services (CMMI-SVC), and
Product and service acquisition — CMMI for Acquisition (CMMI-
ACQ).
CMMI was developed by a group of experts from industry, government, and
the Software Engineering Institute (SEI) at Carnegie Mellon University.
CMMI models provide guidance for developing or improving processes that
meet the business goals of an organization. A CMMI model may also be
used as a framework for appraising the process maturity of the
organization.
CMMI originated in software engineering but has been highly generalized
over the years to embrace other areas of interest, such as the development
of hardware products, the delivery of all kinds of services, and the
acquisition of products and services. The word "software" does not appear
in definitions of CMMI. This generalization of improvement concepts makes
CMMI extremely abstract.
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PROJECT CHARTER
The project charter is the written acknowledgment that the project exists.
The project charter names the project manager and gives that person the
authority to assign organizational resources to the project.
COLLECT PROJECT REQUIREMENTS
Requirements describe the characteristics of the project deliverables. They
might also describe functionality that the deliverable must have or specific
conditions the deliverable must meet in order to satisfy the objective of the
project. According to the PMBOK Guide, requirements are conditions that
must be met or criteria that the product or service of the project must
possess in order to satisfy the project documents, a contract, a standard, or
a specification. Requirements quantify and prioritize the wants, needs, and
expectations of the project sponsor and stakeholders. Requirements might
include elements such as dimensions, ease of use, color, specific
ingredients, and so on.
DEFINE PROJECT SCOPE
Project Scope Management encompasses both product scope and project
scope. Product scope concerns the characteristics of the product, service, or
result of the project. It’s measured against the product requirements to
determine successful completion or fulfillment. The application area usually
dictates the process tools and techniques you’ll use to define and manage
product scope. Project scope involves managing the work of the project and
only the work of the project. Project scope is measured against the project
management plan, the project scope statement, the work breakdown
structure (WBS), and the WBS dictionary.
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To ensure a successful project, both product and project scope must be
well integrated. This implies that Project Scope Management is well
integrated with the other Knowledge Area processes.
Scope Planning, Scope Definition, Create WBS, Scope Verification, and
Scope Control involve the following:
Detailing the requirements of the product of the project
Verifying those details using measurement techniques
Creating a project scope management plan
Creating a WBS
Controlling changes to these processes
CREATE PROJECT WBS
The PMBOK Guide describes a WBS as “a deliverable-oriented hierarchical
decomposition of the work to be executed by the project team, to
accomplish the project objectives and create the required deliverables. The
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WBS defines the total scope of the project.” Simply put, a WBS is a
deliverable-oriented hierarchy that defines and organizes the work of the
project and only the work of the project. Like the scope statement, the WBS
serves as a foundational agreement among the stakeholders and project
team members regarding project scope.
The WBS will be used throughout many of the remaining Planning
processes and is an important part of project planning. The project charter
and project scope statement outline the project goals and major
deliverables. The project scope statement further refines these deliverables
into an exhaustive list and documents the requirements of the deliverables.
Project management team uses that comprehensive list of deliverables
produced in the project scope statement to build the framework of the
WBS.
DEFINE ACTIVITIES
Activity Definition and Activity Sequencing are separate processes, each
with their own inputs, tools and techniques, and outputs. In practice,
especially for small- to medium-sized projects, the planner can combine
these processes into one process or step. The Activity Definition process is
a further breakdown of the work package elements of the WBS. It
documents the specific activities needed to fulfill the deliverables detailed
on the WBS. This process might be performed by the project manager, or
when the WBS is broken down to the subproject level, this process (and all
the Activity-related processes that follow) might be assigned to a subproject
manager.
Decomposition
Decomposition is the process of breaking the work packages into
smaller, more manageable units of work called schedule activities.
These are not deliverables but the individual units of work that must
be completed to fulfill the deliverables. Activity lists (which are one of
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the outputs of this process) from prior projects can be used as
templates in this process.
Rolling Wave Planning
Rolling wave planning is the process of planning for a project in
waves as the project becomes clearer and unfolds. It is important in
such projects to at least highlight in the initial plan the key milestones
for the project.
Rolling Wave Planning acknowledges the fact that we can see more
clearly what is in close proximity, but looking further ahead our vision
becomes less clear. Rolling Wave Planning is a multi-step,
intermittent process like waves - because we cannot provide the
details very far out in our planning. Depending upon the project - its
length and complexity - we may be able to plan as much as a few
weeks or even a few months in advance with a fair amount of clarity.
This involves creating a detailed, well-defined Work Breakdown
Structure (WBS) for that period of clarity, but just highlighting the
milestone for the rest of the project.
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Activity Attributes
Activity attributes typically refers to the specific components that
make up an activity. These can include descriptive factors of the
activity at the onset, or can also refer specific characteristics that may
become relevant at a later phase of an activity. Activity attributes can
be sorted, organized, and/or summarized according to some specific
categories. Some types of activity attributes can include those related
to time needed to complete specific components, costs related to
completion of an activity or of some specific components, activity
codes, responsible persons and/or persons involved in the activity,
specific locations in which the activity may be taking place, and/or
other miscellaneous categories into which these attributes can be
conveniently and appropriately organized. Activity attributes can also
include discussion of specific constraints that may make completion
more difficult.
Milestones
A milestone is the end of a stage that marks the completion of a work
package or phase, typically marked by a high level event such as
completion, endorsement or signing of a deliverable, document or a
high level review meeting. In addition to signaling the completion of a
key deliverable, a milestone may also signify an important decision or
the derivation of a critical piece of information, which outlines or
affects the future of a project. In this sense, a milestone not only
signifies distance traveled (key stages in a project) but also indicates
direction of travel since key decisions made at milestones may alter
the route through the project plan.
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SEQUENCE ACTIVITIES
Logical Relationships
Each activity has a start and a finish. A single logic relationship
describes the interdependency of starts and finishes between two
activities. There are four possible relationships between an activity’s
start and finish, and those of other activities.
The most commonly used relationship between two activities is finish-
to-start (FS), wherein the first activity must finish before the second
activity can start. A second type is finish-to-finish (FF), where two
activities must complete at the same time. The third type is start-to-
start (SS), where two activities start at the same time (regardless of
their finish dates). The fourth is start-to-finish (SF), where an activity
must start before a second activity can finish.
Activities can be linked with hard logic (i.e., sequence of each activity
is predetermined, such as footing A before footing B), or soft logic
wherein related activities may be combined and accomplished in a
different order as determined at the time of execution. There are also
physical hard logic relationships where soft logic does not normally
apply, such as footing formwork must be in place before concrete can
be placed.
Leads and Lags
Lag time can be applied to all four relationship types. Lags are timing
applied to logic; they consume time, but are not activities per se. For
example, lags can be used to define that footing formwork needs to
remain in place until concrete is properly cured. Lead time is overlap
between tasks that have a dependency. For example, if a task can
start when its predecessor is half finished, you can specify a finish-to-
start dependency with a lead time of 50 percent for the successor
task. You enter lead time as a negative value.
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Schedule Network
The project schedule is a fairly broad and all encompassing concept
that while seemingly easy to grasp, must truly be mastered in order
for all members of the project staff, from the project management
team all the way up to the project management team leader to
effectively manage the project in a capable manner from start to
finish. The project schedule typically will include all elements of the
project from the pre-planning stages of the project through all ongoing
project processes that may take place during the active project
period, to any and all project related process that may occur at the
c
o
n
c
l
u
s
i
on and or closing stages of the project. The project schedule network
diagram typically refers to a particular input/output mechanism that
represents a particular schematic display of any and all logical
relationships that may exist between the existing project schedule
activities. The project schedule network diagram when properly laid
out is always laid in a left to right display to properly reflect the
chronology of all project work.
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ESTIMATE ACTIVITY RESOURCES
Resource breakdown structure
Resource Breakdown Structure (RBS) is a standardized list of
personnel, material, equipment resources related by function and
arranged in a hierarchical structure. The Resource Breakdown
Structure standardizes the departments resources to facilitate
planning and controlling of project work. It defines assignable
resources such as personnel, from a functional point of view; it
identifies "who" is doing the work. The total resources define the Top
Level, and each subsequent level is a subset of the resource
category (or level) above it. Each descending (lower) level represents
an increasingly detailed description of the resource until small enough
to be used in conjunction with the Work Breakdown Structure (WBS)
to allow the work to be planned, monitored and controlled.
Bottom-up Estimate
Bottom-up estimating is an extremely helpful technique in project
management as it allows for the ability to get a more refined estimate
of a particular component of work. In bottom-up estimating, each task
is broken down into smaller components. Then, individual estimates
are developed to determine what specifically is needed to meet the
requirements of each of these smaller components of the work. The
Project
Materials Equipments Manpower Subcontracto
Concrete Steel Wood Ceramic
Foundation
Second floor
First floor
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estimates for the smaller individual components are then aggregated
to develop a larger estimate for the entire task as a whole. In doing
this, the estimate for the task as a whole is typically far more
accurate, as it allows for careful consideration of each of the smaller
parts of the task and then combining these carefully considered
estimates rather than merely making one large estimate which
typically will not as thoroughly consider all of the individual
components of a task.
ESTIMATE ACTIVITY DURATION
Analogous Estimating
Analogous Estimating is an estimating technique with the following
characteristics:
o Estimates are based on past projects (historical information).
o It is less accurate when compared to bottom-up estimation.
o It is a top-down approach.
o It takes less time when compared to bottom-up estimation.
o It is a form of an expert judgment.
Parametric Estimating
A parametric cost model is an extremely useful tool for preparing
early conceptual estimates when there is little technical data or
engineering deliverables to provide a basis for using more detailed
estimating methods. A parametric model is a mathematical
representation of cost relationships that provide a logical and
predictable correlation between the physical or functional
characteristics of a plant (or process system) and its resultant cost. A
parametric estimate comprises cost estimating relationships and
other parametric estimating functions that provide logical and
repeatable relationships between independent variables, such as
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design parameters or physical characteristics and the dependent
variable, cost.
Capacity factor and equipment factor estimates are simple examples
of parametric estimates; however sophisticated parametric models
typically involve several independent variables or cost drivers. Yet
similar to those estimating methods, parametric estimating is reliant
on the collection and analysis of previous project cost data in order to
develop the cost estimating relationships (CER’s).
Three-Point-Estimating
The Three Point Estimation technique is based on statistical
methods, and in particular, the Normal distribution. In Three Point
Estimation we produce three figures for every estimate:
a = the best case estimate
m = the most likely estimate
b = the worst case estimate
These values are used to calculate an E value for the estimate and a
Standard Deviation (SD) where:
6
4 bma
E
6
ab
SD
E is a weighted average which takes into account both the most
optimistic and pessimistic estimates provided and SD measures the
variability or uncertainty in the estimate.
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To produce projects estimate the Project Manager:
1. Decomposes the project into a list of estimable tasks, i.e. a Work
Breakdown Structure
2. Estimates each the E value and SD for each task.
3. Calculates the E value for the total project work as:
E(Tasks)E(Project)
4. Calculates the SD value for the total project work as:
2
SD(Tasks))SD(Project
We then use the E and SD values to convert the project estimates to
Confidence Levels as follows:
Confidence Level in E value is approximately 50%
Confidence Level in E value + SD is approximately 68%
Confidence Level in E value + 2 * SD is approximately 95%
Confidence Level in E value + 3 * SD is approximately 99.7%
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Reserve Analysis
In terms of the project management scope of work and work flow, the
concept of reserve analysis actually refers to a specific technique that
of often implemented by the project management team and or the
project management team leader or leaders for the purposes of
helping to better maintain and manage the projects that they may
have under their guise at that respective time. Specifically, the
technique of reserve analysis is a particular analytical technique that
is used by the project management team and or the project
management team leader for the purposes of making a complete and
thorough determination of what the entirety of the specific and exact
features and or in many cases relationships of all of the individual
project related components that currently exist as part of the
previously determined project management plan. The purpose of the
execution and implementation of a reserve analysis is for the purpose
of establishing and determining an estimated reserve that can be
used for the purposes of establishing schedule duration, any and all
estimated costs, the budget, as well as the complete funds assigned
or allocated to the project.
DEVELOP SCHEDULE
Critical Path Method
The critical path method (CPM) is a scheduling technique using
arrow, precedence, or PERT diagramming methods to determine the
length of a project and to identify the activities and constraints on the
critical path.
The critical path method enables a scheduler to do the following:
• Determine the shortest time in which a program or project can be
completed.
• Identify those activities that are critical and that cannot be slipped
or delayed.
• Show the potential slippage or delay (known as float) available
for activities that are not critical.
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The critical path method (CPM) was designed for, and is useful on,
projects where the duration of each activity can be estimated with
reasonable certainty; it predicts how long an endeavor will take to
complete. It also identifies the activities that control the overall length
of the project. CPM is widely used in the process industries,
construction, single industrial projects, prototype development, and
for controlling plant outages and shutdowns.
Critical Chain Method
Critical Chain Method (CCM) is a method of planning and managing
projects that puts the main emphasis on the resources required to
execute project tasks. It was developed by Eliyahu M. Goldratt. This
is in contrast to the more traditional Critical Path and PERT methods,
which emphasize task order and rigid scheduling. A Critical Chain
project network will tend to keep the resources levelly loaded, but will
require them to be flexible in their start times and to quickly switch
between tasks and task chains to keep the whole project on
schedule.
The critical chain is the sequence of both precedence and resource
dependent terminal elements that prevents a project from being
completed in a shorter time, given finite resources. If resources are
always available in unlimited quantities, then a project's critical chain
is identical to its critical path.
Critical chain is used as an alternative to critical path analysis. The
main features that distinguish the critical chain from the critical path
are:
1. The use of (often implicit) resource dependencies. Implicit means
that they are not included in the project network but have to be
identified by looking at the resource requirements.
2. Lack of search for an optimum solution. This means that a "good
enough" solution is enough because:
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a) As far as is known, there is no analytical method of finding an
absolute optimum (i.e. having the overall shortest critical chain).
b) The inherent uncertainty in estimates is much greater than the
difference between the optimum and near-optimum ("good
enough" solutions).
3. The identification and insertion of buffers:
o project buffer
o feeding buffers
o resource buffers. (Most of time it is observed that companies
are reluctant to give more resources)
Monitoring project progress and health by monitoring the
consumption rate of the buffers rather than individual task
performance to schedule.
CCM aggregates the large amounts of safety time added to many
subprojects in project buffers to protect due-date performance, and to
avoid wasting this safety time through bad multitasking, student
syndrome, Parkinson's Law and poorly synchronized integration.
Critical chain method uses buffer management instead of earned
value management to assess the performance of a project. Some
project managers feel that the earned value management technique
is misleading, because it does not distinguish progress on the project
constraint (i.e. on the critical chain) from progress on non-constraints
(i.e. on other paths). Event chain methodology can be used to
determine a size of project, feeding, and resource buffers.
Resource Leveling
Resource leveling is a project management process used to examine
a project for an unbalanced use of resources over time, and for
resolving over-allocations or conflicts.
When performing project planning activities, the manager will attempt
to schedule certain tasks simultaneously. When more resources such
as machines or people are needed than are available, or perhaps a
specific person is needed in both tasks, the tasks will have to be
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rescheduled concurrently or even sequentially to manage the
constraint. Project planning resource leveling is the process of
resolving these conflicts. It can also be used to balance the workload
of primary resources over the course of the project, usually at the
expense of one of the traditional triple constraints (time, cost, scope).
When using specially designed project software, leveling typically
means resolving conflicts or over allocations in the project plan by
allowing the software to calculate delays and update tasks
automatically. Project management software leveling requires
delaying tasks until resources are available.
In either definition, leveling could result in a later project finish date if
the tasks affected are in the critical path.
Resource Leveling is also useful in the world of maintenance
management. Many organizations have maintenance backlogs.
These backlogs consist of work orders. In a "planned state" these
work orders have estimates such as 2 electricians for 8 hours. These
work orders have other attributes such as report date, priority, asset
operational requirements, and safety concerns. These same
organizations have a need to create weekly schedules. Resource-
leveling can take the "work demand" and balance it against the
resource pool availability for the given week. The goal is to create this
weekly schedule in advance of performing the work. Without
resource-leveling the organization (planner, scheduler, supervisor) is
most likely performing subjective selection. For the most part, when it
comes to maintenance scheduling, there are very few logic ties and
therefore no need to calculate critical path and total float.
Crashing
Crashing is a process of expediting project schedule by compressing
the total or partial project duration. It is helpful when managers want
to avoid incoming bad weather season or to compensate for prior
delay. However, the downside is that more resources are needed to
speed-up a part of a project, even if resources may be withdrawn
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from one facet of the project and used to speed-up the section that is
lagging behind. Moreover, that may also depend on what slack is
available in a non-critical activity, thus resources can be reassigned
to critical project activity. Hence, extreme care should be taken to
make sure that appropriate activities are being crashed and that
diverted resources are not causing needless risk and project scope
integrity.
Fast Tracking
Fast tracking is a technique that is often implemented in crisis and/or
crunch times so to speak as it involves in taking a specific schedule
activity and/or work breakdown event that has been previously
scheduled and/or is underway and expediting it in some way or
another. Fast tracking is referred to as a project schedule
compression technique of sorts in that its intent is to take an entire
schedule of a project and attempting to compress it into a smaller
period of time by conducting some events either quicker or by doing
some events that were intended to be done in a more spaced out
manner but rather doing some of them simultaneously. The network
logic has essentially been changed allowing for some items that
would otherwise have been done in a sequence are instead
overlapped as such.
Bar Chart (Gantt Chart)
A Gantt chart is a type of bar chart that illustrates a project schedule.
Gantt charts illustrate the start and finish dates of the terminal activity
and summary elements of a project. Terminal activity and summary
activities comprise the work breakdown structure of the project. Some
Gantt charts also show the dependency (i.e. precedence network)
relationships between activities.
Gantt charts can be used to show current schedule status using
percent-complete shadings and a vertical "TODAY" line.
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Although now regarded as a common charting technique, Gantt
charts were considered revolutionary when they were introduced. In
recognition of Henry Gantt's contributions, the Henry Laurence Gantt
Medal is awarded for distinguished achievement in management and
in community service.
Schedule Baseline
The schedule baseline is the final approved version of the project schedule
with baseline start and baseline finish dates and resource assignments.
The PMBOK Guide notes that this baseline is derived from a schedule
network analysis of the schedule model.
In practice, for small- to medium-sized projects, you can easily complete
Activity Definition, Activity Sequencing, Activity Resource Estimating,
Activity Duration Estimating, and Schedule Development at the same time
with the aid of good project management software.
It is easy to produce Gantt charts, critical path, resource allocation, activity
dependencies, what-if analysis, and various reports after plugging your
scheduling information in to most project management software tools.
Regardless of the methods, be certain to obtain sign-off of the project
schedule and provide stakeholders and project sponsor with regular
updates.
And keep the schedule handy—there will likely be changes and
modifications as you go. Also, make certain to save a schedule baseline for
comparative purposes. Once you get into the Executing and Monitoring and
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Controlling processes, you’ll be able to compare what you planned to do
against what actually happened.
Schedule Baseline
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ESTIMATE COST
Analogous Estimating
Analogous Estimating, is one form of expert judgment and it also
known as Top-down Estimating. This technique is used to determine
the duration of the project. After finalizing the high level
scope/requirement, the PM will refer & compare the previously
completed project’s similar activities with the current activities and
determine the duration.
This estimation technique will be applied to determine the duration
when the detailed information about the project is not available,
usually during the early stages of the project. This technique will look
the scope/requirement as a whole single unit to estimate. This
estimate will give a ball-park idea about the estimation and will have
bigger variance.
Eg : To estimate the time required to complete the project of
upgrading XYZ application’s database version to a higher version, is
to compare similar past projects and estimate the duration. This is
done irrespective of the complexity, size and other factors.
Parametric Estimating
Parametric estimating is one of the tools and technique of processes
like Activity Duration Estimating, Cost Estimating, Cost Budgeting.
Parametric estimating is a quantitatively based estimating method
that multiplies the quantity of work by the rate.
This estimate is by multiplying a known element like the quantity of
materials needed by the time it takes to install or complete one unit
of materials. The result is a total estimate for the activity. In this
case, 10 servers multiplied by 16 hours per server gives you a 160-
hour total duration estimate.
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Three-Point-Estimating
The three-point estimation technique is based on statistical methods,
and in particular, the normal distribution. Three-point estimation is
the preferred estimation technique for information systems (IS)
projects. In the three-point estimation there are three figures
produced for every estimate:
a = the best-case estimate
m = the most likely estimate
b = the worst-case estimate
These values are used to calculate an E value for the estimate and a
standard deviation (SD) where:
E = (a + 4m + b) / 6
SD = (b − a)/6
E is a weighted average which takes into account both the most
optimistic and most pessimistic estimates provided. SD measures
the variability or uncertainty in the estimate. In Project Evaluation
and Review Techniques (PERT) the three values are used to fit a
Beta distribution for Monte Carlo simulations.
To produce a project estimate the project manager:
Decomposes the project into a list of estimable tasks, i.e. a work
breakdown structure
Estimates each the E value and SD for each task.
Calculates the E value for the total project work as E (Project Work) =
Σ E (Task)
Calculates the SD value for the total project work as SD (Project
Work) = √Σ SD (Task)2
The E and SD values are then used to convert the project estimates
to confidence levels as follows:
Confidence level in E value is approximately 50%
Confidence level in E value + SD is approximately 85%
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Confidence level in E value + 1.645 × SD is approximately
95%
Confidence level in E value + 2 × SD is approximately 98%
Confidence level in E value + 3 × SD is approximately 99.9%
Information Systems uses the 95% confidence level, i.e. E Value +
1.645 × SD, for all project and task estimates.
These confidence level estimates assume that the data from all of
the tasks combine to be approximately normal. Typically, there
would need to be 20–30 tasks for this to be reasonable, and each of
the estimates E for the individual tasks would have to be unbiased.
Reserve Analysis
Reserves or Contingency allowances are used to deal with
uncertainty or “known-unknowns” and these are added to the cost
estimates, thus sometimes overstating project costs.
Options vary between grouping similar activities and assigning a
single contingency reserve for that group to a zero duration activity.
This activity may be placed across the network path for that group of
schedule activities. As the schedule progresses, the reserve can be
adjusted.
Creating a buffer activity in the critical chain method at the end of the
network path as the schedule progresses, allows the reserve to be
adjusted.
Reserve or contingency means adding a portion of cost/time to the
activity to account for cost/time risk. You might choose to add a
percentage of cost/time or a set number of work to the activity or the
overall budget/schedule.
For example, you know it will take $1000 to run new cable based on
the quantitative estimate you came up with earlier. You also know
that sometimes you hit problem areas when running the cable. To
make sure you don’t impact the project budget, you build in a
reserve of 10 percent of your original estimate to account for the
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problems you might encounter. This brings your activity duration
estimate to $1100 hours for this activity.
Cost of Quality
Cost of Quality (COQ) is a measurement used for assessing the
waste or losses from some defined process (eg. machine, production
line, plant, department, company, etc.).
Recognizing the power and universal applicability of Cost of Quality
(COQ), PQA has developed numerous proprietary Cost of Quality
(COQ) systems for ensuring the effectiveness of Cost of Quality
(COQ) implementations.
The Cost of Quality (COQ) measurement can track changes over
time for one particular process, or be used as a benchmark for
comparison of two or more different processes (eg. two machines,
different production lines, sister plants, two competitor companies,
etc.).
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Most COQ systems are defined by use of 4 categories of costs:
COQ
Category
Typical Descriptions (may vary
between different Organizations)
Examples
Internal
Costs associated with internal losses (ie.
within the process being analyzed)
off-cuts, equipment
breakdowns, spills,
scrap, yield, productivity
External
Costs external the process being
analyzed (ie. occur outside, not within).
These costs are usually discovered by,
or affect third parties (eg. customers).
Some External costs may have
originated from within, or been caused,
created by, or made worse by the
process being analyzed. They are
defined as External because of where
they were discovered, or who is primarily
or initially affected.
customer complaints,
latent defects found by
the customer, warranty
Preventive
Costs associated with the prevention of
future losses: (eg. unplanned or
undesired problems, losses, lost
opportunities, breakdowns, work
stoppages, waste, etc.)
planning, mistake-
proofing, scheduled
maintenance, quality
assurance
Assessment
Costs associated with measurement and
assessment of the process.
KPI's, inspection,
quality check, dock
audits, third party
audits, measuring
devices, reporting
systems, data collection
systems, forms
Vendor-Bid-Analysis
In a competitive bid process, you can apply vendor bid analysis to
determine how much a project should cost. Comparing bids can help
you determine the most likely cost for each deliverable, which will
allow for a more accurate project cost estimate.
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Control Cost
Earned Value management
Earned value management (EVM) is a project management technique for
measuring project progress in an objective manner. EVM has the ability to
combine measurements of scope, schedule, and cost in a single integrated
system. When properly applied, EVM provides an early warning of
performance problems. Additionally, EVM promises to improve the
definition of project scope, prevent scope creep, communicate objective
progress to stakeholders, and keep the project team focused on achieving
progress.
Essential features of any EVM implementation include
1. a project plan that identifies work to be accomplished,
2. a valuation of planned work, called Planned Value (PV) or Budgeted
Cost of Work Scheduled (BCWS), and
3. pre-defined “earning rules” (also called metrics) to quantify the
accomplishment of work, called Earned Value (EV) or Budgeted Cost
of Work Performed (BCWP).
EVM implementations for large or complex projects include many more
features, such as indicators and forecasts of cost performance (over
budget or under budget) and schedule performance (behind schedule or
ahead of schedule). However, the most basic requirement of an EVM
system is that it quantifies progress using PV and EV.
Project tracking without EVM
It is helpful to see an example of project tracking that does not include
earned value performance management. Consider a project that has been
planned in detail, including a time-phased spend plan for all elements of
work. Figure 1 shows the cumulative budget for this project as a function of
time (the blue line, labeled PV). It also shows the cumulative actual cost of
the project (red line) through week 8. To those unfamiliar with EVM, it might
appear that this project was over budget through week 4 and then under
budget from week 6 through week 8. However, what is missing from this
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chart is any understanding of how much work has been accomplished
during the project. If the project were actually completed at week 8, then
the project would actually be well under budget and well ahead of
schedule. If, on the other hand, the project is only 10% complete at week 8,
the project is significantly over the budget and behind schedule. A method
is needed to measure technical performance objectively and quantitatively,
and that is what EVM accomplishes.
Project tracking with EVM
Consider the same project, except this time the project plan includes pre-
defined methods of quantifying the accomplishment of work. At the end of
each week, the project manager identifies every detailed element of work
that has been completed, and sums the PV for each of these completed
elements. Earned value may be accumulated monthly, weekly, or as
progress is made.
Earned value (EV)
Figure 2 shows the EV curve (in green) along with the PV curve from
Figure 1. The chart indicates that technical performance (i.e., progress)
started more rapidly than planned, but slowed significantly and fell behind
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schedule at week 7 and 8. This chart illustrates the schedule performance
aspect of EVM. It is complementary to critical path or critical chain schedule
management.
Figure 3 shows the same EV curve (green) with the actual cost data from
Figure 1 (in red). It can be seen that the project was actually under budget,
relative to the amount of work accomplished, since the start of the project.
This is a much better conclusion than might be derived from Figure 1.
Figure 4 shows all three curves together – which is a typical EVM line
chart. The best way to read these three-line charts is to identify the EV
curve first, then compare it to PV (for schedule performance) and AC (for
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cost performance). It can be seen from this illustration that a true
understanding of cost performance and schedule performance relies first
on measuring technical performance objectively. This is the foundational
principle of EVM.
Earned Value Management Principle
The foundational principle of EVM, mentioned above, does not depend
on the size or complexity of the project. However, the implementations of
EVM can vary significantly depending on the circumstances. In many
cases, organizations establish an all-or-nothing threshold; projects above
the threshold require a full-featured (complex) EVM system and projects
below the threshold are exempted. Another approach that is gaining favor
is to scale EVM implementation according to the project at hand and skill
level of the project team.
Simple implementations
There are many more small and simple projects than there are large and
complex ones, yet historically only the largest and most complex have
enjoyed the benefits of EVM. Still, lightweight implementations of EVM are
achievable by any person who has basic spreadsheet skills. In fact,
spreadsheet implementations are an excellent way to learn basic EVM
skills.
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The first step is to define the work. This is typically done in a hierarchical
arrangement called a work breakdown structure (WBS) although the
simplest projects may use a simple list of tasks. In either case, it is
important that the WBS or list be comprehensive. It is also important that
the elements be mutually exclusive, so that work is easily categorized in
one and only one element of work. The most detailed elements of a WBS
hierarchy (or the items in a list) are called activities (or tasks).
The second step is to assign a value, called planned value (PV), to each
activity. For large projects, PV is almost always an allocation of the total
project budget, and may be in units of currency (e.g., dollars or euros) or in
labor hours, or both. However, in very simple projects, each activity may be
assigned a weighted “point value" which might not be a budget number.
Assigning weighted values and achieving consensus on all PV quantities
yields an important benefit of EVM, because it exposes misunderstandings
and miscommunications about the scope of the project, and resolving these
differences should always occur as early as possible. Some terminal
elements cannot be known (planned) in great detail in advance, and that is
expected, because they can be further refined at a later time.
The third step is to define “earning rules” for each activity. The simplest
method is to apply just one earning rule, such as the 0/100 rule, to all
activities. Using the 0/100 rule, no credit is earned for an element of work
until it is finished. A related rule is called the 50/50 rule, which means 50%
credit is earned when an element of work is started, and the remaining 50%
is earned upon completion. Other fixed earning rules such as a 25/75 rule
or 20/80 rule are gaining favor, because they assign more weight to
finishing work than for starting it, but they also motivate the project team to
identify when an element of work is started, which can improve awareness
of work-in-progress. These simple earning rules work well for small or
simple projects because generally each activity tends to be fairly short in
duration.
These initial three steps define the minimal amount of planning for
simplified EVM. The final step is to execute the project according to the
plan and measure progress. When activities are started or finished, EV is
accumulated according to the earning rule. This is typically done at regular
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intervals (e.g., weekly or monthly), but there is no reason why EV cannot
be accumulated in near real-time, when work elements are
started/completed. In fact, waiting to update EV only once per month
(simply because that is when cost data are available) only detracts from a
primary benefit of using EVM, which is to create a technical performance
scoreboard for the project team.
In a lightweight implementation such as described here, the project
manager has not accumulated cost nor defined a detailed project schedule
network (i.e., using a critical path or critical chain methodology). While such
omissions are inappropriate for managing large projects, they are a
common and reasonable occurrence in many very small or simple projects.
Any project can benefit from using EV alone as a real-time score of
progress. One useful result of this very simple approach (without schedule
models and actual cost accumulation) is to compare EV curves of similar
projects, as illustrated in Figure 5. In this example, the progress of three
residential construction projects are compared by aligning the starting
dates. If these three home construction projects were measured with the
same PV valuations, the relative schedule performance of the projects can
be easily compared.
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Intermediate implementations
In many projects, schedule performance (completing the work on time) is
equal in importance to technical performance. For example, some new
product development projects place a high premium on finishing quickly. It
is not that cost is unimportant, but finishing the work later than a competitor
may cost a great deal more in lost market share. It is likely that these kinds
of projects will not use the lightweight version of EVM described in the
previous section, because there is no planned timescale for measuring
schedule performance. A second layer of EVM skill can be very helpful in
managing the schedule performance of these “intermediate” projects. The
project manager may employ a critical path or critical chain to build a
project schedule model. As in the lightweight implementation, the project
manager must define the work comprehensively, typically in a WBS
hierarchy. He/she will construct a project schedule model that describes the
precedence links between elements of work. This schedule model can then
be used to develop the PV curve (or baseline), as shown in Figure 2'.
It should be noted that measuring schedule performance using EVM does
not replace the need to understand schedule performance versus the
project's schedule model (precedence network). However, EVM schedule
performance, as illustrated in Figure 2 provides an additional indicator —
one that can be communicated in a single chart. Although it is theoretically
possible that detailed schedule analysis will yield different conclusions than
broad schedule analysis, in practice there tends to be a high correlation
between the two. Although EVM schedule measurements are not
necessarily conclusive, they provide useful diagnostic information.
Although such intermediate implementations do not require units of
currency (e.g., dollars), it is common practice to use budgeted dollars as
the scale for PV and EV. It is also common practice to track labor hours in
parallel with currency. The following EVM formulas are for schedule
management, and do not require accumulation of actual cost (AC). This is
important because it is common in small and intermediate size projects for
true costs to be unknown or unavailable.
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Schedule variance (SV)
EV-PV greater than 0 is good (ahead of schedule)
Schedule performance index (SPI)
EV/PV greater than 1 is good (ahead of schedule)
See also earned schedule for a description of known limitations in SV and
SPI formulas and an emerging practice for correcting these limitations.
Advanced implementations
In addition to managing technical and schedule performance, large and
complex projects require that cost performance be monitored and reviewed
at regular intervals. To measure cost performance, planned value (or
BCWS - Budgeted Cost of Work Scheduled) and earned value (or BCWP -
Budgeted Cost of Work Performed) must be in units of currency (the same
units that actual costs are measured.) In large implementations, the
planned value curve is commonly called a Performance Measurement
Baseline (PMB) and may be arranged in control accounts, summary-level
planning packages, planning packages and work packages. In large
projects, establishing control accounts is the primary method of delegating
responsibility and authority to various parts of the performing organization.
Control accounts are cells of a responsibility assignment (RACI) matrix,
which is intersection of the project WBS and the organizational breakdown
structure (OBS). Control accounts are assigned to Control Account
Managers (CAMs). Large projects require more elaborate processes for
controlling baseline revisions, more thorough integration with subcontractor
EVM systems, and more elaborate management of procured materials.
Additional acronyms and formulas include:
Budget at completion (BAC): The total planned value (PV or BCWS) at
the end of the project. If a project has a Management Reserve (MR), it is
typically in addition to the BAC.
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Cost variance (CV)
EV - AC, greater than 0 is good (under budget)
Cost Performance Index (CPI)
EV/AC, greater than 1 is good (under budget)
< 1 means that the cost of completing the work is higher than planned
(bad)
= 1 means that the cost of completing the work is right on plan (good)
> 1 means that the cost of completing the work is less than planned (good
or sometimes bad).
Having a CPI that is very high (in some cases, very high is only 1.2) may
mean that the plan was too conservative, and thus a very high number may
in fact not be good, as the CPI is being measured against a poor baseline.
Management or the customer may be upset with the planners as an overly
conservative baseline ties up available funds for other purposes, and the
baseline is also used for manpower planning.
Estimate at completion (EAC)
EAC is the manager's projection of total cost of the project at completion.
ETC is the estimate to complete the project.
To-complete performance index (TCPI)
The To Complete Performance Index (TCPI) provides a projection of the
anticipated performance required to achieve either the BAC or the EAC.
TCPI indicates the future required cost efficiency needed to achieve a
target BAC (Budget At Complete) or EAC (Estimate At Complete). Any
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significant difference between CPI, the cost performance to date, and the
TCPI, the cost performance needed to meet the BAC or the EAC, should
be accounted for by management in their forecast of the final cost.
For the TCPI based on BAC (describing the performance required to meet
the original BAC budgeted total):
or for the TCPI based on EAC (describing the performance required to
meet a new, revised budget total EAC):
Independent estimate at completion (IEAC)
The IEAC is a metric to project total cost using the performance to date to
project overall performance. This can be compared to the EAC, which is
the manager's projection.
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Project Quality Management
Quality can be defined as meeting the customer's expectations or
exceeding the customer expectations achieved by way of deliverables
and/or activities performed to produce those deliverables.
Project Quality Plan can be defined as a set of activities planned at the
beginning of the project that helps achieve Quality in the Project being
executed. The Purpose of the Project Quality Plan is to define these
activities/tasks that intend to deliver products while focusing on achieving
customer's quality expectations. These activities / tasks are defined on the
basis of the quality standards set by the organization delivering the product.
Project Quality Plan identifies which Quality Standards are relevant to the
project and determines how they can be satisfied. It includes the
implementation of Quality Events (peer reviews, checklist execution) by
using various Quality Materials (templates, standards, checklists) available
within the organization. The holding of the Quality Event is termed as
Quality Control. As an output of the various activities, Quality Metrics or
Measurements are captured which assist in continuous improvement of
Quality thus adding to the inventory of Lessons Learned. Quality Assurance
deals in preparation of the Quality Plan and formation of organization wide
standards.
Guidelines to write the Project Quality Plan
Project Quality Plan should be written with the objective to provide project
management with easy access to quality requirements and should have
ready availability of the procedures and standards thus mentioned.
The following list provides you the various Quality Elements that should be
included in a detailed Project Quality Plan:
Management Responsibility. Describes the quality responsibilities of all
stakeholders.
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Documented Quality Management System. This refers to the existing
Quality Procedures that have been standardized and used within the
organization.
Design Control. This specifies the procedures for Design Review, Sign-
Off, Design Changes and Design Waivers of requirements.
Document Control. This defines the process to control Project Documents
at each Project Phase.
Purchasing. This defines Quality Control and Quality Requirements for
sub-contracting any part / whole part of the project.
Inspection Testing. This details the plans for Acceptance Testing and
Integration Testing.
Nonconformance. This defines the procedures to handle any type of
nonconformance work. The procedures include defining responsibilities,
defining conditions and availability of required documentation in such
cases.
Corrective Actions. This describes the procedures for taking Corrective
Actions for the problems encountered during project execution.
Quality Records. This describes the procedures for maintaining the
Quality Records (metrices, variance reports, executed checklists etc)
during project execution as well as after the project completion.
Quality Audits. An internal audit should be planned and implemented
during each phase of the project.
Training. This should specify any training requirements for the project
team.
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COST-BENEFIT ANALYSIS
In the case of quality management, cost of quality trade-offs should be
considered from within cost-benefit analysis. The benefits of meeting
quality requirements are as follows:
Stakeholder satisfaction is increased.
Costs are lower.
Productivity is higher.
There is less rework.
COST OF QUALITY
CATEGORIES OF QUALITY COSTS
Many companies summarize these costs into four categories. Some
practitioners also call these categories the “cost of quality.” These
categories and examples of typical subcategories are discussed below.
Internal Failure Costs.
These are costs of deficiencies discovered before delivery which are
associated with the failure (nonconformities) to meet explicit requirements
or implicit needs of external or internal customers. Also included are
avoidable process losses and inefficiencies that occur even when
requirements and needs are met. These are costs that would disappear if
no deficiencies existed.
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Failure to Meet Customer Requirements and Needs.
Examples of subcategories are costs associated with:
Scrap: The labor, material, and (usually) overhead on defective product
that cannot economically be repaired. The titles are numerous—scrap,
spoilage, defectives, etc.
Rework: Correcting defectives in physical products or errors in service
products.
Lost or missing information: Retrieving information that should have
been supplied.
Failure analysis: Analyzing nonconforming goods or services to
determine causes.
Scrap and rework—supplier: Scrap and rework due to nonconforming
product received from suppliers. This also includes the costs to the
buyer of resolving supplier quality problems.
One hundred percent sorting inspection: Finding defective units in
product lots which c unacceptably high levels of defectives.
Reinspection, retest: Reinspection and retest of products that have
undergone rework or other revision.
Changing processes: Modifying manufacturing or service processes to
correct deficiencies.
Redesign: Changing designs to correct deficiencies.
Scrapping of obsolete product: Disposing of products that have been
superseded.
Scrap in support operations: Defective items in indirect operations.
Rework in internal support operations: Correcting defective items in
indirect operations.
Downgrading: The difference between the normal selling price and the
reduced price due to quality reasons.
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Cost of Inefficient Processes.
Examples of subcategories are
Variability of product characteristics: Losses that occur even with
conforming product (e.g., overfill of packages due to variability of filling
and measuring equipment).
Unplanned downtime of equipment: Loss of capacity of equipment due
to failures.
Inventory shrinkage: Loss due to the difference between actual and
recorded inventory amounts.
Variation of process characteristics from “best practice”: Losses due to
cycle time and costs of processes as compared to best practices in
providing the same output. The best-practice process may be internal or
external to the organization.
Non-value-added activities: Redundant operations, sorting inspections,
and other non-valueadded activities. A value-added activity increases
the usefulness of a product to the customer; a non-value-added activity
does not. (The concept is similar to the 1950s concept of value
engineering and value analysis.)
External Failure Costs
These are costs associated with deficiencies that are found after product is
received by the customer. Also included are lost opportunities for sales
revenue. These costs also would disappear if there were no deficiencies.
Failure to Meet Customer Requirements and Needs
Examples of subcategories are:
Warranty charges: The costs involved in replacing or making repairs to
products that are still within the warranty period.
Complaint adjustment: The costs of investigation and adjustment of
justified complaints attributable to defective product or installation.
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Returned material: The costs associated with receipt and replacement
of defective product received from the field.
Allowances: The costs of concessions made to customers due to
substandard products accepted by the customer as is or to conforming
product that does not meet customer needs.
Penalties due to poor quality: This applies to goods or services
delivered or to internal processes such as late payment of an invoice
resulting in a lost discount for paying on time.
Rework on support operations: Correcting errors on billing and other
external processes.
Revenue losses in support operations: An example is the failure to
collect on receivables from some customers.
Appraisal Costs
These are the costs incurred to determine the degree of conformance to
quality requirements. Examples are
Incoming inspection and test: Determining the quality of purchased
product, whether by inspection on receipt, by inspection at the source,
or by surveillance.
In-process inspection and test: In-process evaluation of conformance to
requirements.
Final inspection and test: Evaluation of conformance to requirements for
product acceptance.
Document review: Examination of paperwork to be sent to customer.
Balancing: Examination of various accounts to assure internal
consistency.
Product quality audits: Performing quality audits on in-process or
finished products.
Maintaining accuracy of test equipment: Keeping measuring
instruments and equipment in calibration.
Inspection and test materials and services: Materials and supplies in
inspection and test work (e.g., x-ray film) and services (e.g., electric
power) where significant.
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Evaluation of stocks: Testing products in field storage or in stock to
evaluate degradation.
In collecting appraisal costs, what is decisive is the kind of work done and
not the department name (the work may be done by chemists in the
laboratory, by sorters in Operations, by testers in Inspection, or by an
external firm engaged for the purpose of testing). Also note that industries
use a variety of terms for “appraisal,” e.g., checking, balancing,
reconciliation, review.
Prevention Costs
These are costs incurred to keep failure and appraisal costs to a minimum.
Examples are:
Quality planning: This includes the broad array of activities which
collectively create the overall quality plan and the numerous specialized
plans. It includes also the preparation of procedures needed to
communicate these plans to all concerned.
New-products review: Reliability engineering and other quality-related
activities associated with the launching of new design.
Process planning: Process capability studies, inspection planning, and
other activities associated with the manufacturing and service
processes.
Process control: In-process inspection and test to determine the status
of the process (rather than for product acceptance).
Quality audits: Evaluating the execution of activities in the overall quality
plan.
Supplier quality evaluation: Evaluating supplier quality activities prior to
supplier selection, auditing the activities during the contract, and
associated effort with suppliers.
Training: Preparing and conducting quality-related training programs. As
in the case of appraisal costs, some of this work may be done by
personnel who are not on the payroll of the Quality department. The
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decisive criterion is again the type of work, not the name of the
department performing the work.
Note that prevention costs are costs of special planning, review, and
analysis activities for quality.
Prevention costs do not include basic activities such as product design,
process design, process maintenance, and customer service.
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OPTIMUM QUALITY COST MODEL
The model shows three curves:
1. The failure costs: These equal zero when the product is 100 percent
good, and rise to infinity when the product is 100 percent defective.
(Note that the vertical scale is cost per good unit of product. At 100
percent defective, the number of good units is zero, and hence the cost
per good unit is infinity.)
2. The costs of appraisal plus prevention: These costs are zero at 100
percent defective, and rise as perfection is approached.
3. The sum of curves 1 and 2: This third curve is marked “total quality
costs” and represents the total cost of quality per good unit of product.
Cost of quality
The previous figure suggests that the minimum level of total quality costs
occurs when the quality of conformance is 100 percent, i.e., perfection.
This has not always been the case. During most of the twentieth century
the predominant role of (fallible) human beings limited the efforts to attain
perfection at finite costs. Also, the inability to quantify the impact of quality
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failures on sales revenue resulted in underestimating the failure costs. The
result was to view the optimum value of quality of conformance as less than
100 percent.
Effect of identifying cost of quality
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CONTROL CHARTS
A control chart represents a picture of a process over time. To effectively
use control charts, one must be able to interpret the picture. What is this
control chart telling me about my process? Is this picture telling me that
everything is all right and I can relax? Is this picture telling me that
something is wrong and I should get up and find out what has happened? A
control chart tells you if your process is in statistical control. The chart
above is an example of a stable (in statistical control) process.
This pattern is typical of processes that are stable. Three characteristics of
a process that is in control are:
Most points are near the average
A few points are near the control limits
No points are beyond the control limits
If a control chart does not look similar to the one above, there is probably a
special cause present. Various tests for determining if a special cause is
present are given below.
Points Beyond the Control Limits
A special cause is present in the
process if any points fall above the
upper control limit or below the
lower control limit. Action should be
taken to find the special cause and
permanently remove it from the
process. If there is a point beyond
the control limits, there is no need
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to apply the other tests for out of control situations. Points on the control
limits are not considered to be out of statistical control.
Zone Tests: Setting the Zones and Zone A
The zone tests are valuable tests
for enhancing the ability of control
charts to detect small shifts
quickly. The first step in using
these tests is to divide the control
chart into zones. This is done by
dividing the area between the
average and the upper control
limit into three equally spaced areas. This is then repeated for the area
between the average and the lower control limit.
The zones are called zones A, B,
and C. There is a zone A for the top
half of the chart and a zone A for the
bottom half of the chart. The same is
true for zones B and C. Control
charts are based on 3 sigma limits
of the variable being plotted. Thus,
each zone is one standard deviation
in width. For example, considering
the top half of the chart, zone C is the region from the average to the
average plus one standard deviation. Zone B is the region between the
average plus one standard deviation and the average plus two standard
deviations. Zone A is the region between the average plus two standard
deviations and the average plus three standard deviations
A special cause exists if two out of three consecutive points fall in zone A
or beyond. The figure below shows an example of this test. The test is
applied for the zone A above the average and then for the zone A below
the average.
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This test, like those below, is applied to both halves of the chart. However,
only one half is considered at a time. For example, if one point falls in the
zone A above the average and the next point falls in zone A below the
average, this is not two out of three consecutive points in zone A or
beyond. The two points in zone A must be on the same side of the
average.
Zone Tests: Zones B and C
A special cause exists if
four out five consecutive
points fall in zone B or
beyond. The figure to the
left shows an example of
this test. This test is
applied for zone B above
the average and then for
zone B below the
average.
A special cause exists if
seven consecutive points
fall in zone C or beyond. An
example of this test is
shown below. The test
should be applied for the
zone C above the average
and then for the zone C
below the average.
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Test for Stratification
Stratification occurs if two or more
processes (distributions) are being
sampled systematically. For
example, stratification can occur if
samples are taken once a shift and
a subgroup size of 3 is formed
based on the results from three
shifts. It is possible that the shifts
are operating at a different average
or variability. Stratification (a special cause) exists if fifteen or more
consecutive points fall in zone C either above or below the average. Note
that the points tend to hug the centerline. This test involves the use of the
zones but is applied to the entire chart and not one-half of the chart at a
time.
Test for Mixtures
A mixture exists when there is
more than one process present but
sampling is done for each process
separately. For example, suppose
you take three samples per shift
and form a subgroup based on
these three samples. If different
shifts are operating at different
averages, a mixture can occur. A
mixture (a special cause) is present if eight or more consecutive points lie
on both sides of the average with none of the points in zone C. The figure
shows an example of this test. Note the absence of points in zone C. This
test is applied to the entire chart.
Rule of Seven Tests
These tests are often taught initially to employees as the method for
interpreting control charts (along with points beyond the limits). The tests
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state that an out of control situation is present if one of the following
conditions is true:
1) Seven points in a row above the average,
2) Seven points in a row below the average,
3) Seven points in a row trending up, or
4) Seven points in a row trending down.
These four conditions are shown in the
figure above.
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BENCHMARKING
A benchmark is a defined measure of productivity in comparison to
something else. We can benchmark internally, seeking to maintain or
improve performance, or we can try to find industry benchmarks, and
compare ourselves to our competitors.
Sometimes, industry associations can provide information in support of
benchmarks that we should achieve. We should always evaluate them
closely to be sure that the benchmark is appropriate and realistic in our
work environment. For example, if we are using older equipment, we might
not be able to achieve an industry average rate of production. Also, we
should make sure that achieving that benchmark increases or at least
maintains customer quality while lowering cost. There is no point achieving
a benchmark if it means losing customers or losing dollars.
Best Practices
Information about solid, measurable benchmarks is hard to obtain and
harder to fit into unique situation. Developing and using best practices is a
powerful improvement method. A best practice is simply the best way to do
a repeating process at your organization. Best practices: