Project Management

References:
1. Clifford F. Gray and Erik W. Larson, Project Management: The Managerial Process,
5th Edition, Mc Graw Hill, 2010
2. Jeffrey K. Pinto., Project Management: Achieving Competitive Advantage, 2nd
Edition, Pearson, 2010
Outline
1. Introduction to Project
Management
2. Defining the Project
3. Estimating Time and Cost
4. Developing Project Plan

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1–2 All Rights Reserved
Introduction to Project Management

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1–3 All Rights Reserved
Learning Objectives
1.To explain why project management is crucial
in today’s world

2.To define a project and differentiate projects

from routine operations

3.To explain the importance of projects in

implementing organization strategy

1–4
What is a Project?
 Project Defined
 A complex, non-routine, one-time effort limited by
time, budget, resources, and performance
specifications designed to meet customer needs.

 Major Characteristics of a Project

 Has an established objective.
 Has a defined life span with a beginning and an
end.
 Requires across-the-organizational participation.
 Involves doing something never been done before.
 Has specific time, cost, and performance
requirements.
1–5
Programs versus Projects
 Program Defined
 A series of coordinated, related, multiple projects
that continue over an extended time and are
intended to achieve a goal.

 A higher level group of projects targeted at a

common goal.

 Example:
 Project: completion of a required course in
project management.
 Program: completion of all courses required for a
business major.
1–6
Comparison of Routine Work with Projects
Routine, Repetitive Work Projects
Taking class notes Writing a term paper
Daily entering sales receipts into Setting up a sales kiosk for a
the accounting ledger professional accounting meeting
Responding to a supply-chain Developing a supply-chain
request information system
Practicing scales on the piano Writing a new piano piece
Routine manufacture of an Apple Designing an iPod that is
iPod approximately 2 X 4 inches,
interfaces with PC, and
stores 10,000 songs
Attaching tags on a manufactured Wire-tag projects for GE and
product Wal-Mart

TABLE 1.1
1–7
Project Life Cycle

FIGURE 1.1
1–8
The Challenge of Project Management
 The Project Manager
 Manages temporary, non-repetitive activities and
frequently acts independently of the formal
organization.
 Marshals resources for the project.
 Is linked directly to the customer interface.
 Provides direction, coordination, and integration
to the project team.
 Is responsible for performance and success of the
project.
 Must induce the right people at the right time to
address the right issues and make the right
decisions.
1–9
The Importance of Project
Management
 Factors leading to the increased use
of project management:
 Compression of the product life cycle
 Knowledge explosion
 Triple bottom line (planet, people,
profit)
 Corporate downsizing
 Increased customer focus
 Small projects represent big problems

1–10
Benefits of an Integrative Approach
to Project Management
 Integration (or centralization) of project
management provides senior management
with:
 An overview of all project management activities
 A big picture of how organizational resources are
used
 A risk assessment of their portfolio of projects
 A rough metric of the firm’s improvement in
managing projects relative to others in the
industry
 Linkages of senior management with actual
project 1–11
execution management
Integrated Project Management
Systems
 Problems resulting from the use of piecemeal
project management systems:
 Do not tie together the overall strategies of the
firm.
 Fail to prioritize selection of projects by their
importance of their contribution to the firm.
 Are not integrated throughout the project life
cycle.
 Do not match project planning and controls with
organizational culture to make appropriate
adjustments in support of project endeavors.

1–12
Integrated Management of Projects

FIGURE 1.2
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Major Functions of Portfolio Management
 Oversee project selection.
 Monitor aggregate resource levels and skills.
 Encourage use of best practices.
 Balance projects in the portfolio in order to
represent a risk level appropriate to the
organization.
 Improve communication among all
stakeholders.
 Create a total organization perspective that
goes beyond silo thinking.
 Improve overall management of projects over
time.
1–14
 The Technical
and Sociocultural
Dimensions
of the Project
Management
Process

FIGURE 1.3
1–15
 Defining the Project

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1–16 All Rights Reserved
Learning Objectives
1.To recognize the importance of a complete
scope statement acceptable to your customer
as a condition for project success

2.To layout guidelines for creating a Work

Breakdown Structure (WBS) for a project

3.To demonstrate the importance of WBS to the

management of projects and how it serves as
a database for planning and control

1–17
Defining the Project
Step 1: Defining the Project Scope
Step 2: Establishing Project Priorities
Step 3: Creating the Work Breakdown Structure
Step 4: Integrating the WBS with the
Organization
Step 5: Coding the WBS for the Information
System

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Step 1: Defining the Project Scope
 Project Scope
 A definition of the end result or mission of the
project—a product or service for the
client/customer—in specific, tangible, and
measurable terms.
 Purpose of the Scope Statement
 To clearly define the deliverable(s) for the end
user.
 To focus the project on successful completion
of its goals.
 To be used by the project owner and participants
as a planning tool and for measuring project
success.
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Project Scope Checklist

1. Project objective
2. Deliverables
3. Milestones
4. Technical requirements
5. Limits and exclusions
6. Reviews with customer

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Project Scope: Terms and Definitions
 Scope Statements
 Also called statements of work (SOW)
 Project Charter
 Can contain an expanded version of scope
statement
 A document authorizing the project manager to
initiate and lead the project.
 Scope Creep
 The tendency for the project scope to expand over
time due to changing requirements, specifications,
and priorities.

4–21
Step 2: Establishing Project Priorities
 Causes of Project Trade-offs
 Shifts in the relative importance of criterions
related
to cost, time, and performance parameters
 Budget–Cost
 Schedule–Time
 Performance–Scope
 Managing the Priorities of Project Trade-offs
 Constrain: a parameter is a fixed requirement.
 Enhance: optimizing a criterion over others.
 Accept: reducing (or not meeting) a criterion
requirement.

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Project Management Trade-offs

FIGURE 4.1
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Project Priority Matrix

FIGURE 4.2
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 Step 3: Creating the Work
Breakdown Structure
 Work Breakdown Structure (WBS)
 An hierarchical outline (map) that identifies the
products and work elements involved in a project.
 Defines the relationship of the final deliverable
(the project) to its sub-deliverables, and in turn,
their relationships to work packages.
 Best suited for design and build projects that
have tangible outcomes rather than process-
oriented projects.

4–25
 Hierarchical
Breakdown of
the WBS

* This breakdown groups work

packages by type of work within a
deliverable and allows assignment
of responsibility to an organizational
unit. This extra step facilitates a
system for monitoring project
progress (discussed in Chapter 13).

FIGURE 4.3
4–26
How WBS Helps the Project Manager
 WBS
 Facilitates evaluation of cost, time, and technical
performance of the organization on a project.
 Provides management with information
appropriate to each organizational level.
 Helps in the development of the organization
breakdown structure (OBS). which assigns project
responsibilities to organizational units and
individuals
 Helps manage plan, schedule, and budget.
 Defines communication channels and assists in
coordinating the various project elements.
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Work Breakdown Structure

FIGURE 4.4
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Work Packages
A work package is the lowest level of the WBS.
 It is output-oriented in that it:
1. Defines work (what).
2. Identifies time to complete a work package (how
long).
3. Identifies a time-phased budget to complete a work
package (cost).
4. Identifies resources needed to complete a work
package (how much).
5. Identifies a person responsible for units of work
(who).
6. Identifies monitoring points (milestones) for
measuring success.
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 Step 4: Integrating the WBS
with the Organization
 Organizational Breakdown Structure (OBS)
 Depicts how the firm is organized to discharge
its work responsibility for a project.
 Provides a framework to summarize
organization work unit performance.
 Identifies organization units responsible for
work packages.
 Ties the organizational units to cost control
accounts.

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 Integration of
WBS and OBS

4–31
FIGURE 4.5
 Step 5: Coding the WBS for
the Information System
 WBS Coding System
 Defines:
 Levels and elements of the
WBS
 Organization elements
 Work packages
 Budget and cost information
 Allows reports to be consolidated at
any level in the organization
structure

4–32
 WBS Coding

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Responsibility Matrices
 Responsibility Matrix (RM)
 Also called a linear responsibility chart.
 Summarizes the tasks to be accomplished
and who is responsible for what on the
project.
 Lists project activities and participants.
 Clarifies critical interfaces between units
and individuals that need coordination.
 Provide an means for all participants to view
their responsibilities and agree on their
assignments.
 Clarifies the extent or type of authority that
can be exercised by each participant.
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Responsibility Matrix for a Market Research Project

FIGURE 4.6
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Responsibility Matrix for the Conveyor Belt Project

FIGURE 4.7
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Project Communication Plan
 What information needs to be collected
and when?
 Who will receive the information?
 What methods will be used to gather
and store information?
 What are the limits, if any, on who has
access to certain kinds of information?
 When will the information be
communicated?
 How will it be communicated?

4–37
Information Needs
 Project status reports
 Deliverable issues
 Changes in scope
 Team status meetings
 Gating decisions
 Accepted request changes
 Action items
 Milestone reports

4–38
Developing a Communication Plan

1. Stakeholder analysis
2. Information needs
3. Sources of information
4. Dissemination modes
5. Responsibility and timing

4–39
Shale Oil Research Project Communication Plan

FIGURE 4.8
4–40
Estimating Times and Costs

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Learning Objectives
1.To explain the importance of estimating
project times and costs are the foundation for
project planning and control
2.To explain the awareness of the methods,
uses, and advantages and disadvantages of
top-down and bottom-up estimating methods
3.To suggest estimating guidelines for time,
cost, and resources

1–42
Estimating Projects
 Estimating
 The process of forecasting or approximating the
time and cost of completing project deliverables.
 The task of balancing expectations of stakeholders
and need for control while the project is
implemented.
 Types of Estimates
 Top-down (macro) estimates: analogy, group
consensus, or mathematical relationships
 Bottom-up (micro) estimates: estimates of
elements
of the work breakdown structure

5–43
Why Estimating Time and Cost Are
Important

• To support good decisions.

• To schedule work.
• To determine how long the project should take and
its cost.
• To determine whether the project is worth doing.
• To develop cash flow needs.
• To determine how well the project is progressing.
• To develop time-phased budgets and establish the
project baseline.

EXHIBIT 5.1
5–44
Factors Influencing the Quality of Estimates

Planning
PlanningHorizon
Horizon

Other
Other Project
Project
(Nonproject)
(Nonproject) Duration
Factors Duration
Factors

Quality
Qualityof
of
Organization
Organization Estimates
Culture
Estimates People
People
Culture

Padding
Padding Project
ProjectStructure
Structure
Estimates
Estimates and
andOrganization
Organization

5–45
Estimating Guidelines for Times,
Costs, and Resources

1. Have people familiar with the tasks make the

estimate.
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient
methods, and a normal level of resources.
4. Use consistent time units in estimating task
times.
5. Treat each task as independent, don’t aggregate.
6. Don’t make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.
5–46
Top-Down versus Bottom-Up Estimating
 Top-Down Estimates
 Are usually are derived from someone who uses
experience and/or information to determine the
project duration and total cost.
 Are made by top managers who have little
knowledge of the processes used to complete the
project.
 Bottom-Up Approach
 Can serve as a check on cost elements in the WBS

by rolling up the work packages and associated

cost accounts to major deliverables at the work
package level.
5–47
Estimating Projects: Preferred
Approach

 Make rough top-down estimates.

 Develop the WBS/OBS.
 Make bottom-up estimates.
 Develop schedules and budgets.
 Reconcile differences between top-down and
bottom-up estimates

5–48
Top-Down and Bottom-Up Estimates

FIGURE 5.4
5–49
Level of Detail
 Level of detail is different for different levels
of management.
 Level of detail in the WBS varies with the
complexity of the project.
 Excessive detail is costly.
 Fosters a focus on departmental outcomes
 Creates unproductive paperwork
 Insufficient detail is costly.
 Lack of focus on goals
 Wasted effort on nonessential activities

5–50
Types of Costs
 Direct Costs
 Costs that are clearly chargeable to a specific
work package.
 Labor, materials, equipment, and other
 Direct (Project) Overhead Costs
 Costs incurred that are directly tied to an
identifiable project deliverable or work package.
 Salary, rents, supplies, specialized machinery
 General and Administrative Overhead Costs
 Organization costs indirectly linked to a specific
package that are apportioned to the project

5–51
 Contract Bid Summary Costs

Direct costs $80,000

Direct overhead $20,000
Total direct costs $100,000
General and Administrative overhead (20%) $20,000
Total costs $120,000
Profit (20%) $24,000
Total bid $144,000

FIGURE 5.5
5–52
Three Views of Cost

FIGURE 5.6
5–53
Refining Estimates
 Reasons for Adjusting Estimates
 Interaction costs are hidden in estimates.
 Normal conditions do not apply.
 Things go wrong on projects.
 Changes in project scope and plans.
 Adjusting Estimates
 Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.

5–54
Creating a Database for Estimating

FIGURE 5.7
5–55
Developing a Project Plan

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1–56 All Rights Reserved
Learning Objectives
1. To diagram a project network using AON
methods
2. To determine early, late, and slack activity
times and identify the critical path
3. To explain the importance of slack in
scheduling projects.
Developing the Project Plan
 The Project Network
 A flow chart that graphically depicts the sequence,
interdependencies, and start and finish times of
the project job plan of activities that is the critical
path through the network.
 Provides the basis for scheduling labor and equipment.
 Enhances communication among project participants.
 Provides an estimate of the project’s duration.
 Provides a basis for budgeting cash flow.
 Identifies activities that are critical.
 Highlights activities that are “critical” and can not be
delayed.
 Help managers get and stay on plan.
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WBS/Work Packages to Network

FIGURE 6.1
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WBS/Work Package to Network
(cont’d)

FIGURE 6.1 (cont’d)

6–60
Constructing a Project Network
 Terminology
 Activity: an element of the
A
project that requires time.
 Merge Activity: an activity
that has two or more B D
preceding activities on which it
depends.
 Parallel (Concurrent)
Activities: Activities that can C
occur independently and, if
desired,
not at the same time.
6–61
Constructing a Project Network
(cont’d)
 Terminology
 Path: a sequence of connected, dependent
activities.
 Critical path: the longest path through the
activity network that allows for the completion of
all project-related activities; the shortest
expected time in which the entire project can be
completed. Delays on the critical path will delay
completion of the
C
entire project.

A B D
(Assumes that minimum of A + B > minimum of C in length of times to complete activities.)

6–62
Constructing a Project Network
(cont’d)
 Terminology
 Event: a point in time when an activity is started

or completed. It does not consume time.

 Burst Activity: an activity that has more than
one activity immediately following it (more than
one dependency arrow flowing from it). B
 Two Approaches
 Activity-on-Node (AON)
A C
 Uses a node to depict an activity.
 Activity-on-Arrow (AOA)
 Uses an arrow to depict an activity.
D
6–63
Basic Rules to Follow in Developing
Project Networks
1. Networks typically flow from left to right.
2. An activity cannot begin until all preceding
connected activities are complete.
3. Arrows indicate precedence and flow
and can cross over each other.
4. Each activity must have a unique identify
number that is greater than any of its
predecessor activities.
5. Looping is not allowed.
6. Conditional statements are not allowed.
7. Use common start and stop nodes.
6–64
Activity-on-Node Fundamentals

FIGURE 6.2
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Activity-on-Node Fundamentals (cont’d)

FIGURE 6.2 (cont’d)

6–66
Network Information

TABLE 6.1
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Koll Business Center—Partial Network

FIGURE 6.3
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Koll Business Center—Complete Network

FIGURE 6.4
6–69
Network Computation Process
 Forward Pass—Earliest Times
 How soon can the activity start? (early start—ES)
 How soon can the activity finish? (early finish—EF)
 How soon can the project finish? (expected time—
ET)
 Backward Pass—Latest Times
 How late can the activity start? (late start—LS)
 How late can the activity finish? (late finish—LF)
 Which activities represent the critical path?
 How long can activity be delayed? (slack or float—
SL)

6–70
Network Information

TABLE 6.2
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Activity-on-Node Network

FIGURE 6.5
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Activity-on-Node Network Forward Pass

FIGURE 6.6
6–73
Forward Pass Computation
 Add activity times along each path in the
network (ES + Duration = EF).
 Carry the early finish (EF) to the next activity
where it becomes its early start (ES)
unless…
 The next succeeding activity is a merge
activity, in which case the largest EF of all
preceding activities is selected.

6–74
Activity-on-Node Network Backward Pass

FIGURE 6.7
6–75
Backward Pass Computation
 Subtract activity times along each path in the
network (LF - Duration = LS).
 Carry the late start (LS) to the next activity
where it becomes its late finish (LF) unless
 The next succeeding activity is a burst
activity, in which case the smallest LF of all
preceding activities is selected.

6–76
Determining Free Slack (or Float)
 Free Slack (or Float)
 Is the amount of time an activity can be delayed
after the start of a longer parallel activity or
activities.
 Is how long an activity can exceed its early finish
date without affecting early start dates of any
successor(s).
 Allows flexibility in scheduling scarce resources.
 Sensitivity
 The likelihood the original critical path(s) will
change once the project is initiated.
 The critical path is the network path(s) that has
(have) the
6–77
least slack in common.
Activity-on-Node Network with Slack

FIGURE 6.8
6–78
Illogical Loop

FIGURE 6.10
6–79
Air Control Project—Network Diagram

FIGURE 6.11
6–80