PART 2 : MANAGING PERFORMANCE• PART 2: Managing Performance

• Chapter 4: Defining the project

Project management: the managerial
process

• Chapter 6: developing a project plan

Project management: the managerial process

• Chapter 5: Estimating project times and

costs Project management: the managerial
process

• Chapter 8: Scheduling resources and costs

Project management: the managerial process

• Chapter 7: Managing risk

Project management: the managerial process

Project Management
03-10-19 | 1
Where we are now

Project Management
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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.

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 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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PM’s IRON TRIANGLE
PRIORITY MATRIX
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 subdeliverables, and in turn,
their relationships to work packages.
• Best suited for design and build projects that have tangible
outcomes rather than process-oriented projects.

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WBS: simple example
Other WBS example
WBS template
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 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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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

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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? Stakeholder
communication based on power and interest grid! P. 120

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 Information Needs

• Project status reports

• Deliverable issues
• Changes in scope
• Team status meetings
• Gating decisions
• Accepted request changes
• Action items
• Milestone reports

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 Key Terms

• Cost account
• Milestone
• Organization breakdown structure (OBS)
• Scope creep
• Priority matrix
• Responsibility matrix
• Scope statement
• Process breakdown structure (PBS)
• Work breakdown structure (WBS)
• Work package

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PART 2 : MANAGING PERFORMANCE• PART 2: Managing Performance
• Chapter 4: Defining the project
Project management: the managerial process

• Chapter 6: developing a project plan

Project management: the managerial
process

• Chapter 5: Estimating project times and

costs Project management: the managerial
process

• Chapter 8: Scheduling resources and costs

Project management: the managerial process

• Chapter 7: Managing risk

Project management: the managerial process

Project Management
03-10-19 | 21
Where we are now

Project Management
03-10-19 | 22
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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Constructing a Project Network

• Terminology
• Activity: an element of the A
project that requires time.
• Merge Activity: an activity
that has two or more preceding
activities on which it depends. B D
• Parallel (Concurrent) Activities:
Activities that can occur
independently and, if desired,
not at the same time.
C

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 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 entire project.

A B D

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

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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)
• Uses a node to depict an activity. A C
• Activity-on-Arrow (AOA)
• Uses an arrow to depict an activity.
D

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 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.

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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)

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 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.

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 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.

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 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
least slack in common.

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 Practical Considerations

• Network Logic Errors

• Activity Numbering
• Use of Computers to Develop Networks
• Calendar Dates

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Hammock Activities

• Hammock Activity
• An activity that spans over a segment of a project.
• Duration of hammock activities is determined
after the network plan is drawn.
• Hammock activities are used to aggregate
sections of the project to facilitate getting
the right amount of detail for specific sections
of a project.

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 Key Terms

• Activity
• Activity-on-arrow (AOA)
• Activity-on-node (AON)
• Burst activity
• Critical path
• Early and late times
• Gantt chart
• Hammock activity
• Lag relationship
• Merge activity
• Network sensitivity
• Parallel activity
• Slack/float—total and free

Project Management
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PART 2 : MANAGING PERFORMANCE• PART 2: Managing Performance
• Chapter 4: Defining the project
Project management: the managerial process

• Chapter 6: developing a project plan

Project management: the managerial process

• Chapter 5: Estimating project times and

costs Project management: the
managerial process

• Chapter 8: Scheduling resources and costs

Project management: the managerial process

• Chapter 7: Managing risk

Project management: the managerial process

Project Management
03-10-19 | 35
Where we are now

Project Management
03-10-19 | 36
 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

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 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.
(A project’s baseline is defined as the original scope, cost and schedule.
The project’s baseline must be completely defined and documented before
the project execution and control activities can begin. It is the accepted
and approved plan. Performance can only be measured comparing to the
baseline.)

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Factors Influencing the Quality of
Estimates

Planning Horizon

Other
Project
(Nonproject)
Duration
Factors

Quality of
Organization Estimates People
Culture

Padding Project Structure

Estimates and Organization

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 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 (top management will, not
the PM!).
7. Adding a risk assessment helps avoid surprises
to stakeholders.

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Top-Down versus Bottom-Up Estimating

• Top-Down Estimates
• Are usually 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.

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Top-Down versus Bottom-Up Estimating

Conditions for Preferring Top-Down or Bottom-up

Time and Cost Estimates

Condition Macro Estimates Micro Estimates

Strategic decision making X
Cost and time important X
High uncertainty X
Internal, small project X
Fixed-price contract X
Customer wants details X
Unstable scope X

TABLE 5.1

03-10-19 pag. 42
 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

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 Top-Down Approaches for Estimating
Project Times and Costs

• Consensus methods
• Ratio methods
• Apportion method
• Function point methods for software and Project Estimate
system projects Times
Costs
• Learning curves

Project Management
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 Bottom-Up Approaches for Estimating
Project Times and Costs

• Template methods
• Parametric procedures applied to specific tasks
• Range estimates for
the WBS work packages
• Phase estimating: A hybrid

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 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

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 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

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 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.

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 Key Terms

• Apportionment methods
• Bottom-up estimates
• Contingency funds
• Delphi method
• Direct costs
• Function points
• Learning curves
• Overhead costs
• Padding estimates
• Phase estimating
• Range estimating
• Ratio methods
• Template method
• Time and cost databases

Project Management
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PART 2 : MANAGING PERFORMANCE• PART 2: Managing Performance
• Chapter 4: Defining the project
Project management: the managerial process

• Chapter 6: developing a project plan

Project management: the managerial process

• Chapter 5: Estimating project times and

costs Project management: the managerial
process

• Chapter 8: Scheduling resources and

costs
Project management: the managerial
process

• Chapter 7: Managing risk

Project management: the managerial process

Project Management
03-10-19 | 50
Where we are now

Project Management
03-10-19 | 51
 The Resource Problem

• Resources and Priorities

• Project network times are not a schedule
until resources have been assigned.
• The implicit assumption is that resources will be available in the
required amounts when needed.
• Adding new projects requires making realistic judgments of
resource availability and project durations.
• Cost estimates are not a budget
until they have been time-phased.

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The Resource Problem (cont’d)

• Resource Smoothing (or Leveling)

• Involves attempting to even out varying demands
on resources by using slack (delaying noncritical activities) to
manage resource utilization when resources are adequate
over the life of the project.
• Resource-Constrained Scheduling
• The duration of a project may be increased by delaying the
late start of some of its activities if resources are not
adequate to meet peak demands.

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Types of Project Constraints

• Technical or Logic Constraints

• Constraints related to the networked sequence
in which project activities must occur.
• Physical Constraints
• Activities that cannot occur in parallel or are affected by
contractual or environmental conditions.
• Resource Constraints
• The absence, shortage, or unique interrelationship and
interaction characteristics of resources that require a
particular sequencing of project activities
• Kinds of Resource Constraints
• People, materials, equipment

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 Classification of a scheduling problem

• Classification of Problem
• Using a priority matrix will help determine if
the project is time or resource constrained.
• Time-Constrained Project
• Must be completed by an imposed date.
• Time is fixed, resources are flexible: additional resources are
required to ensure project meets schedule.
• Resource-Constrained Project
• Is one in which the level of resources available cannot be
exceeded.
• Resources are fixed, time is flexible: inadequate resources
will delay the project.

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 Key Terms

• Resource-constrained projects
• Time-constrained projects
• Time-phased budget baseline

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PART 2 : MANAGING PERFORMANCE• PART 2: Managing Performance
• Chapter 4: Defining the project
Project management: the managerial process

• Chapter 6: developing a project plan

Project management: the managerial process

• Chapter 5: Estimating project times and

costs Project management: the managerial
process

• Chapter 8: Scheduling resources and costs

Project management: the managerial process

• Chapter 7: Managing risk

Project management: the managerial
process

Project Management
03-10-19 | 57
Where we are now

Project Management
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 Risk Management Process

• Risk
• Uncertain or chance events that planning can not overcome
or control.
• Risk Management
• A proactive attempt to recognize and manage internal
events and external threats that affect the likelihood of
a project’s success.
• What can go wrong (risk event).
• How to minimize the risk event’s impact (consequences).
• What can be done before an event occurs (anticipation).
• What to do when an event occurs (contingency plans).

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 Risk Management’s Benefits

• A proactive rather than reactive approach.

• Reduces surprises and negative consequences.
• Provides better control over the future.
• Improves chances of reaching project performance
objectives within budget and on time.

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 Managing Risk

• Step 1: Risk Identification

• Generate a list of possible risks through brainstorming, problem
identification and risk profiling (list of questions). RBS in line with WBS
• Macro risks first, then specific events
• Step 2: Risk Assessment
Methods:
• Scenario analysis for event probability and impact (scales)
• Risk assessment matrix; risk severity matrix (impact/probability)
• Failure Mode and Effects Analysis (FMEA): impact x probability x detection
= risk value (ability to see risk is imminent)
• Probability analysis
• Decision trees
• variations of NPV, and
• PERT (program evaluation and review technique; macro perspective – not
on individual event - looking at overall costs and schedule risks, so if
project will be completed in time/budget)
• Semiquantitative scenario analysis

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Managing Risk (cont’d)

• Step 3: Risk Response Development

• Mitigating Risk
• Reducing the likelihood an adverse event will occur.
• Reducing impact of adverse event.
• Avoiding Risk
• Changing the project plan to eliminate the risk or condition.
• Transferring Risk
• Paying a premium to pass the risk to another party.
• Requiring Build-Own-Operate-Transfer (BOOT) provisions.
• Retaining Risk
• Making a conscious decision to accept the risk.

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 Contingency Planning

• Contingency Plan
• An alternative plan that will be used if a possible foreseen risk
event actually occurs.
• A plan of actions that will reduce or mitigate the negative
impact (consequences) of a risk event.
• Risks of Not Having a Contingency Plan
• Having no plan may slow managerial response.
• Decisions made under pressure can be potentially dangerous
and costly.

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 Risk and Contingency Planning

• Technical Risks
• Backup strategies if chosen technology fails.
• Assessing whether technical uncertainties
can be resolved.
• Schedule Risks
• Use of slack increases the risk of a late project finish.
• Imposed duration dates (absolute project finish date)
• Compression of project schedules due to a shortened project
duration date (“crashing” a project to get back on track).

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 Risk and Contingency Planning (cont’d)

• Costs Risks
• Time/cost dependency links: costs increase when problems
take longer to solve than expected.
• Deciding to use the schedule to solve cash flow problems
should be avoided.
• Price protection risks (a rise in input costs) increase if the
duration of a project is increased.
• Funding Risks
• Changes in the supply of funds for the project can
dramatically affect the likelihood of implementation or
successful completion of a project (for example with a change
of CEO or political agenda for government funded projects).

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 Opportunity Management Tactics =
positive risk!

• Exploit
• Seeking to eliminate the uncertainty associated with an opportunity
to ensure that it definitely happens. (ex. Assigning best personnel to
a burst activity)
• Share
• Allocating some or all of the ownership of an opportunity to another
party who is best able to capture the opportunity for the benefit of
the project. (ex. Improvement incentives for contractors)
• Enhance
• Taking action to increase the probability and/or the positive impact of
an opportunity. (ex. Choosing site location with favourable weather or
choosing input materials that will likely decline in price)
• Accept
• Being willing to take advantage of an opportunity if it occurs, but not
taking action to pursue it.

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 Contingency Funding and Time Buffers

• Contingency Funds
• Funds to cover project risks—identified and unknown
• Size of funds reflects overall risk of a project.
• Budget reserves
• Are linked to the identified risks of specific work packages.
• Management reserves
• Are large funds to be used to cover major unforeseen risks (e.g.,
change in project scope) of the total project.
• Time Buffers
• Amounts of time used to compensate for unplanned delays in the
project schedule.
• For severe risk,
• merge activities (prone to delays due to preceding activities),
• noncritical activities (to reduce likelihood that they will create another
critical path), and
• scarce resource activities (to ensure availability of them when
needed).

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 Managing Risk (cont’d)

• Step 1 to 3: in formal document called “risk register” and is

backbone for risk control
• Step 4: Risk Response Control
• Risk control
• Execution of the risk response strategy
• Monitoring of triggering events
• Initiating contingency plans
• Watching for new risks
• Establishing a Change Management System
• Monitoring, tracking, and reporting risk (ex. in each status report)
• Fostering an open organization environment (ex. open communication,
reporting mistakes and those should not be punished severely)
• Repeating risk identification/assessment exercises
• Assigning and documenting responsibility for managing risk

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 Key Terms

• Avoiding risk
• Budget reserve
• Change management system
• Contingency plan
• Management reserve
• Mitigating risk
• Opportunity
Risk
• Risk breakdown structure (RBS)
• Risk profile
• Risk severity matrix
• Scenario analysis
• Sharing risk
• Time buffer
• Transferring risk

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