INVENTORY MANAGEMENT

Definitions

Inventory-physical resource that a firm holds in stock.

intent of selling it or transforming it into a more
valuable state

Inventory System- set of policies and controls and

monitors levels of inventory

Zero Inventory?
Reducing amounts of raw materials and purchased
parts and subassemblies by having suppliers deliver
them directly.
Reducing the amount of works-in process by using justin-time production.
Reducing the amount of finished goods by shipping to
markets as soon as possible.

Speculative
Lot Sizing or Cycle
Mistakes

How to Measure Inventory

Average Aggregate Inventory Value: how much of the
companys total assets are invested in inventory?
Weeks of Supply
Inventory Turnover (Turns)
Reasons Against Inventory
Non-value added costs
Opportunity cost
Complacency
Inventory deteriorates, becomes obsolete, lost, stolen,
etc.

Order Timing : Reorder Point (ROP)

When inventory is depleted to ROP, order
replenishment of quantity EOQ
ROP = D X LT
D = Demand rate per period
LT = lead time in periods

Inventory Costs
Procurement costs

Reasons for Inventories

Improve customer service
Economies of purchasing & production
Transportation savings
Hedge against future
Unplanned shocks (labor strikes, natural disasters,
surges in demand, etc.)
To maintain independence of supply chain

Order processing
Shipping
Handling
Purchasing cost:
c(x)= $100 + $5x
Mfg. cost:
c(x)=$1,000 + $10x

Carrying costs
Capital
(opportunity) costs
Inventory risk costs
Space costs
Inventory service
costs

Out-of-stock costs
Lost sales cost
Back-order cost

Independent Demand
items are finished products or parts that are shipped as
end items to customers.
Forecasting plays a critical role
Due to uncertainty- extra units must be carried in
inventory

Nature of Inventory
Quality - inventory can be a buffer against poor
quality; conversely, low inventory levels may force high
quality
Speed - location of inventory has gigantic effect on
Dependent Demand
speed
items are raw materials, component parts, or
Flexibility - location, level of anticipatory inventory both
subassemblies that are used to produce a finished
have effects
product.
Cost - direct: purchasing, delivery, manufacturing
MRP systems
indirect: holding, stockout.
HR systems may promote this-3 year postings Micro Issues
Functional Roles of Inventory
Order Quantity : Economic Order Quantity (EOQ)
Transit
Q = 2DCo/Ch
Buffer
D = annual demand
Seasonal
Co = ordering/setup costs
Decoupling
Ch = cost of holding one unit of inventory

Quantity Discount
1. Write out the total cost equation
2. Solve EOQ at highest price and no discounts
3. If Qmin falls in a range with a lower price, recalculate EOQ
assuming holding cost for that range. Call this Q2.
4. Evaluate the total cost equation at Q2 at the next highest price
break point.
OR Use a spreadsheet
Periodic Review Method
Q-system - each stock item reordered at different times
- complex, no economies of scope or common
prod./transport runs
P-system - inventory levels for multiple stock items
reviewed at same time - can be reordered together
Classifying Inventory Items : ABC Classification (Pareto Principle)
A Items: very tight control, complete and accurate
records, frequent review
B Items: less tightly controlled, good records, regular
review
C Items: simplest controls possible, minimal records,
large inventories, periodic review and reorder


Anticipatory Inventory Control
determine requirements by forecasting demand for the
next production run or purchase
establish current on-hand quantities
add appropriate safety stock based on desired stock
availability levels and uncertainty demand levels
determine how much new production or purchase
needed (total needed - on-hand)
Response-Based System
replenishment, production, or purchases of stock are
made only when it has been signaled that there is a
need for product downstream
requires shorter order cycle time, often more frequent,
lower volume orders
determine stock requirements to meet only most
immediate planning period (usually about 3 weeks)

Service Level Achieved

Item fill rate (IFR): the probability of filling

an order for 1 item from current stock

Weighted Average Fill Rate (WAFR): multiply

IFR for each stock item on an order weighted
by the ordering frequency for the item

Tighter coordination along the supply chain

Goods are pulled along- only make and ship what is needed
JIT Goals (throughout the supply chain)

Eliminate disruptions

Make the system flexible

Reduce setup times and lead times

Minimize inventory

Eliminate waste
Waste
Waste is anything other than the minimum amount of
equipment, materials, parts, space, and workers time, which are
absolutely essential to add value to the product.
Forms of Waste:

Overproduction

Waiting time

Transportation

Processing

Inventory

Motion

Product Defects

JUST-IN-TIME/LEAN PRODUCTION
A repetitive production system in which the processing and
movement of materials and goods occur just as they are needed!
Pre-JIT: Traditional Mass Production

Post-JIT: Lean Production

Manufacturing planning and control

Process Design

Focused Factories

Group Technology

Simplified layouts with little storage space

Jidoka (Stop everything when something goes wrong- a

form of stopping quality problems at their source) and
Poka-Yoke(failproofing: Examples are gasoline nozzles,
VCR cassettes (they are ejected if inserted incorrectly),
inkjet cartridges, etc)

Minimum setups
Personnel and Organizational Elements

Workers as assets

Cross-trained workers

Greater responsibility at lower levels

Leaders as facilitators, not order givers

Classic Organizational View

JIT Organization View

Inventory as a Waste

Requires more storage space

Requires tracking and counting

Increases movement activity

Hides yield, scrap, and rework problems

Increases risk of loss from theft, damage, obsolescence

Building Blocks of JIT

Product design
Standard parts
Modular design
Quality

Process design

Personnel and organizational elements

Planning and Control Systems

Small JIT

Stable and level schedules

Mixed Model Scheduling

Push versus Pull

o
o

o
o

Kanban Systems (Uses simple visual signals to

control production)
Examples:
empty slot in hamburger chute
empty space on floor
kanban card
Workcenter B uses parts produced by
Workcenter A
When a container is opened by Workcenter
B, its kanban card is removed and sent back
to Workcenter A.
Empty box sent back. Signal to pull another
full box into Workcenter B.
How Many Kanbans?

y
D
T
C
X

=
=
=
=
=

number of kanban cards

demand per unit of time
lead time
container capacity
fudge factor

Implementing JIT

Putting the Squeeze on Resources

Objective :The degree of compliance of a process or its outcome

with a predetermined set of criteria, which are presumed
essential to the ultimate value it provides

Quality measurement

Formulation of a medication

Subjective : The level of perceived value reported by the person

who benefits from a process or its outcome.

Pain relief provided

Products and services

Product:-tangible items produced.

Service :-refer to work done for clients or stakeholders

that does not result in the creation of tangible
deliverables.
Quality from engineering perspective
To ensure quality, both product and process design should be
done efficiently.
Traditional engineering
Short time to define the product
Long time to design and redesign the product
Long overall design time
Key to shorten the overall design time

define the product better

document the design process better

Shorter overall design time
A.

INTRODUCTION TO QUALITY
Quality is a dynamic state associated with products, services,
people, environment, process that meets or exceeds customer
expectation

approve, develop and implement product programs that

meet predetermined objectives.

B.

Traditional Product Development Cycle (PDCA)

PLAN :- Design or revise business process components

to improve results.

DO :- Implement the new processes.

CHECK :- Measure the results of the new processes and

compare the results against the expected results to
ascertain any differences.

ACT :- Analyze the differences to determine their cause.

Decide where to apply changes.
Concurrent Engineering
is a product development process in which appropriate
disciplines are committed to work interactively to conceive,

C.

The basic premises for concurrent engineering

all elements of a products life-cycle should be

taken into careful consideration in the early
design phases

The preceding design activities should all be

occurring at the same time, or concurrently.
It allows for errors and redesigns to be discovered early
in the design process when the project is still in a more
abstract stage.

Elements of a products life-cycle:

Functionality, Producibility, Assembly,
Testability, Maintenance , Environmental
impact, Disposal and recycling
Value engineering (VE)

is a systematic method to improve the "value" of

goods or products and services by using an
examination of function.

Value in VE is defined as the ratio of function to cost.

Value can therefore be increased by either improving

the function or reducing the cost.
Function :- What something does not what something is

Began at General Electric Company during

World War II.

Problem

Shortage of skilled labor, raw

materials and component parts

Solution

Suitable replacements for skilled

labor, raw material and components

Results achieved

Reduced costs and/or improved

product quality
Function ( s)
Value
Cost

DEFINITIONS OF QUALITY
General

No single definition
ISO 9000

ISO = the International Organization for

Standardization

ISO 9000 = Set of standards for quality

management

Quality should be defined relative to a set of

requirements
Joseph M. Juran

Fitness for use where fitness is always defined

by the customer
Frederick Smith

Performance to the standard expected by the

customer

To the customer this means best value for

money

Example FEDEX
Attributes of Product Quality
(Garvin (1984) from Harvard University)
1. Performance - product's primary operating characteristics.
2. Features -Extra items added to the performance which
supplement their basic functioning
3. Reliability -The probability a product functions over time
(Measure of reliability: mean time to first failure)
4. Conformance-Conformance is the degree to which a product's
design and operating characteristics meet established standards.
5. Durability -It is a measure of product life. Lifespan before
replacement.
6. Serviceability-Serviceability is the speed, competence, and ease
of repair.
7. Aesthetics-How a product looks, feels, sounds, tastes, or smells,
etc. (It is a subjective dimension of quality)
8. Perceived Quality -Subjective perceptions based on brand
names, advertising, etc.

7.

Professionalism :- the skill, competence, or character

expected of a professional
8. Timeliness :- customers waiting time, completed on
time
9. Completeness :- customer get all they asked for
10. Pleasantness :- whether the service brings feelings of
pleasure, enjoyment, or satisfaction
QUALITY THEORIES AND TOOLS
William Edwards Demming

Deming is perhaps the best-known quality pioneer.

His approach to quality was statistically based,
Early in his career, he worked at Western Electrics,
During World War II, he worked with U.S. defense
industries to improve the quality of military items
through statistical processes.
After World War II, Deming went to Japan under
government sponsorship to assist with a population
census

W Edwards Deming 14 points for Management:

1. Create constancy of purpose towards improvement. Replace
short-term reaction with long-term planning.
2. Adopt the new philosophy :-The implication is that
management should actually adopt his philosophy, rather than
merely expect the workforce to do so.
3. Cease dependence on inspection to achieve quality. Build
quality into the product in the first place.
4. End awarding business on the basis price tag. Move towards a
single supplier for any one item. Multiple suppliers mean variation
between feedstocks.
5. Constantly improve the system :-Constantly strive to reduce
variation.
Attributes of Service Quality
6. Institute training on the job :-If people are inadequately
1. Tangibles - physical elements of the service such as
trained, they will not all work the same way, and this will
facilities and equipment.
2. Service Reliability - dependability, accurate performance introduce variation.
3. Responsiveness - the willingness to help customers and 7. Improve leadership :-Deming makes a distinction between
leadership and mere supervision. The latter is quota- and targetprovide prompt service.
based.
4. Assurance - the ability to inspire trust and confidence
8.Drive out fear :- Management by fear is counter- productive in
5. Empathy - the degree to which customers are treated
the long term, because it prevents workers from acting in the
as individuals.
6. Availability :- services are easily accessible or obtainable organization's best interests.

9. Break down barriers between departments :-the concept of the

'internal customer', that each department serves not the
management, but the other departments that use its outputs.
10. Eliminate slogan :- Eliminate exhortations for the workforce;
Instead, focus on the system morale.
11. Eliminate work standards :- Eliminate quotas for production. It
encourages delivery of poor-quality goods.
12. Remove barriers to pride :- Remove barriers that rob people of
pride of workmanship
13. Institute education and self-improvement
14. Put everybody to work :- Include every one in the company to
accomplish the transformation.
Deming deadly disease
1. Lack of constancy of purpose
2. Emphasis on short-term profits
3. Evaluation of performance, merit rating or annual
review
4. Mobility of management
5. Running a company on visible figures alone
6. Excessive medical costs for employee health care
7. Excessive costs of warrantees
Joseph M Juran

Based on three processes.

Control versus breakthrough

Project-by-project improvement

* Pareto Law identified by Juran

* Pareto Law was named according to
Italian economist Vilfredo Pareto

Philosophy: Quality does not happen by accident, it has

to be planned.
The emphasis of his work is on

 planning
organizational issues
managements responsibility for quality
the need to set goals and targets for improvement
Management controllable defects account for over 80%
of the total quality problems.
Jurans beliefs on quality can be derived from:
management is largely responsible for quality
quality cannot be consistently improved unless the
improvement is planned.
planned improvement must be specific and
measurable
He defines quality as fitness for use or purpose
It is suggested that this definition is better than
conformance to specification, since a dangerous product
could conform to all specifications but still be unfit for use.
1. Quality planning
Identify who the customers are
Determine the needs of those customers
Translate those needs into our language
Develop a product that can respond to those needs
Optimize the product features so as to meet our needs
and customer need
2. Quality control
Prove that the process can produce the product under
operating conditions with minimal inspection
Transfer the process to Operations.
3. Quality improvement
Develop a process which is able to produce the product
Optimize the process
Pareto Principle
is suggested by Juran and he named it after Italian
economist Vilfredo Pareto
It states that, for many events, roughly 80% of the
effects comes from 20% of the causes

It is first observed by the Italian economist

Vilfredo Pareto that 80% of the land in Milan was
owned by 20% of the population.
The Pareto Principle p helps you realize that the
majority of results come from a minority of inputs

Assertions
Quality begins with education and ends with education
The first step in quality is to know the requirements of
the customer
The ideal state of quality control is when inspections is
no longer necessary
A Pareto chart is a type of chart that contains both bars and 95% of problems in a company can be solved by the 7
a line graph, where individual values are represented in
tools of quality(data analysis tools):
descending order by bars, and the cumulative total is
Histograms, Pareto Charts, Cause and Effect Diagrams,
represented by the line
Run Charts, Scatter Diagrams, Flow Charts/Process
It is used to identify the vital factors that are causing
Maps, Control Charts
most of the quality problems
Armand Feigenbaum
Concentrating improvement efforts on these few will
Wrote a TQC book and proposed a three step
have a greater impact and be more cost effective than
process for quality improvement:
undirected efforts.
Koura Ishikawa
* Basic tool of quality
1. Quality begins with education and ends with education
2. The first step in quality is to know the requirements of the
customer
3. The ideal state of quality control is when inspections is no
longer necessary
4. Remove the root causes, not the symptoms
5. Quality control is the responsibility of all workers and all
divisions
6. Do not confuse the means with the objectives
7. Put quality first and set your sights on long-term objectives
8. Marketing is the entrance and exit of quality
9. Top management must not show anger when facts are
presented to subordinates
10. 95% of the problems in a company can be solved by the 7
tools of quality
11. Data without dispersion information are false data.

1 - Quality leadership
2- Quality technology
3- Organizational commitment
For quality improvement he outlined 19 steps
of TQC with emphasis on organizational involvement.

an American quality control expert and businessman

He originated the approach to quality known as Total
Quality Control (TQC)
Philosophy
For quality improvement
all functions in an organization should be involved in the
quality process
quality should be built into the product rather than
failure being inspected out.
The overall method of Feigenbaum can be reduced to four
steps process
1. Set quality standards
2. Appraise conformance to standards
3. Act when standards are not met
4. Plan to make improvements

Commenced his career as a chemist, held a doctorate in

engineering and was an emeritus professor at Tokyo
University.
Believed that, firms must make everyone responsible for
statistical analysis and interpretation to be successful
Philip Crosby
Described by some as the Father of Quality Circles and
Focuses on customer satisfaction as a measure of quality
as a founder of the Japanese quality movement
control

 Zero Defect (ZD) = Do it right first time Do time

Also introduced 14 steps to improve quality, among
these:
Make it clear management is committed to Q
Form Q improvement teams with representatives from
each department
Raise Q awareness among all staff

Identify the problem

Brain storm the causes of the problem
Classify the causes by common factors into categories
Use the fishbone diagram to illustrate the cause and
effect

Q improvement through Crosbys 14 steps

1. Make it clear that management is committed to Q
2. From Q improvement teams with representatives from
each department
3. Determine how to measure where current and potential
Q problem lie
4. Evaluate the cost of Q and explain it use as a
management Tool
Histogram
5. Raise the Q awareness & personal concern of all
employees
6. Take formal actions to correct problems identified
through various steps
7. Establish a committee for zero defect program
8. Trains all employees to actively carry out their part of the
Q improvements
9. Hold a zerodefect day to let all employees realize that
there has been a change
10. Encourage individuals to establish improvement goals
for themselves and their groups
11. Establish a committee for zero defect program
12. Trains all employees to actively carry out their part of
the Q improvements
13. Establish quality councils to communicate on a regular
basis.
14. Do it all over again.
Fishbone Diagram
It is a graphical technique for grouping ideas about
the causes of a given quality problem
It helps to identify both the primary and secondary
causes of a problem
Procedure for developing the fishbone diagram:

Two distinct processes with different centers.

Identify between the two processes.

Process is ill defined

Run Chart
Run charts display process performance over time
It is easy to spot upward and downward trends, cycle,
etc. easily using run charts
Run chats can also be used to track improvements that
have been put into place
An average line can be added to a run chart to observe
movement of data away from the average
Scatter plot
Scatter plot is used to investigate a possible relationship
between two variables that relate to the same event
A straight line of best fit is often included
Scatter plots can be used to determine the type of
relationships that occur in a process
Positive correlation
Negative correlation

Flow chart
Graphical representation of a process
Steps in a process are shown with symbolic shapes and
the flow of the process is indicated with arrows connecting
the symbols.
Flowcharts can help
See whether steps of a process are logical
Uncover miscommunication ( process problems)
define boundaries of a process
Develop common base knowledge about a process
Control Chart
Control charts are used to identify commoncause and
specialcause variations in a process
"commoncause" is the usual, historical, quantifiable
variation in a system
"specialcauses" are unusual, not previously observed,
nonquantifiable variation.
All control chart types have three basic components
A centerline , usually the average of all the samples
plotted
Upper and lower statistical control limits that define the
constraints of common cause variations
Performance data plotted over time
The basic rule of statistical process control is:
Variation from commoncause systems should be left to
chance, but special causes of variation should be identified
and eliminated.
Special causes can be identified using tests such as:
Data point falling outside the control limit
steadily increasing or decreasing data points
Several data points in one side of the center line
Fourteen or more points alternating up and down
Six Sigma
Six Sigma is a business management strategy originally
developed by Motorola, it is used in many sectors of
industry.

Six Sigma seeks to improve the quality of process outputs

by identifying and removing the causes of defects and
minimizing variations using quality management tools.
Sigma rating is used to measure the defect rate of a
manufacturing process
A sixsigma process is one in which 99.99966% of the
products manufactured are statistically expected to be free
of defects (3.4 defects per million).

ISO Certification
ISO 9000 is a family of standards developed to provide a
framework around which a quality management system
can be effectively implemented.
ISO 9001:2000, the requirement standard, includes the
following main sections:
Quality Management System
Management Responsibility
Resource Management
Product Realization
Measurement Analysis and Improvement

Disseminate innovation
Safeguard consumers and users in general, of products
and services
Make life simpler by providing solutions to common
problems
In Malaysia, the department of standards Malaysia (DSM) is
mandated by the y government of Malaysia to function as
the National Standards Body (NSB) as well as National
Accreditation Body (NAB)
The Main Objectives of DSM are:
To promulgate, develop and promote national standards
To manage the national accreditation schemes in
accordance to the international practices
To maintain credibility, integrity and competency of the
national standardization and accreditation system
To safeguard the interest of Malaysia at a regional and
international levels in the fields of standardization and
accreditation.

Global Competitiveness
The Global Outlook
Better quality products and services will ensure higher
recognitions in terms of global competitiveness
International trade known no boundary but subject to
customers choice and demand plus other factors like
political matter. All of us are customers
Global competition is played out by different rules and
different stakes at each level C.K. Prahalad and Gary
Hamel
Customers groups set their own quality of product that
meet their need
Some Advantages of ISO certification
Customers in Europe and in Asia request different quality
Ensure that the development, manufacturing and supply
and different specification
of products and services are becoming more efficient, safer
According to World Economic Forum (WEF) (2009),
and cleaner.
competitiveness can be defined as the set of institutions,
Facilitate trade between countries and make it fairer
policies and factors that determine the level of productivity
Provide governments with a technical base for health
of a country
safety and environmental legislation
The twelve pillars of competitiveness
Share technological advances and good management
practice

Inhibitors to Competitiveness
Business/government related 7 deadly diseases by
Deming
Educationrelated factor the higher the education the
faster they become productive employees
Familyrelated factor the more motivated and
knowledgeable they are, the faster they learn and become
productive employees
Design for quality
Requires answer to set of questions :
What are the functions customer wants?
What are the capabilities of current products?
Are there better material available?
How much the product cost for successful marketplace?
What are critical attribute of performance?
How much performance does customer want?
Design for Quality Products and Services
Design process
Design engineer need to brainstorm to generate ideas:
- e.g. marketing, management, R&D and employee
and customers
Projection of customers future needs
- Intel producing microprocessors to fit the explosion of
graphic programs on the net at a faster rate than the
competing microprocessor developer

Process planning
Production planning
Service industries
When an organization decides to implement QFD, the
project manager and team members need to be able to
commit a significant amount of time to it, especially in the
early stages.
There are two types of teams:
Designing a new product
Improving an existing product
Time and interteam communication are two very
important things that each team must use to their fullest
potential
Team meetings are very important in the QFD process.
The team leader needs to ensure that the meetings are
run in the most efficient manner and that the members are
kept informed.
Duration of the meeting will rely on where the teams
members are coming from and what needs to be
accomplished.

Benefits of QFD
Improves Customer Satisfaction
Creates focus on customer requirements
Uses competitive information effectively
Prioritizes resources
Identifies items that can be acted upon
Structures resident experience/information
Quality Functions Deployment
Reduces Implementation Time
Quality function deployment (QFD) is a planning tool used Decreases midstream design changes
to fulfill customer expectations. It is a disciplined approach Limits post introduction problems
to product design, engineering, and production and
Avoids future application opportunities
provides in depth evaluation of a product.
Surfaces missing assumptions
QFD focuses on customer expectations or requirements, Promotes Teamwork
often referred to as the voice of the customer.
Based on consensus
It is employed to translate customer expectations, in
Creates communication at interfaces
terms of engineering or technical characteristics, that can
Identifies actions at interfaces
deployed through:
Creates global view out of details
Product planning
Provides Documentation
Part development
Documents rationale for design

Is easy to assimilate
Adds structure to the information
Adapts to changes (a living document)
Provides framework for sensitivity analysis
Organization of Information
Now, the customer expectations and needs have been
identified and researched, the QFD team needs to process
the information.
Methods include:
Affinity diagrams
Interrelationship diagrams
Tree diagrams
Causeandeffect diagrams
An Affinity Diagram should be used when:
Thoughts are too widely dispersed or numerous to
organize.
New solutions are needed to circumvent the more
traditional ways of problems solving.
Support for a solution is essential for successful
implementation.
Constructing an affinity diagram requires four simple
steps:
1. Phrase the objective.
2. Record all responses
3. Group the responses
4. Organize groups in an affinity diagram
Conclusion
QFD
Effective management tool
Customer expectations are used to drive design process
or to drive improvement in service industries
Advantages & Benefits
Orderly way of obtaining information & presenting it
Shorter product development cycle
Considerably reduced startup costs
Fewer engineering changes
Reduced chance of oversights during design process

- Mechanism e.g : Hand-over Document, Defects List, Defects

Environment of teamwork
Liability/
Guarantee Period, Performance Bond, As-built Drawings
Consensus decisions
Everything is preserved in writing
3.2 Control During Construction/Production
Entire organization constantly aware of customer
Control during this stage is most important
requirements
Two types of control
Marketingspecific sales points have been identified and
Time (Schedule) Control and
can be stressed
Cost Control
Results in satisfied customers
PROJECT CONTROL AND TERMINATION
Control Definition

Measuring what is actually achieved in a project with

regard to the OBJECTIVES (t, c, q), comparing it with a
baseline (referenced/original) performance and
monitoring and taking corrective measures should there
be unacceptable deviation from the baseline

Or simply tracking, monitoring and steering a project

so that the objectives will be met

Acting to bring expected cost overruns within

acceptable limits

Time or Schedule Control is concerned with

Determining the current status of the project schedule
Determining if the project schedule has changed
Influencing the factors that create schedule changes
Managing the actual changes as they occur

3.1 Control systems throughout the project

Control systems / mechanisms must be provided at each
stage of the project
Defining or Initiation Stage
- Needed for understanding of the business environment &
making sure all necessary controls are incorporated into the
Project
Time or Schedule Control: Progress Monitoring Using
- Mechanism e.g. : Cos Benefit Analysis; Budget ; Project
Comparison Bar Charts
Charter (wrt cost, time and quality)
Assume the progress of the activity as a direct linear
Planning and Design Stage
function of the elapsed time
- To ensure that the final product will satisfy the client and meet
Example: Road construction
the specifications of the Project Charter
- Mechanism e.g. Benchmarking using models or prototypes or
Cost Control
mock structure
Influencing the factors that create changes to the cost
Execution (Construction / production) stage
baseline
- To ensure all Plans are being executed and strictly followed
Recording and monitoring cost performance to detect
(Schedule Plan, Cost Plan, Quality Plan)
and understand changes from the cost baseline
- Mechanism e.g. Time control (Schedule Baseline, Progress
Assuring that potential cost overruns do not exceed the
Comparison Bar Charts, Re-scheduling/ Updates, etc.); Cost
authorized funding periodically and in total for the
control (Earn Value and S-curve); Resource leveling, Quality
project.
Control Tests
Informing appropriate stakeholders of approved
Delivering stage
changes
- To check the efficiency or quality of the product delivered

3.3 Earn Value and S-Curve

Earn value analysis compares the cost value of work
done with the value of work that should have been
done (i.e. the base-line)
Value of work done comprises of:
Indirect costs
Cost of materials delivered on sit
Cost of actual physical work on site
Earn value can also be presented in the form
of S-curve simpler and more widely used
S-curve examines and compares the value of work done
with the actual value or progress in terms of time
(delays) or amount (over or under-achievement)
Important Terms

Time-now is the date when progress is measured

Budget at Completion (BAC) is the original cost estimate

indicating the funds required to complete work

Percentage Complete (PC) (planned) is the planned

work progress up to time-now

Percentage Complete (PC) (actual) is the actual work

progress up to time-now

Earned Value (EV) is the budgeted cost of work actually

completed on that point of time (based on budgeted
rates).
EV = PC(actual) x BAC eg 25% x RM 2,500,000 =RM 625,000

Planned Value (PV) is the portion of cost of work

planned to have been spent between start date and
time-now
PV = PC (planned) x BAC

Actual Cost (AC) is the total actual cost incurred

between the start date and time-now

leveled i.e. distributed accordingly at the

required time to avoid or minimize
fluctuations in day-to-day use.
Resource Leveling (RL) makes use of floats or time
tolerances in the schedule to re-schedule resources and
bring back any deviation of actual progress from
schedule to within acceptable limits
RL applies to resources which are hired i.e. labour and
equipment as the need for these resources fluctuates
greatly as some activities start (requiring resources)
while other finish (releasing resources)
RL improves efficiency and minimize project cost (by
optimizing labour usage and cost)

STEPS:
Determine critical path and floats from network or other
techniques
Identify key resource and produce bar chart using network
data
Plot histogram of resource demand
Reschedule timing of activities using float to obtain a more
even demand profile
Redraw the resource profile
S CURVE:

3.5 Control in Project Termination

The Project Manager will continuously monitor, control
and manage the project to ensure the good progress.
But if PM finds the performance is very unsatisfactory
and/or contractor is no longer capable of continuing the
project, then PM may recommend to S.O. Termination
of the project. Performance Bond of the contract will
also be forfeited.
The procedure for issuing notice of termination must
follow conditions of contract e.g. adequate time given
for contractor to improve performance and adequate
notice or warning letters given to terminate the
contract.

3.6 Control in Project Completion and Handing Over

If then project has been successfully completed, then
3.4 Resource Allocation and Leveling
PM must certify this
Resources of a project need to be
In construction projects, completion refers to Practical
scheduled i.e. right amount of resources must
Completion - a stage where the project constructed
be allocated to a given task at the required
has achieved its intended function, or can be occupied
time
or used despite some outstanding work to be

completed, or some repair work which, if carried out,

will not cause inconvenience to the user or occupier.
The control mechanism used is Certificate of Practical
Completion issued to the contractor, together with a
list of outstanding works and defects observed in
project to be carried out or made good during a
Defects Liability Period
DLP is a guarantee period during which the contractor
has to complete any outstanding works or carry out
repairs to any defects in the completed facility, failing
which the Performance Bond will be forfeited.
Upon completion of the the project, a Handing Over
Document is prepared and signed by the client.This
starts the handing over of responsibility to the client for
the whole project.