IGNOU MBA

Course Code : MS - 52

Course Title : Project Management

Assignment Code : MS-52/SEM - I /2011

Coverage : All Blocks

Note: Answer all the questions and send them to the Coordinator of the Study Centre you are attached
with.

Q1. What are the phases of a Project Development Cycle? Give the salient tasks under each
phase.
Solution : The Project Life Cycle refers to a logical sequence of activities to accomplish the project’s
goals or objectives. Regardless of scope or complexity, any project goes through a series of stages during
its life. There is first an Initiation or Birth phase, in which the outputs and critical success factors are
defined, followed by a Planning phase, characterized by breaking down the project into smaller
parts/tasks, an Execution phase, in which the project plan is executed, and lastly a Closure or Exit phase,
that marks the completion of the project. Project activities must be grouped into phases because by doing
so, the project manager and the core team can efficiently plan and organize resources for each activity,
and also objectively measure achievement of goals and justify their decisions to move ahead, correct, or
terminate. It is of great importance to organize project phases into industry-specific project cycles. Why?
Not only because each industry sector involves specific requirements, tasks, and procedures when it
comes to projects, but also because different industry sectors have different needs for life cycle
management methodology. And paying close attention to such details is the difference between doing
things well and excelling as project managers.

Diverse project management tools and methodologies prevail in the different project cycle phases. Let’s
take a closer look at what’s important in each one of these stages: 

1) Initiation
In this first stage, the scope of the project is defined along with the approach to be taken to deliver the
desired outputs. The project manager is appointed and in turn, he selects the team members based on their
skills and experience. The most common tools or methodologies used in the initiation stage are Project
Charter, Business Plan, Project Framework (or Overview), Business Case Justification, and Milestones
Reviews.

2) Planning
The second phase should include a detailed identification and assignment of each task until the end of the
project. It should also include a risk analysis and a definition of a criteria for the successful completion of
each deliverable. The governance process is defined, stake holders identified and reporting frequency and
channels agreed. The most common tools or methodologies used in the planning stage are Business Plan
and Milestones Reviews.

3) Execution and controlling

The most important issue in this phase is to ensure project activities are properly executed and controlled.
During the execution phase, the planned solution is implemented to solve the problem specified in the

Page 1
project's requirements. In product and system development, a design resulting in a specific set of product
requirements is created. This convergence is measured by prototypes, testing, and reviews. As the
execution phase progresses, groups across the organization become more deeply involved in planning for
the final testing, production, and support. The most common tools or methodologies used in the execution
phase are an update of Risk Analysis and Score Cards, in addition to Business Plan and Milestones
Reviews.

4) Closure
In this last stage, the project manager must ensure that the project is brought to its proper completion. The
closure phase is characterized by a written formal project review report containing the following
components: a formal acceptance of the final product by the client, Weighted Critical Measurements
(matching the initial requirements specified by the client with the final delivered product), rewarding the
team, a list of lessons learned, releasing project resources, and a formal project closure notification to
higher management. No special tool or methodology is needed during the closure phase.

Q2. What are the traditional methods of financial evaluation of the projects? Give a
comparative analysis of these methods.
Solution :
The project evaluation process involves more than just determining a project's expected revenues and
profitability; it also involves a study of the key factors that affect a project and their financial impact on
the project. In addition, a project evaluation includes strategic evaluation, economic evaluation and social
impact evaluation

FINANCIAL EVALUATION
The financial evaluation of a commercial project mainly involves estimating the return on investment and
the profitability of the project. However, the financial evaluation of non-commercial projects involve the
identification of the most efficient way of delivering the desired project outputs and ensuring that the
project outputs result in significant benefits to the community.

Financial appraisal includes the compilation of the list of alternative projects and the associated streams
of costs and benefits. The financial evaluation is conducted using the cash flow rather than accounting
profits method. The accuracy of the evaluation will ultimately depend on:
•The quality of the estimates on which the cash flows are based
•The identification of all relevant cash flows and
•The exclusion of all non-cash items.

For another perspective, before-tax, no-debt cash flows may also be calculated and compared to the
project's total cost. The four primary figures of merit are:

Net Present Value: Net Present Value (NPV) is the sum of all years’ discounted after-tax cash flows.
The NPV method is a valuable indicator because it recognizes the time value of money. Projects whose
returns show positive NPVs are attractive.

Internal Rate of Return: Internal rate of return (IRR) is defined as the discount rate at which the after-
tax NPV is zero. The calculated IRR is examined to determine if it exceeds a minimally acceptable return,
often called the hurdle rate. The advantage of IRR is that, unlike NPV, its percentage results allow
projects of vastly different sizes to be easily compared.

Page 2
Cost of Energy: To calculate a levelized cost of energy (COE), the revenue stream of an energy project is
discounted using a standard rate (or possibly the project's IRR) to yield an NPV. This NPV is levelized to
an annual payment and then divided by the project’s annual energy output to yield a value in cents per
kWh. The COE is often used by energy policy analysts and project evaluators to develop first-order
assessments of a project’s attractiveness. The levelized COE defines the stream of revenues that
minimally meets the requirements for equity return and minimum debt coverage ratio. Traditional utility
revenue requirement analyses are cost-based, ie., allowed costs, expenses, and returns are added to find a
stream of revenues that meet the return criteria. Market-based Independent Power Producer (IPP) and
Generating Company (GenCo) analyses require trial-and-error testing to find the revenues that meet debt
coverage and equity return standards, but their COEs likewise provide useful information.

Payback Period: A payback calculation compares revenues with costs and determines the length of time
required to recoup the initial investment. A Simple Payback Period is often calculated without regard to
the time value of money. This figure of merit is frequently used to analyze retrofit opportunities offering
incremental benefits and end-user applications.

INTERNAL RATE OF RETURN METHOD

The second time-adjusted criterion for the appraisal of a project is the internal rate of return. This refers to
the rate of return that is earned by a project. It equals the present value of cash inflows with the present
value of cash outflows i.e. it is the discount rate at which the NPV of the project is zero.
If the IRR of a project is greater than the cost of capital, the project should be accepted. In this case, the
cost of capital is also called the hurdle rate. The IRR is represented by the following formula:

Where CFt = Cash inflows at different time periods

r = internal rate of return
n = Life of the project
To develop a better understanding of the calculation of the IRR, take a look at the following examples:
Firm XYZ Ltd. is planning to invest Rs 65,000 in its new project. This project is expected to last for 5
years. Its estimated cash flows are Rs 12,500, Rs 15,300, Rs 16,700, Rs 13,400 and Rs 14,300 for the year
one, two, three, four and five respectively.

The IRR can be calculated using the following formula:

Page 3
Using the trial and error method, different rates are substituted in the formula to find out which value can
equalize the two sides of the formula. Let us first substitute “r” with 4%; then the left hand side of the
equation changes to:

By using 4%, the value derived after solving the equation is less than Rs 65000. Hence, we take 3%.

By using 3%, the value derived after solving the equation is more than Rs 65000. It is therefore clear that
the actual IRR lies somewhere between 3% and 4%. Using interpolation, we find out a single value of
IRR. The actual IRR calculated using interpolation is 3.67%. When the payback period is given, the IRR
can be calculated as follows:

Where PB = Payback period

DFr = Discount factor for interest rate r
DFrL = Discount factor for lower interest rate
DFrH = Discount factor for higher interest rate.

Suppose a project's payback period is 3.52 years. Its initial investment is Rs 75000 and its average annual
cash flows are Rs 21300. Then discount factors closer to
3.52 are 3.605 at 12% and 3.517 at 13%. From this we can assume that the IRR is between 12% and 13%.
We can calculate the actual IRR with the help of the above formula.

The merits of this criterion are:

•It takes into account the time value of money.
•It considers all cash flows.

Drawbacks of this method are:

•It involves complicated calculations.
•It gives multiple rates of return when there is a series of changes in cash flows i.e. cash inflows and
outflows.
•In case of mutually exclusive projects, the IRR method might accept a project with higher IRR but with a
relatively low NPV. This is because the IRR assumes that all the cash inflows are again invested in the
project at the internal rate of return.

Page 4
The evaluation criteria for the project using the IRR method are:
•The project is accepted when the IRR is greater than the cost of capital or required rate of return.
•The project is rejected when the IRR is less than the cost of capital or required rate of return.
•The project reaches the point of indifference when the IRR is equal to the cost of capital or the required
rate of return.
•When there are mutually exclusive projects, the one with the highest IRR must be selected.

AVERAGE RATE OF RETURN METHOD

This method is also known as the accounting rate of return as it considers the accounting profits of a firm
over a period of time. ARR is represented as follows:
ARR = average annual income x 100/average investment throughout the life of the
Project

Consider the following example:

Two machines, P and Q, with an estimated salvage value of Rs 2500 have an initial cost of Rs 36500 and
an estimated life of 5 years. Depreciation is charged on the basis of the straight line method.
The merit of this criterion is that it is easy to calculate and understand. However, the demerit of this
method is that it uses accounting profits instead of cash flows.

The evaluation criteria using this method are:

•The project is accepted when the actual ARR is greater than the required ARR.
•The project is rejected when the actual ARR is less than the required ARR.
•When there are mutually exclusive projects, the one with the highest
ARR but more than the cut off ARR must be selected

PAYBACK PERIOD METHOD:

This is the most commonly and widely used method for the appraisal of capital investment decisions
regarding projects. This criterion evaluates a project on the basis of the speed with which it recovers its
initial investment. It can be computed in two ways: When the cash inflows after tax (CFAT) are the same
every year the following formula is used:
Payback period = Initial investment /CFAT

The major advantages of this criterion are:

•Like ARR it is easy to calculate PB.
•It takes into account cash flows (and is hence superior to ARR).
•It helps identify projects which can earn quick returns (useful in industries where rapid technological
change is common).

This criterion has the following drawbacks:

•It does not consider the cash flows after the payback period.
•It does not consider the timing of cash flows.
•It does not show whether or not the project that has been accepted is going to maximize the wealth of the
stakeholders.

Page 5
The evaluation criteria for this method are:
•The project is accepted when the actual payback period is less than the required or predetermined
payback period.
•The project is rejected when the actual payback period is greater than the required or predetermined
payback period.
•When there are mutually exclusive projects, the one with the lowest payback period but less than cut off
payback period must be selected.

DISCOUNTED PAYBACK PERIOD METHOD

Unlike the payback method, this criterion takes into account the discounted cash flows of a project. In this
method, cash flows are discounted at the cost of capital, which shows the time value of money as well as
the riskiness of the cash flows. The decision rule for this criterion is to accept the project with less
payback period or when the accumulated discounted cash flows are equal to the initial investment.

The discounted payback period is measured as follows:

The evaluation criteria for this method are:

•The project is accepted when the actual discounted payback period is less than the required or
predetermined payback period.
•The project is rejected when the actual discounted payback period is greater than the required or
predetermined payback period.
•Where there are mutually exclusive projects, the one with the least discounted payback period but less
than the cut off payback period must be selected.

APPRAISAL TECHNIQUES IN PRACTICE FOR VARIOUS TYPES OF PROJECTS

•The most commonly used method for conducting a financial appraisal of small projects requiring less
financial investments is the payback method.

•For larger projects, the average rate of return is commonly used as the principal criterion and the
payback period is used as a supplementary criterion.
•Discounted cash flow (DCF) techniques are now being increasingly used to evaluate large investments.

•Many other criterias are used for evaluating investments: profit per rupee invested (calculates the actual
profit earned in terms of each rupee invested); cost saving per unit of product (calculates the amount of
savings on the cost of production per unit); and investment required to replace a worker (calculates the
additional amount required to replace an existing worker).

CAVEATS FOR IMPROVED FINANCIAL EVALUATION

•The appraisal criteria for evaluating projects should be standardized. The use of many methods makes
comparison between projects difficult.
•The approach followed for evaluating projects must be clearly defined. Vague qualitative phrases should
be substituted by quantitative measures wherever possible. This is necessary to promote understanding
and avoid confusion.
•Discounted cash flow techniques should receive greater emphasis. They are theoretically superior and
practically feasible.
•To sum up, the evaluation must be carried out in explicit, well defined, preferably standardized terms and
should be based on sound economic principles. Investment decision-making must be based on a careful
and sound evaluation of the available data.

Page 6
CONCLUSION
The selection of a technique essentially depends on whether the projects are independent or mutually
exclusive and whether or not capital rationing is applied to them. Firms generally use the discounted cash
flow method as the primary evaluation technique and conventional methods as secondary techniques for
evaluating a single project. Project evaluation techniques help a firm maximize wealth by determining the
right project to be undertaken from the various alternatives available to the firm. The finance managers of
a firm are responsible for choosing a project evaluation technique that would best suit the organization's
requirements.

Q3. Discuss the usefulness of matrix organization in project management. Also explain the
recent trend in organization design.
Solution : Matrix Management is a type of organizational management in which people with similar
skills are pooled for work assignments. For example, allengineers may be in one engineering department
and report to an engineering manager, but these same engineers may be assigned to different projects and
report to a project manager while working on that project. Therefore, each engineer may have to work
under several managers to get their job done.

The matrix

Some organizations fall somewhere between the fully functional and pure matrix. These organizations are
defined in the Guide to the Project Management Body of Knowledge (PMBOK) 4th Edition as composite.
For example, even a fundamentally functional or matrix organization may create a special project team to
handle a critical project.
Whereas project-centered organizations (like those in engineering, construction or the aerospace
industries) have structures built around project teams as their functional units, matrix organizations follow
the traditional structures, with some adjustments to their hierarchy to support project units

There are a lot of different styles of matrix organizations. In each, the end goal is to create harmony
between all the needs of the manager, but the means to reach that end are different. The three main kinds
of matrix structures are the weak matrix, the strong matrix, and the balanced matrix. In this article, the
advantages and disadvantages of the weak matrix structure type will be examined.

Weak Matrix Organization Structure When a project manager is assigned to oversee a group that is
organized in this manner, it can be a complicated task. The project manager has to facilitate all aspects of
the project. They actively plan and assess the project's progress, but don't really have any sway when it
comes to the employees. Therefore they must rely on the tools available to the actual managers to really
control the workers.

Employees in this organization are not attached to temporary management staff, or to temporary projects,
because it is another manager entirely who is responsible for promotions. These "functional managers"
and the work they assign becomes the primary goal of employees, and any other projects and managers
take a back seat. This means that the project manager has to combat strong apathy from his workers in
order to be successful.

What's worse, since the project manager has no actual authority on the project, the only thing truly in his
power in the case of a failing project is to report the negative results to a functional manager. The project

Page 7
manager hopes that the functional manager will straighten out and refocus the employees on the project,
but this doesn't always happen.

However, don't forget, functional managers must aspire to the responsibility for overseeing work
performance in his/her functional area. So that the workers engaged in the current project's tasks don't
decrease the productivity of the functional unit as a whole. A result this significantly occurs between
functional managers, project managers, and individual workers.

When this happens, the unfortunate loser is typically the project manager. In this kind of matrix
organization, the project manager is usually a weak figure that holds little sway over his crew.

Advantages and disadvantages

The advantages of a matrix include:

 Individuals can be chosen according to the needs of the project.

 The use of a project team which is dynamic and able to view problems in a different way as
specialists have been brought together in a new environment.
 Project managers are directly responsible for completing the project within a specific deadline
and budget.
Whilst the disadvantages include:

 A conflict of loyalty between line managers and project managers over the allocation of
resources.
 Projects can be difficult to monitor if teams have a lot of independence.
 Costs can be increased if more managers (ie project managers) are created through the use of
project teams.

New Organizational Logic

EMERGING TRENDS IN ORGANIZATIONAL STRUCTURE

Except for the matrix organization, all the structures described above focus on the vertical organization;
that is, who reports to whom, who has responsibility and authority for what parts of the organization, and
so on. Such vertical integration is sometimes necessary, but may be a hindrance in rapidly changing
environments. A detailed organizational chart of a large corporation structured on the traditional model
would show many layers of managers; decision making flows vertically up and down the layers, but
mostly downward. In general terms, this is an issue of interdependence.

In any organization, the different people and functions do not operate completely independently. To a
greater or lesser degree, all parts of the organization need each other. Important developments in
organizational design in the last few decades of the twentieth century and the early part of the twenty-first
century have been attempts to understand the nature of interdependence and improve the functioning of
organizations in respect to this factor. One approach is to flatten the organization, to develop the
horizontal connections and de-emphasize vertical reporting relationships. At times, this involves simply
eliminating layers of middle management. For example, some Japanese companies—even very large

Page 8
manufacturing firms—have only four levels of management: top management, plant management,
department management, and section management. Some U.S. companies also have drastically reduced
the number of managers as part of a downsizing strategy; not just to reduce salary expense, but also to
streamline the organization in order to improve communication and decision making.

In a virtual sense, technology is another means of flattening the organization. The use of computer
networks and software designed to facilitate group work within an organization can speed
communications and decision making. Even more effective is the use of intranets to make company
information readily accessible throughout the organization. The rapid rise of such technology has made
virtual organizations and boundarlyless organizations possible, where managers, technicians, suppliers,
distributors, and customers connect digitally rather than physically.

A different perspective on the issue of interdependence can be seen by comparing the organic model of
organization with the mechanistic model. The traditional, mechanistic structure is characterized as highly
complex because of its emphasis on job specialization, highly formalized emphasis on definite procedures
and protocols, and centralized authority and accountability. Yet, despite the advantages of coordination
that these structures present, they may hinder tasks that are interdependent. In contrast, the organic model
of organization is relatively simple because it de-emphasizes job specialization, is relatively informal, and
decentralizes authority. Decision-making and goal-setting processes are shared at all levels, and
communication ideally flows more freely throughout the organization.

A common way that modern business organizations move toward the organic model is by the
implementation of various kinds of teams. Some organizations establish self-directed work teams as the
basic production group. Examples include production cells in a manufacturing firm or customer service
teams in an insurance company. At other organizational levels, cross-functional teams may be
established, either on an ad hoc basis (e.g., for problem solving) or on a permanent basis as the regular
means of conducting the organization's work. Aid Association for Lutherans is a large insurance
organization that has adopted the self-directed work team approach. Part of the impetus toward the
organic model is the belief that this kind of structure is more effective for employee motivation. Various
studies have suggested that steps such as expanding the scope of jobs, involving workers in problem
solving and planning, and fostering open communications bring greater job satisfaction and better
performance.

Saturn Corporation, a subsidiary of General Motors (GM), emphasizes horizontal organization. It was
started with a "clean sheet of paper," with the intention to learn and incorporate the best in business
practices in order to be a successful U.S. auto manufacturer. The organizational structure that it adopted is
described as a set of nested circles, rather than a pyramid. At the center is the self-directed production
cell, called a Work Unit. These teams make most, if not all, decisions that affect only team members.
Several such teams make up a wider circle called a Work Unit Module. Representatives from each team
form the decision circle of the module, which makes decisions affecting more than one team or other
modules. A number of modules form a Business Team, of which there are three in manufacturing.
Leaders from the modules form the decision circle of the Business Team. Representatives of each
Business Team form the Manufacturing Action Council, which oversees manufacturing. At all levels,
decision making is done on a consensus basis, at least in theory. The president of Saturn, finally, reports
to GM headquarters.

THE FUTURE

Industry consolidation—creating huge global corporations through joint ventures, mergers, alliances, and
other kinds of inter-organizational cooperative efforts—has become increasingly important in the twenty-

Page 9
first century. Among organizations of all sizes, concepts such as agile manufacturing, just-in-time
inventory management, and ambidextrous organizations are impacting managers' thinking about their
organizational structure. Indeed, few leaders were likely to blindly implement the traditional hierarchical
structure common in the first half of the century. The first half of the twentieth century was dominated by
the one-size-fits-all traditional structure. The early twenty-first century has been dominated by the
thinking that changing organizational structures, while still a monumental managerial challenge, can be a
necessary condition for competitive success.

Q4. Elaborate the concept of Earned Value of the Budget in PERT/COST System.
Solution : Earned Value Management :

Earned Value Management (EVM) is a systematic project management process used to indicate variances
in projects in an objective manner, based on the evaluation of the work performed compared to the work
planned.  When properly applied to a project, EVM provides and early warning indication of project
performance issues.  

EVM uses principles of Earned Value (EV), which is a project management tool used to measure project
performance.  EV is essentially an approach for project managers to monitor the project plan, actual work,
and work completed to verify if the project is performing as expected.

In simple terms EV compares the actual project performance to the planned performance with respect to
budget and schedule at any point in time during the project.

Why Use Earned Value?

Earned Value can be a valuable project management tool, but the utility of it must be understood for it to
be used correctly.  EV indentifies the variances in a project and informs a project manager on what is
occurring in a project, but does not identify the "source" or "cause" for the variance, nor does it address
the required action necessary for the "correction" of the variance.

Earned Value provides an objective assessment of project performance and once introduced can provided
a common understanding and perspective among project mangers regarding the metrics of project
performance.

The other major benefit to using EV is the ability to evaluate the performance of a project at any point
during the project's life cycle, not just at the completion of a project.  How many times have you come to
the end of a project and learned that the project performance did not meet expectations?  By the end of the
project it is too late to take any corrective action.  Earned Value allows project managers to evaluate and
monitor their project through out the project life cycle, which will allow for better project control.

Key Components to Earned Value

There are three key components to EV that are used when evaluating projects for EVM.
•   Project Budget - The budget has two values that are used for EV, which are; 
o   Budgeted Cost of Work Schedule (BCWS) - BCWS is the baseline cost up to the current date. 
o   Actual Cost of Work Performed (ACWP) - ACWP are the actual cost required to complete all or some
portion of the tasks to the current date. 

Page
10
o   Project Schedule -  The project schedule has two values that are used for EV, which are; 
  Scheduled Time for Work Performed (STWP)

  Actual Time of Work Performed (ATWP)

o   Value of Work Performed - This is the value earned (reported percent complete) by the work
performed and is referred to as the Budgeted Cost of Work Performed (BCWP).

Earned Value Graph

The final outcome of an EV analysis is a three line graph showing cost over time for a project, which
helps visualizes the key values used in EV.  The three lines indicated are the BCWS, ACWP, and BCWP
as described above.  From reading the graph you can determine project variances as identified in Figure 1.
. 

Figure 
In this example looking at the data date the project is behind where it should be as indicated by the
variance between BCWP and BCWS, and the project is over budget as indicated by the variance between
the ACWP and BCWS. Responding to Earned Value Earned Value is great, but they are not more than
performance indicators and don't tell the whole story, make decisions, or take action on a project, so that
is where the project manager must intervene and regain control over the project.  The project manager
should not only question cost and schedule overruns, but should also question cost and schedule
underruns as identified below.

Cost / Budget Variances

•   A positive variance indicates that the project is ahead of schedule or under budget. Positive variances
might enable you to reallocate money and resources from tasks or projects with positive variances to tasks
or projects with negative variances. 

Page
11
•   A negative variance indicates that the project is behind schedule or over budget and you need to take
action. If a task or project has a negative CV, you might have to increase your budget or accept reduced
profit margins.

Q5. Explain the concept of CYBERNETICS applied to project management.

Solution:
In project management field, there are few things that can cause a project to require the control
performance, costs or time.

Performance:
− Unexpected technical problems arise.
− Insufficient resources are available when needed.
− Insurmountable technical difficulties are present.
− Quality or reliability problems occur.
− Client requires changes in system specifications.
− Inter functional complications arise.
− Technological breakthroughs affect the project.

Cost:
− Technical difficulties require more resources.
− The scope of the work increases.
− Initial bids or estimates were too low.
− Reporting was poor or untimely.
− Budgeting was inadequate.
− Corrective control was not exercised in time.
− Input price changes occurred.

Time:
− Technical difficulties took longer than planned to solve.
− Initial time estimates were optimistic.

Page
12
− Task sequencing was incorrect.
− Required inputs of material, personnel, or equipment were unavailable when needed.
− Necessary preceding tasks were incomplete.
− Customer-generated change orders required rework.
− Governmental regulations were altered.

And these are only a few of the relatively “mechanistic” problems that project control can occur.
Actually, there are no purely mechanistic problems on projects. All problems have a human element, too.
For example, humans, by action or inaction, set in motion a chain of events that leads to a failure to
budget adequately, creates a quality problem, leads the project down to a technically difficult path, or fails
to note a change in government regulations. If, by chance, some of these or other things happen (as a
result of human action or not), humans are affected by them. Frustration, pleasure, determination,
hopelessness, anger and may other emotions arise during the course of a project. They affect the work of
the individuals who feel them – for better or worse. It is over this welter of confusion, emotion, fallibility,
and general cussedness that the PM tries to exert control.

All of these problems, always combinations of the human and mechanistic, call for intervention and
control by the project manager. There are infinite “slips” especially in projects where the technology or
deliverables are new and unfamiliar, and project managers, like most managers, find control is a difficult
function to perform. There are several reasons why this is so. One of the main reasons is that project
managers, again like most managers, do not discover problems. In systems as complex as projects, the
task of defining the problems is formidable, and thus knowing what to control is not a simple task.
Another reason control is difficult is because, in spite of an almost universal need to blame some person
for any trouble, it is often almost impossible to know if a problem resulted from human error or from the
random application of Murphy’s Law.

Project managers also find it tough to exercise control because the project team, even on large projects, is
an “in-group”. It is “we” while outsiders are “they”. It is usually hard to criticize friends, to subject them
to control. Further, many project managers see control as an ad-hoc process. Each need to exercise control
is seen as a unique event, rather than as one instance of an ongoing and recurring process. Whitten offers
the observation that projects are drifting out of control if the achievement of milestones is threatened. He
also offers some guidelines on how to resolve this problem and bring the project back in control.

Because control of projects is such a mixture of feeling and fact of human and mechanism, of causation
and random chance, we must approach the subject in an extremely orderly way. This why we start by
examining the general purposes of control. Then we consider the basic structure of the process of control.
We do this by describing control theory in the form of a cybernetic control loop. While most projects
offer little opportunity for the actual application of automatic feedback loops, the system provides us with
a comprehensive but reasonably simple illustration of all the elements necessary to control any system.
From this model, we then turn to the types of control that are most often applied to projects.
The design of control systems is discussed as are the impacts that various types of controls tend to have
on the humans being controlled. The specific requirement of “balance” in a control system is also
covered, as are two special control problems: control of creative activities, and control of change.

The process of controlling a project (or any system) is far more complex than simply waiting for
something to go wrong and the, if possible, fixing it. We must decide at what points in the project we
will try to exert control, what is to be controlled, how it will be measured, how much deviation from plan
will be tolerated before we act, what kinds of interventions should be used, and how to spot and correct
potential deviations before they occur. In order to keep these and other such issues sorted out, it is helpful
to begin a consideration of control with a brief exposition on the theory of control, No matter what our
purpose in controlling a project, there are three basic types of control mechanisms we can use: cybernetic

Page
13
control, go/no-go control and post-control. We will describe the first type and briefly discuss the
information requirements of each. While few cybernetic control systems are used for project control, we
will describe them here because they clearly delineate the elements that must be present in any control
system, as well as the information requirements of control systems.

Cybernetic control
Cybernetic or steering control is by far the most common type of control system.
The key feature of cybernetic control is its automatic operation. Consider the diagrammatic model of a
cybernetic control system shown in figure 1. As Figure 1 shows, a system is operating with inputs being
subjected to a process that transforms them into outputs. It is this system that we wish to control. In order
to do so, we must monitor the system output.
This function is performed by sensors that measure one or more aspects of the output, presumably those
aspects one wishes to control. Measurements taken by a sensor are transmitted to the comparator, which
compares them with a set of predetermined standards.
The difference between actual and standard is sent to the decision maker, which determines whether or
not the difference is of sufficient size to deserve correction. If the difference is
large enough to warrant action, a signal is sent to the effectors, which acts on the process or on the inputs
to produce outputs that conform more closely to the standard.

A cybernetic control system that acts to reduce deviations from standard is called a negative feedback
loop. If the system output moves away from the standard in one direction, the control mechanism acts to
move it in the opposite direction. The speed or force with which the control operates is, in general,
proportional to the size of the deviation from the standard. The precise way in which the deviation is
corrected depends on the nature of the operating system and the design of the controller. Figure 2
illustrates three different response patterns. Response path A is direct and rapid, while path B is more
gradual. Path C shows oscillations of decreasing amplitude. An aircraft suddenly deflected from a stable
flight path would tend to recover by following pattern C.

Types of cybernetic control systems

Cybernetic controls come in three varieties, or orders, differing in the sophistication with which standards
are set. Figure 1 show a simple, first order control system, a goal seeking device. The standard is set and
there is no provision made for altering it except by intervention from the outside. The common thermostat
is a time-worn example of a first order controller. One sets the standard temperature and the heating and
air-conditioning systems operate to maintain it.

Page
14
Figure 3 show a second-order control system. This device can alter the system standards according to
some predetermined set of rules or program. The complexity of second-order systems can vary widely.
The addition of a clock to a thermostat to allow it to maintain different standards during day and night
makes the thermostat a second-order controller. Am interactive computer program may alter its responses
according to a complex set of pre-programmed rules, but it is still only a second-order system. Many
industrial projects involve second-order controllers – for example, robot installations, flexible
manufacturing systems, and automated record keeping or inventory systems.

A third-order control system (Figure 4) can change its goals without specific preprogramming. It can
reflect on system performance and decide to act in ways that are not contained in its instructions. Third-
order systems have reflective consciousness and, thus, must contain humans. Note that a second-order

Page
15
controller can be programmed to recognize patterns and to react to patterns in specific ways. Such
systems are said to “learn”. Third order systems can learn without explicit preprogramming and therefore
can alter their actions on the basis of thought or whim. An advantage of third-order controllers is that they
can deal with the unforeseen and unexpected. A disadvantage is that, because they contain human
elements, they may lack predictability and reliability. Third order systems are of great interest to the PM
for reasons we now discuss.

Information requirements for cybernetic controllers

In order to establish total control over a system, a controller must be able to take a counter-action for
every action the system can take. This statement is a rough paraphrase of Ashby’s Law of Requisite
Variety. This implies that the PM\ controller is aware of the system’s full capabilities. For complex
systems, particularly those containing a human element, this is simply not possible. Thus we need a
strategy to aid the PM in developing a control system.
One such strategy is to use a cost\benefit approach to control – to control those aspects of the system for
which the expected benefits of control are greater than the expected costs. We are reminded of a firm that
manufactured saw blades. It set up a project to reduce scrap losses for the high-cost steel from which the
blades were made. At the end of the one year project, the firm had completed the project – cost $ 9700,
savings $4240. (Of course, if the savings were to be repeated for several years, the rate of return on the
project would be acceptable. The president of the firm, however, thought that the savings would decline
and disappear when the project ended.)

Relatively few elements of a project (as opposed to the elements of a system that operates more or less
continuously) are subject to automatic control. An examination of the details of an action plan will reveal
which of the project’s tasks are largely mechanistic and represent continuous types of systems. If such
systems exist, and if they operate across a sufficient time period to justify the initial expense of creating
an automatic control, then a cybernetic controller is useful.

Given the decisions about what to control, the information requirements of a cybernetic controller are
easy to describe, if not to meet. First, the PM must decide precisely what characteristics of an output
(interim output or final output) are to be controlled. Second, standards must be set for each characteristic.
Third, sensors must be acquired that will measure those characteristics at the desired level of precision.
Fourth, these measurements must be transformed into a signal that can be compared to a standard signal.
Fifth, the difference between the two is sent to the decision maker, which detects it, if it is sufficiently
large, and sixth, transmits a signal to the effectors that causes the operating system to react in a way that
will counteract the deviation from standard. If the control system is designed to allow the effectors to take
one or more of several actions, an additional piece of information is needed. There must be built-in
criteria that instruct the effectors on which action(s) to take.

Knowledge of cybernetic control is important because all control systems are merely variants, extensions
or non-automatic modifications of such controls. Because most projects have relatively few mechanistic
elements that can be subjected to classic cybernetic controls, this concept of control is best applied to
tracking the system and automatically notifying the project manager when things threaten to get out of
control.

Q6. The following information is given for a project

Activity : A B C D E F G
Immediate Predecessor : - A A C B,D D E,F
Time (Weeks) : 6 3 7 2 4 3 7

Page
16
 a) Draw the network
b) Identify Critical Path
c) Calculate the project completion time
d) Calculate the Float of each activity
solution : The following information is given for a project
Activity : A B C D E F G
Immediate Predecessor : - A A C B,D D E,F
Time (Weeks) : 6 3 7 2 4 3 7
Draw the network

3 (E,4)
(B,3)
(A,6)
6 7
1 2 (D1,0)
(G,7)

(C,7) (F,3)
4 5
(D,2)

Identify Critical Path

All possible paths are :

ABEG - sum of durations = 6+3+4+7 = 20
ACDFG – Sum of durations = 6+7+2+3+7 = 25
ACDD1EG – sum of durations = 6+7+2+0+4+7 = 26
Path with maximum duration = critical path = ACDD 1EG
or
Activity Duration Earliest Earliest Latest Latest Slack
Start (ES) Finish(EF) start(LS) Finish(LF) (Float)
A 6 0 6 0 6 0
B 3 6 9 12 15 6
C 7 6 13 6 13 0
D 2 13 15 13 15 0
D1 0 15 15 15 15 0
E 4 15 19 15 19 0
F 3 15 18 16 19 1
G 7 19 26 19 26 0

For critical activities LS = ES / Slack =0 ;

i.e Critical Path = ACDD1EG

Project Completion time = 26 weeks

Float for each activity ( last column from table above)

Page
17