IEN Exam #2

What is crashing a project?
The process of accelerating or expediting a project to reach an earlier completion date
Why choose an earlier completion date? (4)
1. The initial schedule may be too optimistic
2. Market needs change
3. Project slipped behind schedule
4. Contractual obligations
How to accelerate activities (3)
1. Improve the productivity of existing project resources
2. Changing the working method employed for the activity – alter technology or types of resources
3. Increasing quantity of personnel, plant, equipment
Time vs. Cost slope ($ per t)
(Crash Cost – Normal Cost)/(Normal Time – Crash Time)
Why are cost estimates needed? (5)
1. Support good decisions
2. Determining project cost
3. Is the project worth doing?
4. Poor estimates = failed projects
5. Cash flow needs
Who should be making estimates?
Person(s) most familiar with task at the work package level – experts
Why is it good to have multiple sources of a cost estimate?
Better chance of being reasonable and realistic when several people with relevant experience are used
Discussion of differences can eliminate estimate errors
What can be considered ‘Normal Conditions’
Ex. working 8 hours a day, working 2 shifts, using 3 programmers
Includes establishment of time units for projects
How should contingencies be considered?
Estimates should *NOT* include contingencies
Assume normal or average conditions always
Why add risk assessments to estimates
Stakeholders can consider alternative methods and alter process decisions
What are top-down estimates?
Cost estimates derived from using experience and/or information to determine project duration and total cost
Sometimes made by top managers with very little knowledge of the processes
What are bottom-up estimates?
Cost estimates that are pushed down to the work package level – estimates come from the people closest to the work
What is the Preferred Approach? (Process)
Make rough top-down estimate
Develop Work Breakdown Structure
Make bottom-up estimates
Develop schedule and budget
Reconcile differences between top-down and bottom-up estimates
Top-Down Approaches (4)
Consensus Methods
Ratio Methods
Apportion Methods
Learning Curves Methods
Consensus Methods
Pooled experience of senior management to estimate project duration/cost – best guess
Delphi Method
Developed by RAND Corp. in 1969 for tech forecasting
Group decision process by panel of experts about likelihood of events
Ratio Methods
(aka parametric methods) Use of ratios to estimate
Ex. Contractors using number of square feet to estimate
Apportion Methods
Extension to ratio methods, costs are apportioned as a percentage of the total cost
Learning Curves Methods
When projects repeat same tasks/groups of tasks, and performance improves with repetition
Bottom-Up Approaches (3)
Template Methods
Parametric Procedures Applied to Specific Tasks
Range Estimating Method
Template Methods
Estimates from past projects can be used as starting point if project is similar, and adjust to reflect the differences
Parametric Procedures Applied to Specific Tasks
Application of parametric methods at work package level
Range Estimating Methods
Calls for Low, Average, and High estimates when work packages have significant uncertainty
Types of Costs
Direct costs – Labor, Material, Equipment
Direct Overhead – Salaries, Space Rental, % applied to materials and labor
Gen. and Admin. Overhead – Advertising, Accounting, senior management, % of total direct cost
Problems with cost estimation (6)
1. Low initial estimates
2. Unexpected technical difficulties
3. Lack of definition
4. Scope creep
5. Inflation/economic factors
6. Interaction costs
Pitfalls of Estimating
Misinterpretation of statement of work
Overly optimistic schedule
Inaccurate WBS
Failure to account for risks
No account for inflation
Why Monitor and Control people? (3)
1. Control holds people accountable
2. Prevents small problems from developing into large problems
3. Helps to maintain focus
What does a project monitoring system involve?
What data to collect
How, when, and who will collect the data
Analysis of the data
Reporting current progress
What data is collected?
Actual activity duration
Resource usage and rates
Actual costs
(All are compared against planned times, resources, and budgets)
4 steps in the project control process
1. Setting a baseline plan
2. Measuring progress and performance
3. Comparing plan against actual
4. Taking action
Setting a baseline plan
Derived from the cost and duration information found in the WBS
Derived from the time-sequence data from the network
Measuring progress and performance
Quantitative measures – time and budgets
Qualitative measures – meeting customer technical specs and product functions
Comparing plan against actual
Measure deviations from plan
Frequent status reports should allow for early detection of variations
Taking action
For significant deviations, corrective action needed
Earned Value Management (EVM)
Pioneered by Dept. of Def. in the 1960s
Considers joint impact of time, cost, and performance
Planned value PV
A cost estimate of the budgeted resources scheduled across project’s life cycle
Also called BCWS(cheduled)
Earned value EV
The real budgeted cost, or “value” of the work that has actually been performed to date
% complete x original budget
Also called BCWP(erformed)
Actual Cost AC
The cumulative total costs incurred in accomplishing the various project work packages
Also called ACWP(erformed)
Cost Variance CV
Difference between the Earned Value and the Actual Costs
CV = EV – AC
A negative value indicates a cost overrun condition
Schedule Variance SV
Difference between the Earned Value and Planned Value
SV = EV – PV
A negative value indicates a behind schedule condition
*always use values with a V in them
Schedule Performance Index
Gives the efficiency in operating the project
1/SPI x time unit length of project = time to completion
Cost Performance Index
Gives the efficiency with which the work has been accomplished
1/CPI x original budget = cumulative cost to completion
What is project risk?
Any possible event that can negatively affect the viability of a project
What is risk management?
Identifying, analyzing, and responding to risk factors throughout the life of a project
Types of risk management
Proactive management
Reactive management
Definition of risk (function)
Risk of an event = f(Likelihood, Impact)
Likelihood is the probability of occurrence
Impact is the amount at stake
Systematic Risk Management Process (I-IV)
I. Risk Identification
II. Analysis of probability and consequences
III. Risk mitigation strategies
IV. Control and documentation
Financial Risk
Financial exposure a firm opens itself to when developing a project
Ex. a large up-front capital investment required
Technical Risk
When new projects contain unique technical elements or unproven tech
Ex. trying a new material for the first time
Commercial Risk
For projects that have been developed for a definite commercial intent such as profitability, a constant unknown is degree of success
Execution Risk
The specific unknowns related to the execution of the plan
Ex. Weather, earthquake, poorly trained staff
Contractual/Legal Risk
Strict terms and conditions are drawn up in advance, companies try to limit their exposure to litigation and liability
Risk Impact Matrix
Risk Impact Matrix
Consequences vs. Likelihood boxes
High and Low options, produce combinations
Customer’s Knowledge vs. Contract Type
As the customer’s experience level decreases, and the contract becomes more complex, there is a positive relationship on a graph for Future Risk
Risk Mitigation Strategies
Accept Risk – Do nothing when risk is low
Minimize Risk – Intervening for damage control
Share Risk – Risk allocated proportionally among multiple members
Transfer Risk – Client handles overruns (ex. fixed price contracts)
Contingency reserves
Provision for unforeseen elements of a cost within the defined scope
Ex. construction projects setting aside 10-15% of a project for contingency
Risk Event graph
Risk Event graph
A risk profile
A list of questions that address traditional areas of uncertainty on a project
Questions in a risk profile
Are the tech. requirements stable? (Technical Requirements)
How reliable are the cost estimates? (Budget)
Are quality considerations built into the design? (Quality)
Are there any ambiguities in the contractor task definitions? (Contractor)
General types of risks
Business risks
Insurable risk
– Direct property damage
– Indirect consequential loss
– Legal liability
– Personnel
Types of risk (PMI Method)
External – unpredictable
External – predictable
Internal – Non-technical
Internal – Technical
Purpose of project closeout
Formalizing acceptance of the project or phase and bringing it to an orderly end
Closeout objectives
Meet contractual obligations
Transition project to next phase
Analyze overall performance
Close project office
Pursue follow-up
Contract closeout
Completion and settlement of the contract
Administrative closure
Generating, gathering, and disseminating information to formalize project completion
Project closeout organizational structure
Project closeout
– Project organization: evaluate performance
– Financial: conduct audits and prepare final report
– Contracting: notify and pay suppliers
– Site: close facilities and return equipment
Types of project closure
Failed Project
Changed Priority
Normal closure
most common, a completed project
Premature closure
Completed early with some parts of the project having been eliminated
Ex. first to market with unfinished product
Perpetual closure
Projects that never seem to end. Constant add-ons, indicative of poorly conceived scope
Failed Project closure
Projects fail b/c of circumstances beyond control of team
Changed Priority Project Closure
Organizations’ priorities often change and strategy shifts direction
How to implement closure activities (7)
1. Delivery acceptance
2. Shutting down resources
3. Reassigning team members
4. Closing accounts and paid bills
5. Client sign-off
6. Post implementation audit
7. Final report
What goes into the final report? (5)
Executive Summary
Review and Analysis
Lessons Learned
Why document the project?
Reference for future changes
Historical record
Training resource
Input for performance evaluation and further training