BCM Workbook 1

BUSINESS AND CHANGE MANAGEMENT
PROJECT MANAGEMENT
WORKBOOK 1
Updated December 2021

Valid for exams from June 2022 to March 2023
Business and Change Management
First published 2016
CIPFA
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1: Project management
Table of contents
The syllabus ............................................................................. 1
Learning outcomes and content .................................................. 1
1 Introduction to Workbook 1 ..................................................... 3
1.1 Topic diagram .................................................................. 3
1.2 Project management process: an overview .......................... 4
1.3 Introduction to project management ................................. 4
1.4 Project methodologies ...................................................... 6
1.5 Project mandate............................................................... 8
1.6 Project start-up and initiation ............................................ 9
1.7 Project governance structures .......................................... 10
1.7.1 Project stakeholders ................................................. 10
1.7.2 Project accountant .................................................... 14
1.7.3 The role of the finance director ................................... 15
1.7.4 External stakeholders................................................ 15
1.8 Project details ................................................................ 16
1.8.1 Business case .......................................................... 16
1.8.2 Project outputs......................................................... 19
1.8.3 Quality plan ............................................................. 19
1.8.4 Measurement of success............................................ 20
1.9 Project Initiation Document ............................................. 22
1.10 Detailed project planning ............................................... 23
1.10.1 Stages .................................................................. 23
1.10.2 Products ................................................................ 24
1.10.3 Work packages ....................................................... 26
1.11 Establishing dependencies ............................................. 26
1.11.1 Network diagram .................................................... 27
1.11.2 Gantt charts ........................................................... 33
1.12 Communications plan .................................................... 35
1.12.1 Features of communication media............................. 36
1.13 Introduction to managing risk ........................................ 38
1.14 Identifying risks ........................................................... 39
1.14.1 Timing................................................................... 39
1.14.2 Inherent and residual risk ........................................ 39
1.14.3 Link to objectives ................................................... 40
1.15 Assessing risk .............................................................. 41
1.15.1 Risk appetite .......................................................... 41
1.15.2 Categorisation of risks ............................................. 44
1.15.3 Significance of risks ................................................ 45
1.16 Addressing risks – developing a suitable response ............ 48
16.1 .1 The four T model ................................................... 48
1.16.2 Types of control ...................................................... 49
1.17 Documenting risks ........................................................ 50
1.17.1 RAID log ................................................................ 51
1.18 Why projects fail .......................................................... 52
1.19 Government Gateway reviews ........................................ 53
1.19.1 The Gateway stages ................................................ 54
1.19.2 Review results ........................................................ 55
1.19.3 Benefits of Gateway reviews .................................... 55
1.20 Project closure ............................................................. 56
1.20.1 Closing out a project ............................................... 56
1.20.2 Post project review ................................................. 56
1.21 IT projects – specific issues ........................................... 57
1.22 Inadequate planning for IT projects ................................ 57
1.22.1 Inadequate budgeting ............................................. 57
1.22.2 Waterfall development ............................................ 59
1.23 Software acquisition methods ........................................ 59
1.23.1 Off the shelf software .............................................. 60
1.23.2 Bespoke development ............................................. 60
1.23.3 Software as a service .............................................. 61
1.23.4 Hardware acquisition – cloud computing .................... 62
1.24 Systems development lifecycle – bespoke systems
development ................................................................ 63
1.24.1 The Waterfall method .............................................. 63
1.24.2 The agile approach ................................................. 64
1.25 e-business projects ....................................................... 66
1.25.1 e-government ........................................................ 67
1.25.2 Transformational government .................................. 69
1.25.3 Mixed success ........................................................ 71
1.25.4 e-government – the future....................................... 71
1.26 Information systems and the law .................................... 72
1.26.1 IT projects and governing codes of conduct ............... 73
1.26.2 Legislation ............................................................. 74
1.27 Models to deliver process improvement ........................... 76
1.28 Lean thinking ............................................................... 76
1.28.1 Elimination of waste ................................................ 77
1.28.2 Kaizen ................................................................... 78
1.28.3 Six Sigma .............................................................. 79
1.28.4 Combining Six Sigma and Kaizen .............................. 80
1.28.5 Value analysis ........................................................ 80
1.29 Just in time systems ..................................................... 83
1.30 Servqual ..................................................................... 85
1.31 Identifying quality problems .......................................... 87
1.31.1 Control charts ........................................................ 87
1.31.2 Pareto diagrams ..................................................... 88
1.31.3 Cause and effect diagrams ....................................... 88
Summary ............................................................................... 90
Quiz questions ........................................................................ 92
Quiz answers ...................................................................... 93
Scenarios ............................................................................... 95
Exercise solutions .............................................................. 104
The syllabus
Syllabus aim
Discuss, evaluate and apply key tools and techniques to ensure the
successful management of projects including the specific issues
associated with IT projects and process change.
Learning outcomes and content

Discuss, evaluate and apply the tools and techniques required to
plan and control a project.
▪ The benefits of the PRINCE2 project management method
▪ Waterfall and agile approaches
▪ Project mandate
▪ Project start up and initiation and the Project Initiation

Document
− stakeholders and governance structures including the role
of the accountant and the finance director
− defining the business case, the outputs and the measures
of quality and success
▪ Detailed project planning

− Project stages
− Product hierarchies and the work breakdown structure
− Establishing dependencies including interpretation of
network diagrams and Gantt charts ( NOT their
construction)
− Communications plans
▪ Managing risk
− Identifying risks
− Assessing risk and risk appetite
− Addressing risk and the 4T model
− Documenting risk – use of a RAID log
− Government Gateway reviews
1
Discuss the importance of the post-project review process
▪ Closing out a project
▪ Post project review

Discuss and evaluate the specific project management issues arising
in IT projects
▪ Consequences of inadequate planning in IT projects
▪ Acquisition methods including buy or build and SaaS, host or

cloud
▪ Systems development lifecycle
▪ The importance of e-commerce and e-government
▪ Impact of information
Discuss, evaluate and apply the key models used in projects to
deliver process improvement
▪ Lean thinking
− Elimination of waste and Kaizen
− Six Sigma
− Combining Kaizen and Six Sigma approaches
− Value analysis
− Just in time production and purchasing systems
▪ Servqual
▪ Identifying quality problems

Note
All CIPFA learning materials and examinations use £ (pounds) and
p (pence) as the designated currency.
2
1 Introduction to Workbook 1
Once an organisation has decided upon a strategic direction and
identified its strategic goals, action must be taken to ensure its
desired outcomes are achieved. Each goal will require a programme
of projects and activities to be designed and managed to ensure the
outcomes associated with that goal are realised.
We will consider in later workbooks how a change programme is run
and managed, but first, in this workbook, we will look at how the
individual projects and activities within a programme can be defined
and implemented.
We will also look at some of the specific considerations which must
be addressed when undertaking IT based projects, and the
techniques which can be applied to deliver process improvement.
1.1 Topic diagram
MANAGING
PROJECTS
Methodologies IT projects Delivering

process
Initiation Software
acquisition and
development Lean Thinking
Planning
E-business Just in Time

Implementation
(managing risk)
Legislation Servqual
Closure
Identifying
quality
problems
3
1.2 Project management process: an overview
1.3 Introduction to project management

A project may be defined as ‘a temporary endeavour undertaken to
accomplish a unique purpose1’ or to give it the full definition from
the International Organisation for Standardisation ISO9001:
“…a unique process, consisting of a set of coordinated and
controlled activities with start and finish dates, undertaken to
achieve an objective conforming to specific requirements,
including the constraints of time, cost, and resources.”
A project is designed to deliver one or more outputs in accordance
with an agreed business case. A particular project may or may not
be part of a larger programme designed to deliver business change.
1
Bidgoli, H (2004) The Internet Encyclopaedia, Volume 3, New Jersey: J Wiley and Sons
2
Gido, J and Clements, J (2011), Successful Project Management, South-Western; 5th Revised edition
3
Fryer J, (04 August 2006) The steamy truth about the Roman Bath [Online] Available
4
Key features of a project:

• Coordinated and controlled – the aim of this workbook is to
explain how this is achieved.
• Start and finish dates – projects should be formally started and
formally closed out. The start of the project should trigger a
series of activities and processes that together achieve success.
• Undertaken to achieve an objective – this is essential – the
organisation must put forward a business case to justify why
the project is needed and ensure that money is only spent on
achieving approved objectives. If the business case is not
sufficiently robust the project should not be undertaken.
• The constraints of time, cost, and resources – it is the impact of
these constraints on achieving a project’s objectives that gives
rise to the need for the coordination and control described
above.
The projects we will be looking at within the BCM syllabus are those
undertaken by an organisation to bring about a change in
organisational capabilities such as in the scenarios below.
EXAMPLE1
In each of the scenarios that accompany the course there are a
number of projects to be undertaken by the organisation. We will
use a few of them to illustrate the principles of project management
as we go through this workbook:
The Hartshap Hotel Chain plans to open a new flagship hotel. Cost
£40 million
Colswell City Council is planning a reorganisation to create a Social
Care and Housing for Older People (SCHOP) directorate and move
into new premises. Cost £200 000
Cloud Airlines intend to build and staff a new transatlantic terminal
at Tadnow airport. Cost £2.3 billion (i.e. £2 300 million)
Note that the projects are very different sizes but they all meet the
basic definition of a project.
Project management
A successful project is one that achieves its objectives on time and
within budget. It will therefore need a controlled start, middle and
close and for that the project must be managed. There is no single
5
correct way to manage a project but one well-known management

method is PRINCE2.
PRINCE2 is a project management method specifically designed to
ensure that projects achieve their objectives. The name stands for
PRojects IN Controlled Environments and the method was
established by the Office of Government Commerce (OGC) in the UK.
PRINCE2, now commonly used in practice, is simply an updated
version of the original PRINCE.
PRINCE2 contains:
▪ clear structures of authority and responsibility

▪ standard templates for all key documents
▪ coordination of all people and activities involved in the project
▪ built in quality controls
▪ methods for dealing with deviations from plan.
The method has attracted criticism suggesting that it:
▪ creates too much paperwork

▪ requires too much time to follow every process through
▪ is not necessary for small scale projects
▪ is not flexible enough for complex projects.
However, in practice the basic principles of PRINCE2 are used
extensively by private companies and national governments alike as
the project management standard.
Although the detailed stages and activities in PRINCE2 are beyond
the scope of the syllabus, many of the project management methods
detailed below are incorporated within the PRINCE2 method.
1.4 Project methodologies

Project methodologies were first developed in the manufacturing and
construction industries which have a long history of managing
complex projects. The most well-known is the waterfall method
which takes a logical sequential approach to running projects.
This traditional approach to project management is known as the
waterfall method because it represents a steady flow of activities
down through the project phases with each waterfall phase
completed and signed off before the next one is commenced. The
aim to ensure greater project and deadline control. The structured
approach of the PRINCE2 project management method was designed
to work effectively with the waterfall methodology.
6
The stages are:
▪ Project start up and initiation: The project team first analyses,

then determines and prioritises business requirements, needs
and objectives. The project scope is determined and fixed so
that designs can be based on exact requirements.
▪ Project planning: The best way to meet user needs is

established and project plans are developed and designed. The
logic behind the waterfall approach is that it is essential to get
the design stage right before any plans are implemented, to
avoid expensive changes later.
▪ Project implementation: The project is commenced. Each stage

in the project is completed and must be signed off before the
next one is started.
▪ Project closure, evaluation and maintenance.

Advantages of the waterfall approach
▪ Easy to plan because the full project scope is defined in

advance.
▪ Simple to communicate and manage as the project has discrete,

easily recognised phases and clear milestones to progress.
▪ Well known and understood.
▪ Emphasis on documentation so that should individual team

members leave the project, no knowledge is lost.
EXAMPLE2
The waterfall method could be applied to each of the three projects
we discussed above. However, consider the related Hartshap Hotel
project to launch a new website, booking system and loyalty
scheme. The marketing director does not know exactly what can be
achieved nor how the system will work. It is therefore difficult to
plan the whole project in advance. It is this kind of project that gives
rise to the disadvantages discussed below.
7
Disadvantages
The major disadvantage of the waterfall method is that project
outcomes are not seen until the end of each stage. If the project is
not meeting the customer’s needs, it may not be clear that the
project outputs are not what was required until late in the project
execution at which point it is more difficult to remedy.
The waterfall method is therefore of limited use where the project
scope or detailed requirements cannot be determined in advance.
This is typically the case in information and communications
technology (ICT) projects where systems are being implemented to
both capture transactional records and provide business intelligence.
To ensure success, user input will be needed throughout the
development process. Feedback should be provided regularly so the
initial scope can be constantly refined to better meet the customer
needs.
In recent years the IT industry, which deals with complex (ICT)
projects, has developed an alternative technique known as ‘Agile’ for
managing the software development phase of projects. The
techniques associated with Agile can be applied to the management
and governance of all projects where there is a high degree of
complexity and uncertainty – factors which can make the waterfall
approach too cumbersome.
We will look at the Agile approach in the section below on IT
projects.
1.5 Project mandate

Before a project is begun it must first be approved by someone with
suitable authority within the organisation. Ideally this approval will
take the form of a formal project mandate from senior management.
A project mandate is a short document which contains the basic
terms of reference used to initiate the project. It should briefly
explain the scope of the project, the hoped for outcomes, the
anticipated timescales and the available budget.
Whether the project is stand-alone or one of many related projects
which form part of a change programme, the role it will play in
achieving the organisation’s strategic objectives must be clearly
identified.
8
EXAMPLE3
Project mandates for:
The new flagship hotel in the Hartshap chain:
A five star standard 200 bed hotel in the capital city in a boutique
style but still reflecting local culture. Hotel to have underground
competition standard 25m indoor pool, health suite and gymnasium
plus parking for 50 cars.
The budget is approximately £40 million opening date May 2018.
Cloud Airlines transatlantic terminal
An innovative, energy efficient, transatlantic terminal on the site of
Tadnow airport to accommodate the smooth management of
approximately 6 million passengers taking 42 000 flights per year.
About 40 000 square metres with car parking for 1 200 cars. A full
range of shops and restaurants to service and delight the customers.
The project is expected to cost in the region of £2.3 billion and the
airport should be fully operational by the end of 2020.
Colswell Social Care and Housing for Older People (SCHOP) division
An autonomous division to operate out of the existing Housing and
Adult Social Care directorate. The division should be responsible for
the social care and housing budgets for older people in Colswell. It
should be located in Council Building B and have taken over all
budget responsibility by December 2016.
The budget for the reorganisation is £200 000 and the new division
is to be fully operational by December 2016.
1.6 Project start-up and initiation

Exercise 1.1
Imagine you have been asked to plan the hotel build for Hartshap.
Before you start the detailed planning phase is there anything else
you’d need to know?
To convert a project from an abstract idea to a series of practical

activities designed to achieve the project objectives, requires a clear
plan of approach which explains what is to be delivered, when it
should be delivered by, and how the promised outputs should be
achieved.
9
The aim of the project start-up and initiation phase is to define this
planned approach. At the end of this phase, the following details
should be clear:
▪ The project governance structures

− Identifying who is doing what – the project stakeholders.
− Identifying other stakeholders with an interest in the
project.
▪ The project details

− The business case.
− The expected outputs.
− The criteria for success.
Once the details have been clarified, the key information needed to
start the project is drawn together into a Project Initiation Document
(PID), which can be formally signed off by the project board to
trigger the start of the detailed planning process, and communicated
to all relevant stakeholders.
1.7 Project governance structures

One of the first activities involved in starting a project is identifying
all those stakeholders who will have an interest in the process. Some
will have specific roles and responsibilities in carrying out the project
whilst others will have an interest in the outcomes but no direct
involvement.
Effective stakeholder engagement is a key part of ensuring a
successful project and failure to keep stakeholders involved and on-
side is a common cause of project failure. Once they have been
identified, the various stakeholder groups should be included in the
formal communications plan and a strategy for managing them
developed. Communications plans are covered in more detail later in
the workbook.
1.7.1 Project stakeholders

The project stakeholders who have particular roles and specific
responsibilities for the success of the project can be represented in a
hierarchy as shown in the diagram below2:
2
Gido, J and Clements, J (2011), Successful Project Management, South-Western; 5th Revised edition
10
Named individuals or groups should be appointed to each of the

roles in the hierarchy, with a clear allocation of responsibility and
authority between them. Information usually passes up through the
hierarchy for review, approval or problem solving. The frequency,
format and recipients of project reports from the different
stakeholders in the hierarchy should be agreed in advance to ensure
control and effective decision making.
Project sponsor
For a project to be successful it must have support at a sufficiently
high level within the organisation’s management structure. In other
words, it must have a sponsor.
The sponsor may be a single senior manager or a project board. The
sponsor will have ultimate responsibility for the project’s success and
final approval for the funding. The sponsor is also the ‘voice’ of the
project when communicating with other parts of the organisation or
external stakeholders.
PRINCE2 requires all projects to have a project board to act as the
project sponsor and be responsible for the overall direction and
management of the project. It is the board who will approve all
11
major plans and authorise any major deviations. It is made up of

representatives from each of senior management, the main user
group and those providing the supplies or specialist input.
Project client
The project’s client is the individual(s) or organisation that
specifically requested or required the project outputs. It is the client
that details the project requirements.
In many cases there is no distinction between the sponsor and the
client. However consider the example of a school art department
which requires a new pottery studio. The school’s executive board
approves the project and agrees to provide funding. The board is the
therefore the sponsor. However the client, who will work with the
project manager on the details of the project, is the head of the art
department.
Project customer
The customer is the end user of the project outputs and it is their
needs the project is designed to meet. In the example of the school
art department the customers will be the children who use the studio
and the teachers who work with them there.
For many projects there will be more than one customer. For
example, a new computer system may be used by a number of
different departments within an organisation. Customers may also
be external to the organisation – a project to build a new retail
website will have the buying public as well as the sales department
as its customers. In such instances working with customers to
ensure their needs are met will require greater levels of
coordination.
Project manager
The project manager is responsible for managing all aspects of the
project in order to achieve the stakeholders’ objectives. It will be the
project manager that feeds back information on schedules and
status reports from the team to the other stakeholders. This includes
managing the:
▪ People – project team, suppliers, stakeholders
▪ Process – planning, organising and controlling all the activities

required to achieve the project objective
▪ Product – delivering the end result on-time, within budget and

to the specification required.
12
It would be extremely unusual for any large scale project not to

have a formally appointed experienced project manager. The
advantages of using a professional project manager are usually
considered too far outweigh the potential disadvantages.
The benefits include:
▪ Reduced final cost resulting from efficient use of resources and

careful adherence to the project plan
▪ Higher quality outcomes from better communication between

stakeholders and effective management of the project team
▪ Achievement of all project outcomes from coordinated planning

and formal processes.
The criticisms levelled at project management can be split into three
areas:
Criticism Defence
Additional overheads
Project managers are expensive A good project manager should
and do not themselves produce coordinate communication and
a tangible outcome but therefore eliminate rather than
coordinate the activities of bring about misunderstandings
others. between project team members
They also introduce an The efficiency savings made by
additional layer of running a well-coordinated project
communication between are likely to be far greater than
management and the project the cost of the project manager’s
team which could mean time salary.
delays and potential
misunderstandings when
information is transferred.
Process orientation
There are many project The advantage of an experienced
methodologies and processes project manager is that they will
governing the way a project is understand where using the
managed. methodologies will add value and
Project managers may become where a simpler approach may be
focused on ensuring the more suitable.
methods and processes are
followed rather than having the
planned project outcomes as
their overriding priority.
13
Criticism Defence
Reduction in creativity
The focus on managing The need for creativity was one of
resources and delivering within the driving forces behind the
agreed timeframes does not development of the Agile project
allow for the creativity needed to methodology discussed in the IT
devise new and better solutions section below. Agile overcomes
or alternative ways of achieving the rigidity associated with some
the end (and potentially better) project management methods.
result. However to use an Agile approach
is more complex than a standard
one and without an experienced
project manager the risk of
project failure is far higher.
Project team
A project team is often brought together specifically for the project
and will:
▪ Be responsible for carrying out the individual project tasks

required to deliver the final project outcomes
▪ Contain people from different departments and/or organisations

and from different disciplines
▪ Often be managed outside the normal management structure
▪ Be led by the project manager.

It will therefore be important to agree job descriptions and
management structures before commencement of the project.
1.7.2 Project accountant

A key role in the project team is that of the project accountant. The
project accountant is responsible for managing, updating and
monitoring the project budget. The project accountant will report
directly to the project manager. You were introduced to the concept
of project accounting in your Management Accounting studies.
The key features of project accounting are:
▪ Project finances are recorded in a separate account from

operational spending.
▪ Because project spending is harder to predict than day to day

operational spending, it is essential that a rolling budget
14
approach is taken and the impact of current information is used

to update future forecasts.
▪ One of the major components of many project budgets is the

labour cost. The use of labour time will therefore need to be
reforecast throughout the project and the updated predictions
used to recalculate the expected labour cost.
▪ Cross departmental charges. Disagreements can arise when

staff are taken from operational departments to work on a
project. Departmental heads may wish to charge the project
budget for the time spent by staff from their department and it
is vital that the specifics of any such charges are determined
and agreed in advance to prevent later difficulties.
1.7.3 The role of the finance director

The organisation’s finance director is likely to sit on the project
board of most major projects.
As finance experts their specific focus will be on monitoring the
objectives of the business case (discussed below) and determining
the effect of any changes on the anticipated financial benefits.
They are also usually responsible for resolving resource issues. It is
common for there to be conflicts over staff availability and finance,
whether between specific projects or between project spending and
operational spending. The finance director will have the authority to
review budgets and allocate resources as needed.
1.7.4 External stakeholders

It will be an essential part of the project manager’s role to identify
the various stakeholder groups and provide the information needed
by the project sponsor to ensure they are managed effectively.
The identification and management of external stakeholders is
covered in detail in your Strategy and Policy development module.
Exercise 1.2
For the three projects we are using decide who are the sponsors /
clients and suggest the main stakeholder groups which would need
to be involved in the project process.
15
1.8 Project details

Before the detailed project planning can begin, the justification for
and expectations from the project must be properly understood by
all those involved.
The project manager must therefore ensure that they have defined
the:
▪ Business case
▪ Project outputs
▪ Quality plan
▪ Measures of success.
1.8.1 Business case

It will be important for the project manager and team to understand
why the project is being undertaken. The business case provides the
formal justification of the project and a base against which the
ongoing viability of the project can be evaluated.
The detailed components of a business case will be explored in
CIPFA’s strategic level module Strategic Public Finance, but the key
elements are described below. A project business case should
include:
▪ The reasons for undertaking the project i.e. the project

objectives – these may be business reasons and/or legal ones
▪ The other options considered and why this particular option has
been chosen
▪ The benefits expected from the project e.g. increased revenues

/ margins
▪ Approximate costs
▪ Approximate timescales - the date by which major milestones

should be achieved
▪ Summary of the main risks
▪ Supporting investment appraisal calculations.

If a convincing business case cannot be made for the project, then
the process should not continue further. The project sponsor, in
conjunction with the client and the project manager, should review
the options available and determine an alternative course of action.
16
In drawing up the business case there will always be a trade-off

between three key factors:
▪ Cost – the budget agreed

Public service organisations (PSOs) in particular are limited by
the resources they have available and will have little flexibility
to provide additional funding if the original budget appears to
have been underestimated.
▪ Timescales – the deadlines for delivery of the project’s outputs

Often a project will have a specified deadline by which it must
be completed. There may even be penalties if this deadline is
not achieved. For example, building new halls of residence at a
university must be completed by the end of the holiday, in order
to be ready for the new intake of students at the start of term.
Alternatively, a project may have a budgeted time in which it
must be completed. For example, a road may have to be re-
surfaced within 20 days in order to minimise traffic disruption.
▪ Project scope – the specific project characteristics, outputs and

results which will be delivered.
The greater the project scope (i.e. the more that is asked for),
the more time and money will be required to achieve it. Some
outputs may have to be sacrificed to stay on time and/or within
budget. PSOs often face an additional challenge where they are
obliged to deliver the outputs from the project as part of their
service commitment.
It will be important for the project manager to challenge the
assumptions made in the business case to ensure that the three
factors are aligned.
17
EXAMPLE4
Business case for the new flagship hotel in the Hartshap chain
▪ The new hotel is required to be a flagship for the brand and

embody the luxury values customers can expect.
▪ It should improve brand awareness and image as well as earn

high margins and contribute to shareholder wealth
▪ Other options included spending more on general upgrades to

the current hotels in the chain or acquiring an existing hotel and
converting it to the Hartshap brand. The former was rejected as
lacking the significant marketing and media impact, the latter
was rejected as it being likely to create further brand confusion.
▪ A budget of £40 million has been agreed. The expected net

present value for the project is estimated at £370 million over
the first six years.
▪ The hotel needs to be open for bookings by the (European)

summer 2018 season. Key milestones include
– Design confirmed – November 2016,
– Detailed building plans submitted to planning department –
February 2017
– Planning approvals granted – June 2017
– Contractors appointed – August 2017
– Build complete – April 2018
– Internal fit complete – June 2018
▪ Main risks
– opening late which causes bookings not to be honoured and
bad publicity
– massive overspend which affects profits and shareholder
wealth
– Not the high quality intended which therefore damages
rather than enhances brand
Assuming the business case is robust, project planning can continue.
The next stage is to determine in more detail the outputs required
from the project and agree the measurement criteria to be applied.
18
1.8.2 Project outputs

The specific scope of the project and the outputs or deliverables
required must be clearly identified and agreed.
The aim is not to detail every project task but to refine the five or
six major milestones identified in the business case into the main
stages or steps required to achieve them.
The use of project stages is discussed further in the section on Work
Breakdown Structures below.
EXAMPLE5
The first milestone or stage in the business case of Hartshap hotel
was ‘Design confirmed – November 2016’. This could now be
subdivided into
Designers appointed
Initial designs submitted
Preferred design approved
Detailed design drawn up
Designs approved for submission to architects
Each detailed stage will be assigned an estimated deadline to ensure
the overall deadline of November 2016 for the milestone is achieved.
1.8.3 Quality plan

As part of the planning process the quality standard for each process
or output should be determined and agreed. What is meant by
quality must be determined by reference to:
▪ Any legal or practical requirements for the project and

▪ The customer’s quality expectations.
A project to design a new car will have quality standards governed
partly by relevant legislation surrounding emissions and road safety,
and partly by the specific outputs required – acceleration speeds,
fuel economy, handling etc. However, if the target customer group
will also judge the car’s quality by looking at factors such as the
sound made by the engine, or the design of dashboard displays then
this too must be incorporated into the quality plan.
The customer will have to decide what level of focus on quality is
required as higher quality may require additional spending (using
19
more expensive materials for example) or more time (more product

testing or more time spent refining design details).
In order to the minimise the risk of quality failure, the quality control
and audit processes to be applied both to the project management
process and the work of all suppliers should be agreed in advance.
One project3 to create a large luxury spa and swimming pool
complex was severely compromised when the waterproof paint on
the swimming pools used by the building contractors began peeling
off before the spas were even opened to the public. It caused a huge
and unexpected increase in costs and forced the full opening to be
delayed significantly. A more detailed quality plan and better audit of
the supplier’s processes may have helped to avoid the problem.
1.8.4 Measurement of success

Once the outputs have been agreed, the stakeholders must agree
indicators of success. These indicators must relate directly to the
objectives for the project- i.e. the capabilities that the organisation
wishes to acquire from its implementation.
In addition to the ‘hard criteria’ relating to specific outputs, delivery
dates and costs, the success of the project may be measured by
‘soft criteria’ relating to user satisfaction. This relates to the
experience of the customers (both during the project and afterwards
when using the result) and the performance of the organisation. This
is important because otherwise a project may be deemed a success
in terms of the project management and yet a failure in terms of the
overall user experience.
The Millennium Dome in London was delivered to specification, on
time and within budget, yet was deemed by many as a failure
because it didn’t provide the innovative and exciting experience the
public hoped for. By contrast the Sydney Opera House was delivered
over ten years late and fourteen times over budget, with many of
the original designs changed beyond recognition. It could be deemed
a project management failure, but it is now a UNESCO world
heritage site and a world famous performing arts centre.
Since soft criteria are more qualitative than hard criteria, appropriate
key performance indicators (KPIs) will be needed to measure
3
Fryer J, (04 August 2006) The steamy truth about the Roman Bath [Online] Available
http://www.dailymail.co.uk/news/article-399017/The-steamy-truth-Roman-Bath.html [15th May
2015]
20
whether they have been achieved. The setting of KPIs is covered in

detail in CIPFA’s Strategy and Policy Development module. We will
also look at the use of KPIs in the setting of personal performance
target in workbook 3 of this module.
One useful way to develop KPIs is to categorise the benefits for
which measures should be determined:
▪ Direct monetary benefits – quantifiable in financial terms (e.g.

cost savings, revenue generated).
▪ Direct non-monetary benefits – tangible and specifically

measurable using KPIs (e.g. fewer customer complaints,
improved delivery times).
▪ Indirect benefits – identifiable but harder to measure (e.g.

improved brand awareness, greater staff motivation). KPIs may
be developed but will require more inventive solutions (results
of brand recognition surveys, staff satisfaction surveys etc.).
Another suggestion4 for generating relevant output measures is to
group success criteria into four categories:
▪ Internal project objectives (efficiency during the project).

▪ Benefit to the customer (short term effectiveness).
▪ Direct contribution (medium term improvement).
▪ Future opportunity (long term success).
Illustration
These categories can be applied to a UK public sector project which
was shortlisted for Best Project – Government to Business award in
2007; the computerisation of the Ministry of Transport car testing
scheme (MOT tests) which links 19 000 MOT registered garages to a
central database and allows motorists to re-license vehicles over the
internet. The project:
▪ Was rolled out in less than twelve months at no cost to the

participating garages meeting internal project objectives
▪ Provided significant process improvements to garages and

vehicle owners achieving short term effectiveness
4
Wideman, 1996, Improving PM: Linking Success Criteria to Project Type, paper presented to the
Southern Alberta Chapter, Project Management Institute, Calgary Symposium
21
▪ Was voted by 75% of garage owners to have had a positive

impact on their business and resulted in cost savings for the
Driver and Vehicle Licensing Agency (DVLA), the police and
VOSA (Vehicle and Operator Services Agency) offering medium
term improvement to stakeholders
▪ Offered the potential to provide further benefits such as linking

the system to automatic number plate readers so that police
could determine in real time whether a passing car has a valid
MOT. Such potential additional benefits suggested it would be a
long term success.
Exercise 1.3
For Cloud Airlines suggest appropriate success measures both hard
and soft (in addition to the on time and on budget targets which can
be taken as read). Note – the aim is to produce targets for the
project not the business
1.9 Project Initiation Document

Once the details of the governance structures, the business case,
the output and quality plans and the success criteria have been
clarified, the key information needed to start the project should be
drawn together into a Project Initiation Document (PID).
The PID will therefore contain details of:
▪ What the project is intended to achieve.
▪ Why it is important to achieve it.
▪ Who is going to be involved in the project and their roles and

responsibilities.
▪ How and when it is going to happen and how much it should

cost.
▪ How success will be measured.

The project sponsor will review the PID to confirm that the project
has a sound business basis before formally approving it to proceed
to the detailed planning stage. The PID will also provide a base for
the sponsor and the project manager to evaluate the subsequent
progress and success of the project.
22
Once the PID has been approved, the detailed project planning can
begin. Project planning is a key process in the achievement of the
project objectives and may itself take weeks or even months
1.10 Detailed project planning

To develop a detailed plan, each of the project milestones must be
further broken down into stages, products or deliverables, and work
packages. A work breakdown structure (WBS) is a tree structure
that subdivides the work needed to achieve an overall project
objective into distinct, definable, measurable chunks. It shows all
the steps which must be taken to achieve the objective. It has four
main purposes:
▪ To ensure the scope of the total project is defined and

organised.
▪ To help assign responsibilities and allocate resources.
▪ To permit accurate estimation of time and costs and any

potential risks.
▪ To allow for monitoring and controlling the project.

To illustrate we will look at a very simple project: to cook a meal for
ten people for a special occasion.
1.10.1 Stages
In order to help the project sponsor retain control of the project, it
first needs to be broken down into logical stages. This is done as
part of the project initiation stage and will be included in the PID.
Exercise 1.4
Suggest stages for the dinner party project.
At the end of each stage the sponsor can formally review the project
and, if satisfied that it is still viable, approve the detailed plans for
the next stage. Riskier projects are likely to have more, smaller
stages to allow for closer control of the risk. (So if the intention was
to cater for 150 rather than ten, additional stages may be included
such as ‘source ingredients’ and ‘test cook key dishes’.)
If at the end of a stage the sponsor no longer believes the project is
viable, then the project should then be cancelled. This may occur if,
for example, business needs have now changed or insufficient funds
are now available for completion of the project. The further through
23
a project gets, the less likely it is that the project will be cancelled.
(This is not necessarily because late stage projects are more viable
but because organisations tend to become increasingly reluctant to
cancel a project in which a lot of money has already been invested.)
Detailed plans for the work to be carried out are only developed for
one stage at a time. This helps to ensure that the plans are as
focused and accurate as possible. In a rapidly changing business
environment, it would be impossible to develop detailed plans for the
entire project at the start. (In the same way it would not be sensible
to plan in detail the kitchen timings for cooking the meal until all the
previous stages were complete. Any changes in the planned menu
chosen or the ingredients available would impact the timings
needed).
Feedback on outputs from the last stage and overall progress
towards the project goals should be used to inform the plans for the
next stage.
EXAMPLE6
For the hotel this may be as simple as three stages: design, build
and fit. For the terminal there may be more:
▪ Preliminary design
▪ Detailed design
▪ Contractor approval
▪ Construction
▪ Basic fit of buildings
▪ Equipment installation
1.10.2 Products
All the separate outcomes or deliverables, known as products, to be
achieved within a stage must then be detailed. This is not a list of
activities or actions to be carried out but a breakdown of the specific
results needed.
The work is divided into the main products and then each of these is
broken down further into its different components. This process
continues until all the distinct outputs have been detailed.
24
EXAMPLE7
A (perhaps over-engineered) product tree for cooking the meal is
shown below. Note that the products are outcomes not activities, i.e.
not plan menu (an activity) but menu planned (a completed
outcome):
Meal
Meal
Menu cooked
Shopping
planned and served
completed
Cooking Courses Serving

plan cooked plan
Shopping Shopping Supplier
list visit plan visits
Timings Oven / ring

plan availability
plan
Butcher visit
Grocer visit Tableware Room

First Main acquired prepared
course Dessert Drinks
course
Baker visit
Drink
supplier visit
Main Accompaniments
dish
When detailing the products:
▪ 100% of all the products defined by the project scope must be

included. This rule applies at all levels of the hierarchy.
EXAMPLE8
▪ The ‘supplier visits’ listed must include every single supplier

required even if only one ingredient is needed so that once they
are all ticked off ‘supplier visits’ as an outcome is achieved.
▪ ‘Shopping completed’ must require only that the three outcomes

(list, visit plan and visits) are achieved.
▪ Each deliverable must be mutually exclusive i.e. there must be

no overlaps. This ensures clear allocation of responsibilities.
For a large project there may be many thousands of items
within each stage and many levels within the product hierarchy.
25
1.10.3 Work packages

Once the detailed product hierarchy has been produced, a work
package for each product at the lowest level of the hierarchy can be
developed. In our example this would mean that we would develop
work packages for devising the detailed menus for each part of the
meal (first course, main dish etc.), for each supplier visit and for
generating the timing plans etc. (Of course in practice it is unlikely
that a dinner for ten would require such intense planning but
perhaps it would if planning a royal banquet?)
The work package contains the details of the actual work to be done.
As a rule of thumb, no one product should require more than about
80 hours to complete or take longer than one reporting period. A
work package will contain:
▪ A description of the product (dessert recipe)
▪ Details of the activities which must be carried out to achieve the

product (investigate guests’ preferences, determine seasonal
fruits available, review previous meals to avoid repetition etc.)
▪ The standards to be used (no frozen ingredients, maximum

calorie content per serving etc.).
The work package can then be assigned to a project team member
for completion.
1.11 Establishing dependencies

Before the execution of the project can begin and the project team
commence their work packages, account must be taken of the order
in which activities must be carried out. Some activities are
dependent on another task starting or finishing before they can be
completed. Some project activities can be simultaneous, while
others must be in the right sequence.
EXAMPLE9
The visits to butcher, baker, and grocer etc. can all take place at the
same time (provided the manpower is available) but the cooking
cannot be started until at least some of the shopping has been done.
Serving cannot be started until the meal has been cooked.
Once the dependencies in the project have been identified, a

detailed task and dependency analysis can be carried out. This is
usually performed using specialist project software although it is
26
technically possible to do so manually. The project manager inputs

the start and end times of all the activities needed to complete the
project and any dependencies between them (as discussed below).
The software then produces a series of outputs for use in managing
the project day to day.
Two key outputs from this process are:
▪ Network diagrams.
▪ Gantt charts.
Both are pictorial representations of the project which show the
interdependencies between the activities and the order in which they
must be carried out. They also highlight the critical path, the
longest route through all the dependent activities and therefore the
shortest time in which the project can be completed.
However whilst a network diagram is particularly useful for
understanding dependencies, a Gantt chart’s strength is that it
provides an overview of the project schedule and the duration of
each activity can be clearly identified.
Construction of network diagrams and Gantt charts is not within the
BCM syllabus. However you may be asked to interpret one. The
basic construction of the diagrams is therefore explained below.
1.11.1 Network diagram

To explain how a network is constructed we must first define some
key terms:
Activity: the individual tasks which must be carried out to complete
the project. Each activity takes time; in other words it has a
duration.
Event: each activity must have a start and a finish. These are called
events. They have no duration; they are points in time. Significant
events, such as those on the critical path, are sometimes referred to
as milestones.
Critical path: the longest sequence of activities through a project
from the start event to the finish event. The critical path therefore
defines the project duration – the minimum amount of time the
project can take. Activities on the critical path are known as critical
activities.
Non-critical activities: These activities have a float which means the
activity can be delayed by the length of the float without causing a
delay to subsequent tasks.
27
E X A M P L E 10
A builder has constructed the frame of a house and is now planning
the next stage of the project – to add the internal fittings.
The following activities have been identified:
Activity Duration Preceding activities

(Days)
A Electrical mains 3 -
B Gas piping 1 -
C Plumbing 2 -
D Plasterboard 4 ABC
E Electrical fittings 1 D
F Plumber’s fittings 1 D
G Carpenter’s fittings 2 D
The dependencies which exist (where one activity cannot start until
another activity is complete) have been identified by the project
team and are shown in the table in the ‘preceding activity’ column.
For example, it is not possible to fit the plasterboard (i.e. the surface
of the walls) until all the electrical mains, gas pipes and plumbing
have been fitted, because these services need to go inside the wall.
The network diagram for this project which is shown below.
28
In the diagram, each activity is represented by a line with an

arrowhead which indicates the flow of time. Each activity is labelled
to show its name and / or its identifying code (in this case A, B, C,
etc.). The time required for each activity is also shown.
Activities start and finish at events, which are represented in the
diagram as circles. Each activity has a start event and a finish event.
Each event circle is numbered only to identify it and the numbers do
not offer any additional information.
Most activities are shown starting at the finish event of another
activity; for example electrical fittings (E) starts at the finish event
of plasterboard (D). This does not necessarily mean that work on
electrical fittings will start as soon as the plasterboard is finished.
What it does mean is that electrical fittings cannot start until
plasterboard is finished. In other words electrical fittings depend on
plasterboard.
The critical activities are shown as heavier lines. This makes it easy
to see the critical path. The activities on this path take a total of 9
days, so that is the shortest period in which the project can be
completed, unless some way can be found to speed up one or more
of the critical activities.
29
Dummy activities in network diagrams

Sometimes in order to preserve the internal logic of a network
diagram a dummy activity in the form of a dotted or dashed line is
added. A dummy activity has a duration of zero and does not involve
any actual project activity.
This can be illustrated by reference to the network diagram below:
27 10 15 11 17
22 22
0 0
99 15 15 20 20
In this example:
▪ Activity E must follow Activity C only

▪ Activity G must follow both Activity C and Activity D
The dummy line is needed to show these different dependencies
clearly.
30
Earliest and latest event times

In the diagram above you will have noticed that the event circles
contain two additional numbers in the lower half of the circle. These
provide additional information as they identify:
▪ the earliest event time (EET) shown on the left hand side - the
earliest time the event can start assuming all prior events start
at their EET
▪ the latest event time (LET) shown on the right hand side - the
latest time the event can start if the project is to be completed
by the specified time.
This can be illustrated using the very simple project below:
Activity Duration (Days) Preceding activity

A 1 -
B 2 -
C 1 A
D 5
E 1 B
F 1 C
The network for this project would be:
2 4
1 3 2 4
1 5
0 0 5 5
3
2 4
Event number
Earliest event time (EET) = earliest time

1
event can take place, assuming all prior
0 0 events start at their EET
Latest event time (LET) = latest time event

can take place if the project is to be
completed by the specified time
Floats
31
In a question containing a network you may be given the value of

any floats associated with an activity. The float is the time by which
the duration of an activity could be extended without becoming
critical (assuming no delays on any other activities) – i.e. the floats
provide the project manager with some flexibility. Critical activities
have a float of zero.
Q – When can F start? Is there any flexibility?
A – From the network we can see that activity F may be started as
early as the end of day 2 (assuming both A and C start and are
completed on time). That would give three days to complete the task
without delaying the project. Since it only takes one day to complete
there is a two day ‘float’ on activity F.
However C could finish as late as the end of day 4 – in this case F
will have to be completed at once (the float has effectively been
used up by the previous activities).
In the network above the floats associated with the activities are as
follows:
Activity Float
A 2
B 2
C 2
D 0
E 2
F 2
Exercise 1.5
1. What does the information in the table tell you about activity C?
2. Refer to the network on page 35
(i) When should C start?
(ii) When should F start?
32
Reducing the project duration

Often a critical path calculated by the software is longer than the
actual time available to complete the project. One solution is to
speed up some of the activities. This will reduce the critical path and
allow the project to be completed on time. However, speeding up
activities usually involves extra cost (additional manpower or
machinery may be required for example, or a premium may need to
be paid to suppliers). This would therefore require the approval of
the project sponsor.
Using information about how fast activities could be completed and
the associated costs of doing so, the network can be rerun using the
standard software to produce a new ‘faster’ version. This is known
as crashing the network. The sponsor can then evaluate the
additional costs compared with the benefits of completing the project
more quickly.
1.11.2 Gantt charts

A Gantt chart for a project uses exactly the same information as a
network diagram, in terms of activity durations, dependencies,
critical paths and floats. The information, though, is presented in a
different format.
In a Gantt chart the activities are shown as horizontal bars with their
lengths representing how many weeks each will take.
Consider the network diagram and the Gantt chart for the simple
building project side by side.
Exercise 1.6
What are the strengths and weaknesses of each diagram?
33
Exercise 1.7
Below is a network diagram and Gantt chart for a more complex
project. Both measure the time in weeks. Questions relating to the
diagrams follow.
34
Answer the following questions (which diagrams do you use to

answer them?):
1. What is the project’s duration?
2. Which activities must be ready to start at the end of week 8?
3. If activity A runs over by a week what other activities will be
affected and how?
4. How late could activity B be started assuming no other activities
were to be affected?
Resource allocation
Another strength of Gantt charts is that they can be used for
resource allocation. They allow the project manager to assess
whether the critical path is feasible, bearing in mind that the initial
calculation of the critical path assumed that resources were
unlimited. Resources may be items such as the number of workers
with a particular skill required for each activity, or the number of
specialist items of equipment.
1.12 Communications plan

A communications plan is an essential tool for managing
stakeholders throughout the project. The importance of this plan
cannot be overstated. Lack of stakeholder engagement is a regular
feature of failed projects.
The aim of the plan is not just to ‘appease’ those who may cause
problems but is to garner support, incorporate relevant feedback
into the project’s activities in a timely fashion and ensure that the
users of the project’s outputs are able to benefit from them after it is
completed.
The first stage is to identify all those parties that:
▪ Will need to provide information to the project team.

▪ Will require information from the project manager.
The stakeholders to be included are not just those directly involved
in the project process but also relevant stakeholder groups with an
interest in the project outcomes.
35
For each stakeholder group identified, a plan should then be

developed which details:
▪ The objective of the communication and the key messages

which must be put across.
▪ How and when the information should be supplied.
1.12.1 Features of communication media

The appropriate communication media to use in a given situation will
depend on a number of factors:
▪ Cost
▪ Degree of coverage required
▪ Degree of consistency required
▪ Speed of feedback required
▪ Complexity of the message
▪ Personalisation of the message
▪ Need for two-way communication
▪ Need to engender team spirit
▪ Demographic and expectations of the stakeholders
Exercise 1.8
Suggest with justification, the most appropriate form of
communication in the following situations:
(a) Letting a client know of a delay in providing a service
(b) Providing a routine status update to stakeholders on a long-
term project
(c) Informing parents about children’s activities on a residential
school trip
(d) Letting staff know of a change in the start time of a key
meeting
(e) Agreeing a change to the design specification with project
stakeholders
(f) Keeping staff up-to-date with plans to install a new computer
system
(g) Sharing best practice amongst employees
36
A template for a standard communications plan is shown below. The

specific relevant stakeholder groups will need to be adapted to suit
the specific context of the project.
Stakeholder Objective Action/ Timescale/ To be

communication/ Communication Frequency actioned
Key messages channel by
Shareholders Reassurance / Press

That they will AGM
benefit Website
The media Positive coverage / Briefings
benefits of the Press releases
change and
streamlined way it
will be introduced
Suppliers Relevant Meetings with
information / majors suppliers
positive impact on Letters to small
their working suppliers
relationship
Customers Keep business / Letters to current
Service will customers
continue without Meetings with
interruptions and major customers
will be better than
ever after the Advertising in
change media / on
website for
prospective
customers
Senior Reassurance and Personal
managers involvement / Jobs meetings
protected and new
job opportunities
created
Staff Maintain Briefings
motivation / Personal letters
Targets
achievable, Meetings with
support provided line managers
and new working
conditions
favourable
37
Exercise 1.9
Using the template for a standard communications plan above, draw
up a suggested communications plan for the Colswell project.
1.13 Introduction to managing risk

Once the planning stage has been completed (the work breakdown
structure completed, the dependencies established and the
communications plan determined) and the project sponsor has given
the go-ahead to proceed, the project can begin. This is known as the
implementation phase.
Many of the specific tasks and processes involved in the day to day
running of a project are outside the BCM syllabus. However one vital
area in which the accountant will play a key role is that of managing
the project risk.
Risk can be defined as:
‘Uncertainty of outcome, whether positive opportunity or negative
threat, of actions and events5’
When considering risk in the context of a project, the focus is almost
exclusively on the potential for negative threats which may thwart
the project’s objectives. Risk is unavoidable and the resources an
organisation will have available to manage risk are finite. A formal
risk management system must therefore be developed.
The risk management process involves three stages:
1. Identifying risks
2. Assessing the risks identified
3. Developing a suitable response.
We will look at each in turn.
5
HM Treasury (2004), The Orange Book – Management of Risk – Principles and Concepts
38
1.14 Identifying risks
1.14.1 Timing
One reason that some projects fail is that a project risk assessment
is performed at the start of the project but then not repeated unless
a specific problem arises. A risk assessment should be performed:
▪ At the start of the project. The project should only be given the
go ahead if the risks are assessed as acceptable and the risk
management plan is approved. We will be looking in detail at
the contents of a risk management plan in the rest of this
section.
▪ At the end of every stage. Existing risks should be reviewed and

the new risks associated with the next stage analysed. The
project should only continue to the next stage if the risk profile
continues to be acceptable.
▪ Every time a change to the project is requested. The implication

of the change on risk avoidance or reduction activities should be
considered before the change is approved.
▪ At the end of the project. Any outstanding risks may affect the
operation of the products during their useful lives.
To identify the risks, a designated team may be established to carry
out a project risk review. Alternatively all those involved in the
project may be asked to review the activities they are responsible
for and identify any risks they face.
1.14.2 Inherent and residual risk

It is important to distinguish between:
▪ Inherent risk: The exposure arising from a specific risk before

any action has been taken to manage it.
▪ Residual risk: The exposure arising from a specific risk after

action has been taken to manage it and making the assumption
that the action is effective.
It is the residual risk which represents the actual risk exposure of
the project and it is that which should be acceptable and justified –
i.e. it should be within the organisation’s risk tolerance.
39
1.14.3 Link to objectives

A critical factor in identifying risks is understanding that risks must
be related to objectives. Some risks may affect all objectives, others
only one, others again may impact several objectives but each in a
different way.
Care must also be taken to identify the risk itself rather than the
impact of the risk, and to consider only those risks which do impact
on objectives.
These points are illustrated in the example below from the Orange
Book6 on risk management published by the UK Treasury:
Objective: To travel by train from A to B to get to a meeting for a
certain time.
Exercise 1.10
Which of the following are risks? Give your reasoning
Failure to get from A to B in time

for the meeting
Being late and missing the
meeting
No buffet car on the train so I
arrive at the meeting hungry
Missing the train causes me to
be late and I miss the meeting
Severe weather prevents the
train from running so I can’t
make the meeting
In the context of a project the objectives for which risks should be

identified are:
▪ Completion of the project within agreed timescale

▪ Completion of the project on budget
▪ Achieving project scope as defined by the business case
▪ Achieving project quality in accordance with the quality plan.
6 Ibid.
40
A number of tools exist to assist in the identification of risks. You will

study some of them, such as PESTLE analysis, in your Strategy and
Policy Development paper.
Exercise 1.11
Hartshap Hotel
Objective: the swimming pool is constructed to competition standard
Which of the following represent relevant risks?
Title Risk
The pool cleaning system is
inefficient such that the pool
requires twice daily maintenance
Construction company
inexperienced and so fail to build
the pool to competition standard
Pool is built too shallow to meet
competition standard
The swimming pool is not
constructed to competition
standard
The builders hit unexpected
bedrock when digging the pool
and can’t make it deep enough
to meet competition standard.
1.15 Assessing risk

There are three aspects to assessing risk:
▪ The organisation must decide on its risk tolerance or appetite,

i.e. the level of risk it is prepared to tolerate.
▪ The risks identified must be categorised according to their

impact and likelihood
▪ The significance of the risks must be determined based on their

impact and likelihood and the organisation’s risk appetite
1.15.1 Risk appetite

A statement of risk appetite is essential to provide management with
guidance about the level of risk they are permitted to take.
7
The Orange Book defines risk appetite as:

‘the level of exposure which is considered tolerable and justifiable
should it be realised… it is about comparing the cost (financial or
otherwise) of constraining the risk with the cost of the exposure
should the exposure become a reality and finding an acceptable
balance.7’
Classification of risk appetite
There are many ways of classifying risk appetite. The UK HM
Treasury8 suggests the following:
Classification Description
Averse Avoidance of risk and uncertainty is a key
organisational objective.
Minimalist Preference for ultra-safe business delivery options
that have a low degree of inherent risk and only
have a potential for limited reward.
Cautious Preference for safe delivery options that have a
low degree of residual risk and may only have
limited potential for reward.
Open Willing to consider all potential delivery options
and choose the one that is most likely to result in
successful delivery while also providing an
acceptable level of reward (and value for money
etc.).
Hungry Eager to be innovative and to choose options
offering potentially higher business rewards,
despite greater inherent risk.
Management at each level of the organisation should set boundaries
which provide clear guidance on what level of risk is acceptable. The
risk appetite will be dependent on the aims of the business and the
risks that have to be taken to achieve those aims. It will be affected
by factors such as:
▪ The financial costs of any adverse impacts.

▪ The cost of implementing controls to manage the risk.
▪ The potential benefit to be gained.
▪ The reaction of stakeholders to the impact of risk.
7
Ibid.
8
Ibid.
42
Corporate risk appetite

This will consider the overall level of acceptable organisational risk
based on a number of factors such as the overall objectives of the
organisation, the accountability to and the attitude of stakeholders,
the finance available and the ability of contingency plans to
ameliorate exposure to external factors where there is limited
control. The boundaries set will also make it clear when risks need to
be escalated to the board to take a decision on their acceptability
and potential actions (see below).
Delegated risk appetite
Once corporate appetite has been agreed it can be used to set
boundaries for the acceptable levels of risk at different levels of the
organisation. Risks on or above the threshold should be escalated to
senior management but below that level, staff are empowered to act
as they see fit.
Project risk appetite
Projects which are within the day to day activities of the organisation
(annual redecoration of a hotel, organisation of a training day for all
relevant council employees) will not require specific risk appetite
statements. They will fall within the standard organisational
guidance. However one-off projects may need to be assessed
separately, for example:
▪ Speculative projects which have high risks but high rewards.
▪ Development projects such as IT, construction etc.
▪ Mission critical projects where success is essential for the

organisation.
Changing risk appetite
Risk appetite is not a constant. It will change and evolve over time
as the environment in which the organisation operates changes. The
impact of the current appetite on business performance should be
measured regularly and any tensions arising from the current level
set should be monitored and investigated so that the level can be
reset as needed.
43
Guidance on the setting of risk appetite can be obtained from

sources such as The Institute of Risk Management9.
1.15.2 Categorisation of risks

Many of the risks faced by the project will require subjective
assessment. The impacts of a delay in the opening of the Hartshap
hotel will be in part financial (and therefore straightforward to
quantify), such as lost bookings, but in part non-financial such as
the impact on their reputation, a key factor in the decision to open
the hotel. The framework used to assess risk must take account of
both quantitative and qualitative factors.
The potential impacts of a risk on the project should be judged in
relation to the effect on:
▪ Time
▪ Cost
▪ Quality
▪ Benefits
▪ People/resources.
The most straightforward risk matrix is a 3x3 risk matrix in which
both the risks and their related likelihoods are categorised as either
low, medium or high.
A diagrammatic representation of a simple 3x3 matrix is shown
below:
9
Anderson, R (2011), Risk Appetite and Tolerance Guidance Paper, The Institute of Risk Management:
London
44
A more detailed scale may be used where it is possible to apply

accurate values, for example a 5x5 matrix where:
▪ impacts are categorised as insignificant /minor / moderate/

major/ catastrophic
The UK HM Treasury10 gives the following classification as an
example of how risk impacts may be categorised in a 5x5
matrix:
Ranking Description
Very high – Above the organisation’s defined tolerance
catastrophic level. Consequences of the risk materialising
would have a disastrous impact on the
organisation’s reputation and business
continuity.
High – major The consequences of this risk materialising
would be severe but not disastrous.
Medium – The consequences of this risk materialising
moderate would have a moderate impact on day-to-day
delivery.
Low – minor The consequences of this risk materialising
would have a minor impact.
Very low – The organisation accepts this risk / impact of
insignificant risk would be insignificant.
▪ likelihood is measured on a scale of rare / unlikely /possible /
likely / almost certain.
1.15.3 Significance of risks

It is not the absolute value of an assessed risk which is important;
rather it is whether or not the risk is regarded as tolerable or how far
the exposure is away from tolerability, which is important.
10
2006, HM Treasury, Thinking about risk Managing your risk appetite: A practitioner’s guide, HMSO:
Norwich
45
A risk matrix can be used to determine the significance of risks as

shown in the 3x3 risk/tolerability matrix shown below:
Tolerability threshold
Impact
x x
High
x x
x
Medium
x
x x
x
Low x
Low Medium High Likelihood
Once a risk has been identified as significant it will need to be

escalated to a higher authority to determine a suitable response.
The following example is based on that used by PSOs in the UK and
shows how risks are escalated based on a 5x5 matrix:
Risk evaluation:
Probability: Estimate the probability of the risk event happening
Probability Description Probability

score
The event is expected to happen in
Certain = 5 100%
all circumstances
The event is expected to occur in
Probably = 4 50%+
most circumstances
Possible = 3 The event could occur at sometime 30% - 50%
Improbable =
The event may occur at sometime 10% - 30%
2
The event may occur, but only in
Remote = 1 <10%
exceptional circumstances
46
Impact: Estimate the potential severity if the risk event occurs
Impact score Description

The event will result in complete failure to
Fatal = 5
achieve the project
Loss of confidence in the project. Failure to
Severe = 4
achieve significant objectives
Objectives only achieved through significant
Major = 3 increases in time, budget or significant
reductions in planned quality of products.
Objectives achieved at the expense of minor
Minor = 2 increases in time, budget or minor reductions
in planned quality of products.
Objectives achieved within agreed tolerances
Insignificant = 1
of time, budget and quality.
The risk scoring matrix and trigger points:
Multiply the scores for risk probability by the potential impact to give
an overall score. Compare the overall score to the action and
authority table below:
Combined Action Authority

score
Immediate escalation to
Must report to project
25 project board. The project
board
will not succeed.
Review planned actions and
options. Activate
contingency plan if still Must report to project
12 < 25
relevant. Escalate if board
necessary. Keep under
review.
Review planned actions and
options. Activate
6 <12 With project manager
contingency plan if still
relevant. Keep under review.
1<6 Keep under review. With project manager
Note that the risk matrix is not actually drawn to determine
significance – the values are calculated and the response determined
on the basis of the values.
In an exam question, you should be alert to comments which
indicate how significant risks are to the business.
47
Exercise 1.12
Using the risk evaluation tables above, determine a response based
on the following statements:
1. Hartshap Hotel Chain: If we don’t increase the budget for the
website design by 10% there’s a good chance the booking
system will crash when we first launch.
2. Transatlantic Terminal in Tadnow: In the unlikely event that the
terminal fails to pass the final building inspection, we will not be
able to open the terminal on time.
3. Colswell Council: The government has introduced a new budget
requiring significant cuts in council spending and the entire
£200 000 budget for the reorganisation has been reassigned.
1.16 Addressing risks – developing a suitable

response
Once the significant risks associated with the project have been
identified, the project team can begin to develop a strategy for
managing them. The organisation will need to:
▪ Decide whether or not to take action to deal with the risk

▪ Determine what action to take where it is considered necessary
▪ Record the process in a formal risk log.
16.1.1 The four T model

The four T model is a commonly used approach to determine a
response to downside risk. This suggests one of four responses:
tolerate, treat, transfer or terminate.
Response Action required Suitability

to risk
Tolerate Take no further action The risk is tolerable or
There is little that can
reasonably be done to
control the risk. A
contingency plan may be
developed to handle the
impact if the risk is realised.
48
Response Action required Suitability

to risk
Treat Action is taken Most risks fall into this
constrain the risk to an category.
acceptable level by The activity can continue as
implementing controls the risk is constrained to an
acceptable level.
Transfer Transfer the risk to a Useful for financial risks /
third party (would risks to assets.
include taking out an Some risks cannot be
insurance policy or transferred (such as damage
specifically paying to reputation)
another party more
Relationship with third party
able to manage it to
needs careful management
carry the risk)
Terminate Cease the activity. Of particular relevance in
managing projects if the
cost/benefit relationship is
threatened.
Option may be severely
limited in the public sector
where there is no other way
to deliver the outcomes
required.
1.16.2 Types of control

As discussed above, treating the risk, i.e. implementing controls to
reduce the risk to an acceptable level, is the approach used for the
majority of project risks.
The types of controls used to deal with risks should be familiar to
you from your Audit and Assurance studies:
▪ Preventive controls – designed to limit the possibility of the

undesirable outcome occurring. Examples include segregation of
duties and authorisation limits.
▪ Directive controls – designed to ensure a particular outcome is

achieved. Examples include training staff on new equipment
before they use it or requiring protective clothing to be worn in
dangerous situations.
▪ Corrective controls – designed to correct undesirable outcomes

if they occur. Examples would include insurance which allows for
financial recovery against the impact of the realisation of a risk.
49
Contingency plans are also a form of corrective control as they

allow for business continuity and recovery after the occurrence
of uncontrollable events.
▪ Detective controls – designed to identify where undesirable

outcomes have been realised. They operate after the event and
so are appropriate where the loss or damage can be accepted.
Examples include inventory checks or post implementation
project reviews.
Exercise 1.13
The Hartshap Hotel Chain is redesigning the hotel restaurants
throughout the chain to provide a gourmet dining experience. Their
objective is to delight customers by offering the freshest food served
in style by knowledgeable staff.
Identify two risks and for each suggest a suitable control
1.17 Documenting risks

It is vital to record the risk management process in order to:
▪ Facilitate identification of the risk priorities and the significant

risks issues
▪ Allow for the escalation of risks considered beyond the

tolerability threshold
▪ Explain why specific decisions have been made
▪ Allow for ongoing monitoring and risk reviews.
50
The risks are recorded in a risk log. Below is a simple illustration of a

risk log for the catching a train example discussed earlier.
Inherent Controls Residual Action Date

assessment in place assessment planned and
owner
RISK Impact Likelihoo Impact Likelihood
d
Missing the High High Catch High Low No further
train earlier action
causes me train planned
to be late
and I miss
the
meeting
Severe High Low Cannot High Low Agree to
weather control telephone
prevents conference
the train in case of
from bad
running so weather
I can’t
make the
meeting
Engineering High Medium Check Medium Low No further
works website for action
mean the scheduled planned
train runs works
late Agree
flexibility
with others
at the
meeting
Note that after the controls are recorded, the risk is then reassessed
to determine whether further action is needed. The risk log would be
reviewed at regular intervals as the project progressed to monitor
and adjust the controls as needed.
1.17.1 RAID log

A risk log forms part of the larger RAID log. RAID stands for Risks,
Assumptions, Issues and Dependencies. The RAID log would include
a separate log for each of the four areas of concern:
▪ Risks – those possible future negative events which may occur.

The log should record each risk along with the analysis
performed and the plan for controlling it as shown in the
example above.
51
▪ Assumptions – events which are set as true in order for the

project to go ahead. If they fail to hold true the project will
falter. The log should record each assumption, why it is believed
to be valid and appropriate actions to be performed on agreed
dates to confirm its ongoing validity.
▪ Issues – things that are occurring now which will affect the
project but have not yet been addressed. This could include a
risk that has materialised, a new scope requirement or an
unexpected event (such as a supplier firm collapsing). These
may be dealt with immediately or identified as a risk and
assessed and managed accordingly. The log should identify the
issue, its potential impact and the planned response.
▪ Dependencies – products that must be delivered to enable the

project’s delivery or products to be delivered by the project on
which other projects depend. The log should detail all relevant
dependencies, those responsible for the product delivery and
the date by which it should be delivered.
The log is a key project management tool which provides
stakeholders with evidence of the project’s status and helps to
determine the agenda for project meetings. It should be created by
the project manager at the start of the project and reviewed,
monitored and kept up to date throughout.
1.18 Why projects fail

So far in the workbook we have been looking at what is needed to
manage a project successfully. As a key stakeholder, the accountant
must have a strong working understanding of how a project should
be managed. Failure to apply the tools and techniques effectively
almost inevitably leads to project failure and identifying such
weaknesses early on is a vital skill.
Consider the list below, compiled by the National Audit Office (NAO)
and the Office of Government Commerce (OGC) in the UK which lists
the main factors contributing to project failure. You will see that the
first five factors make up the content of the workbook so far. The
last three are covered in workbook 4. In your exam you should be
alert to signs in the scenarios that suggest these factors are at work
and be able to suggest solutions:
▪ Lack of skills and proven approach to project management and

risk management (review sections 1.2 and 1.13 – 1.15).
52
▪ Lack of clear link between the project and the organisation’s key
strategic priorities, including agreed measures of success
(review sections 1.3 and 1.6).
▪ Lack of clear senior management and [sponsor] ownership and

leadership (review section 1.5).
▪ Lack of effective engagement with stakeholders (review section

1.10).
▪ Too little attention to breaking development and implementation

into manageable steps (review section 1.8).
▪ Evaluation of proposals driven by initial price rather than long-

term value for money (especially securing delivery of business
benefits) (see workbook 4).
▪ Lack of understanding of and contact with the supply industry at

senior levels in the organisation (see workbook 4).
▪ Lack of effective project team integration between clients, the

supplier team and the supply chain (see workbook 4).
It was in response to concerns about the number of public sector
project failures that a project review process was set up. This is
known as the Government Gateway review.
1.19 Government Gateway reviews

After a series of high profile IT failures in the UK, the national Office
of Government Commerce (OGC) introduced guidance to improve
the way in which the public services managed programmes and
projects.
The Gateway process examines the progress and likelihood of the
successful delivery of programmes and projects at key decision
points in their lifecycle and looks ahead to provide assurance that
they can progress successfully to the next stage. Gateway reviews
are applicable to many programmes and projects and are mandatory
in many procurement, IT enabled and construction programmes and
projects. Indeed, it is considered best practice in central civil
government, the health sector, local government and defence.
Gateway reviews deliver a series of short, focused peer reviews in
which independent practitioners from outside the programme or
project use their experience and expertise to examine its progress
and likelihood of successful delivery at key stages in the process.
53
The length of each review depends upon the scope and risk of the
project and usually lasts between three to five days including the
preparatory planning day. If a project has been broken down into a
number of different parts, each part may be subject to the
appropriate reviews. The reviews are not audits and are not part of
the approval process.
The review process looks at the readiness of a project to progress to
the next phase at six key stages in the life of the project. The first
stage concerns programmes and we will return to this stage in
Workbook 2.
1.19.1 The Gateway stages

The six stages (or Gates) are:
Gate 0 – Strategic assessment – A programme-only review (see
Workbook 2) that investigates the direction and planned outcomes of
the programme, together with the progress of its constituent
projects.
Gate 1 – Business justification – comes after the strategic business
case has been prepared. It focuses on the project’s business
justification prior to the key decision on approval for development
proposal.
Gate 2 – Delivery strategy – investigates the outline business case
and delivery strategy, before any formal approaches are made to
prospective suppliers or delivery partners. The review may be
repeated in long or complex procurement situations.
Gate 3 – Investment decision – investigates the full business case
and the governance arrangements for the investment decision. The
review takes place after information has been gathered from
potential suppliers and tenders have been evaluated but before a
work order is placed with a specific supplier and funding and
resources committed.
Gate 4 – Readiness for service – focuses on the readiness of the
organisation to go live with the necessary business changes, and the
arrangements for management of the operational services.
Gate 5 – Operations review and benefits evaluation – confirms that
the desired benefits of the project are being achieved, and the
business changes are operating smoothly. The review is repeated at
regular intervals during the lifetime of the new service or facility.
The overview diagram at the start of this workbook shows where
gates two, three and four would come during the management of a
54
typical project. A gate four review would be repeated for each

significant product produced by the project team.
1.19.2 Review results

The review team provide a red, amber, green (RAG) traffic light
status for inclusion in the report at the end of each review. The
definitions of the statuses are:
▪ Red - To achieve success the programme or project should take

remedial action immediately. It means ‘fix the key problems
fast’, not ‘stop the project’.
▪ Amber - The programme or project should go forward with

actions on recommendations to be carried out before the next
review.
▪ Green - the programme or project is on target to succeed but

may benefit from the uptake of the recommendations.
1.19.3 Benefits of Gateway reviews

Gateway reviews provide a valuable perspective on the issues facing
the internal project team, and an external challenge to the
robustness of plans and processes. The Gateway process provides
support in:
▪ Identifying whether
− A governance structure is in place and whether all those
involved are clear about their roles & responsibilities.
− Adequate skills, business resources and experience are
deployed.
− All the stakeholders fully understand the programme or
project status and the issues involved.
− The risks and associated mitigation and contingency are
being managed.
− The programme or project can progress to the next stage
of development or implementation.
▪ Improving knowledge, management and delivery skills among

staff through participation in review teams.
▪ Providing advice and guidance to programme and project teams

by fellow practitioners.
55
1.20 Project closure
1.20.1 Closing out a project

Once the products required from a project have been delivered, the
project should be formally closed. This project team ensure that all
there are no products outstanding and all issues have been dealt
with and record any recommendations for the future.
There are two stages:
Decommissioning the project, during which the project manager
must:
▪ Obtain the agreement of the customer that all the acceptance

criteria for the project have been met and that all the products
required have been delivered
▪ Ensure all payments have been made (it is common for some
final payments to be dependent on project completion)
▪ Close and archive the files.
Identifying follow-on actions. This would include:
▪ Reviewing the risk log for any unresolved issues or continuing

risks and recommending appropriate actions
▪ Setting a later review date to confirm that they have been

actioned.
1.20.2 Post project review

The purpose of a post project review (PPR) is to evaluate the
completed project and learn what went well and what could have
been done better. It is achieved by reviewing the RAID log and the
quality log and meeting with both customers and the project team.
This review is not a process or session to apportion blame for any
issues affecting the project. However it is intended to promote
collaboration and agreement on what and why there were
advantages and disadvantages to doing things a certain way.
The organisation collates and analyses the findings from the PPR into
a lessons learned log to produce common findings/denominators
from each project and then use these findings to benefit future
projects.
56
1.21 IT projects – specific issues

All projects require the same management process but when
managing IT projects there are some specific issues which need to
be addressed.
This next session looks at those aspects of managing IT projects
which may require the input of the accountant.
We will consider:
▪ Inadequate planning
▪ Acquisition of software.
▪ The systems development life cycle.
▪ The growth of e-commerce.
▪ Information systems and the law.
1.22 Inadequate planning for IT projects

The business world is littered with IT projects which have failed,
often spectacularly, with millions of pounds wasted. Failures occur in
the private and public sectors, in developed nations and developing
ones.
There are a number of themes which run through the failures and in
this section we will look at some of the most common:
1.22.1 Inadequate budgeting

The initial cost estimates for IT projects are often far too low, such
that projects go over-budget almost from the start and costs
continue to spiral throughout the project.
The costs of the actual IT systems acquisition or development are
often well understood and accurately estimated but the following
additional costs should also be included:
▪ Installation and implementation of the system and changeover

from the current ways of working
▪ Data migration – the costs of moving the data held within the
existing system into the new one.
▪ Post-life support – a high level of support from developers is

usually needed for the first three months after a new system is
implemented to deal with user queries.
57
▪ Handover costs – once the system is running smoothly, the

project team need to hand over operation of the system to the
‘business as usual’ staff.
▪ Change – IT projects are particularly prone to scope changes –

this can be the result of changes in technology which occur
during development or because business needs to develop over
the period. These changes can typically lead to increases of 10-
15% over the initial budget. Ownership of the budget should be
in the hands of the project board to authorise spending as
needed.
▪ Contingency – because of the difficulty of estimating the overall

cost of an IT project accurately a contingency must be built in.
It is common for a contingency to be in the region of 20-25%
over the initial budgeted amount to cover unexpected costs –
particularly those associated with time overruns.
▪ For example, if one just activity within a project runs over the
costs can escalate fast. Project teams will needed to work for
longer and outside suppliers (such as those providing
automated testing of the system) may need to be paid retainers
to maintain capacity until the system is delivered. Clearly the
impact is magnified if several activities are delayed within the
same project.
▪ As with the change budget, the project board should be in

charge of authorising the spending.
The reasons for such underestimation include:
▪ Optimism bias – the concept of an optimism bias is discussed in

detail in your Financial Management syllabus. The theory
suggests that there is a strong tendency amongst decision
makers estimating the costs of a project to believe that the risk
of a negative event occurring (such as a delay or an error) is far
lower than it is. IT projects are often very complex and
imperfectly understood which leads sponsors to be even more
optimistic than when assessing standard capital spending
projects. It is essential therefore that the project manager
works with the board to develop a realistic cost estimate for the
project.
58
▪ Political will to achieve the project outputs – often sponsors are

already committed to achieving the outputs associated with IT
projects. This can lead them to resist a realistic cost estimate,
which would suggest the project was unaffordable, in favour of
an optimistic one which is within the available budget.
▪ Fixed price contracts – there is a great deal of pressure on

organisations to agree fixed price contracts which transfer the
risks of price increases to the suppliers. These are often used
for the supply of IT systems from outside contractors. However,
suppliers are sometimes provided with inadequate information
about the organisation’s business needs, so tender bids are too
low to achieve all the organisation’s goals. This is often coupled
with poor contract negotiation on behalf of the organisation
such that the supplier is not obliged to improve the system
when the gap between expectation and delivery emerge. This
can lead to the provision of a system which is inadequate and
poorly supported and which fails to do what was expected of it.
1.22.2 Waterfall development

Another of the common themes running through failed IT projects it
that the sponsors treat IT projects in the same way they would treat
a standard capital construction project. The two major components
of this are:
▪ A waterfall development approach is taken
▪ Consultation with stakeholders is minimal until the project is

nearing completion.
The result is often a project that delivers outputs that do not work as
envisaged and are not supported by users. The long term impact is
an abandoned system and a huge sum of money wasted.
These issues are both addressed in the discussion of waterfall versus
agile below.
1.23 Software acquisition methods

An important consideration in an IT project is the decision about how
the software should be acquired. We will consider three main
methods:
▪ Off the shelf software

▪ Bespoke development
▪ Software as a Service (SaaS)
59
1.23.1 Off the shelf software

Off-the-shelf purchase of packaged software involves the direct
purchase of a pre-written application used by more than one
company.
This is available for a whole variety of hardware platforms from PCs
to mainframes. Also it offers a broad functionality that will suit a
wide range of different businesses.
Advantages
▪ Cost: the major benefit of off-the-shelf software packages is

their low cost when compared with acquiring bespoke software
with the same level of functionality.
▪ Reliability: because packaged software has been developed for

a commercial market, it is less likely to suffer from the bugs
often found in bespoke software.
▪ Speed: if an organisation has a pressing problem that requires

a new information system quickly, an off-the-shelf system can
be introduced quickly.
▪ Innovation: an off the shelf package may provide facilities which

the user was not aware of but which prove to be useful.
Drawbacks
▪ Features: the software may offer too many unrequired but

costly features or not offer all the features needed
▪ Inflexibility: for example, a well-known accounting package in

the UK only offered an eight-character code for the customer’s
order number, although it later transpired that over 50% of UK
companies use longer order number codes.
▪ It may require businesses to process information in a particular

way which is at odds with the way they normally do business.
1.23.2 Bespoke development

Bespoke development describes the situation where an information
system is developed by professionals to suit the specific business
requirements of the organisation. If the organisation has its own ICT
developers and programmers the development will be carried out
‘in-house’ rather than outsourced to an external organisation.
60
Bespoke development produces software tailored to the precise

requirements of the business. However there are a number of
difficulties:
▪ Expense: bespoke development is the most expensive way of

developing new information systems.
▪ Time: bespoke development, especially when using formal

structured development methodologies, is notorious for time
overruns.
▪ Quality: bespoke software is not usually free from bugs;

software bugs can range from the trivial to the catastrophic, the
latter often attributable to poor analysis of requirements.
1.23.3 Software as a service

A third increasingly popular option is to use software provided by
application service providers (ASPs) to manage many of the
standard processes required by an information system. This is
known as SaaS – Software as a Service.
The organisation pays the ASP to use specialist software but rather
than running the software on its own machines, the software is
accessed via a web browser on the internet. Most service providers
offer standard packages (although larger clients may be able to have
the software customised to meet their specific needs). Two of the
best known SaaS providers are Microsoft which sells Office 365
software and Salesforce which provides software for managing sales.
SaaS is also common in fields from human resource management to
finance departments.
Advantages:
▪ The need to own and manage the software internally is

removed. This saves money and resources.
▪ The software can be accessed remotely from wherever staff are

located (provided an internet connection is available).
Disadvantages
▪ Where the system holds sensitive data, stakeholders may have

concerns about data security. There may also be fears of a
potential systems failure.
61
However it could reasonably be argued that the SaaS provider is

better placed to protect against this risk than the organisation
would be if using its own systems.
▪ The power to alter or amend the software is held by the

provider rather than the organisation.
1.23.4 Hardware acquisition – cloud computing

A related matter that the project team will need to consider is the
hardware which will be used to run the information system. A recent
development which takes advantage of the availability of cloud
computing (where resources such as data and/or applications are
held on the web i.e. in the cloud) allows an organisation to run its
own software using the hardware of another provider.
This may be used for example by organisations to run their websites
where they have predictable steady traffic for the majority of the
time, with sudden spikes in use which put the system under extreme
pressure. Cloud computing allows the organisation to pay at such
times to migrate the system to remote servers owned by others. The
organisation buys as much capacity as it needs to manage the surge
in traffic for as long as it is required.
E X A M P L E 11
UCAS (the UK Universities and Colleges Admissions Service) won an
award in 2013 for its work to move UCAS systems into the cloud.
Below is an excerpt from the report on the UCAS website11.
Although UCAS is active all year managing the [university]
application process, the service peaks in mid-August when students’
places are confirmed.
Hundreds of thousands of students log into Track, UCAS’ online
application system, within a few hours to find out whether they have
been accepted onto their chosen course. With the addition of huge
demand from universities and colleges managing their intake; this
places much more pressure on UCAS’ IT infrastructure than at any
other point of the year.
At its peak on 15 August 2013, the Track system saw more than 180
logins per second; hosted on the Microsoft Azure cloud service.
11
UCAS (2014) UCAS triumphant at first ever UK Cloud Awards [Online] Available
https://www.ucas.com/corporate/news-and-key-documents/news/ucas-triumphant-first-ever-uk-
cloud-awards [1st July 2015]
62
In addition the infrastructure databases and ‘link systems’ which

enable universities and colleges to administer the admissions
process were migrated to the Amazon Web Services public cloud.
This enabled over 350 higher education providers to access UCAS
services in the cloud.
1.24 Systems development lifecycle – bespoke

systems development
Where an information system is to be developed specifically to meet
an organisation’s needs, a series of steps must be taken to create or
modify and then maintain the system. These steps, from
development to use of the system, are known as the systems
development lifecycle.
The traditional method of approaching this process is the waterfall
method. More recently an alternative method known as agile was
developed which uses an iterative approach, and has links with the
concept of lean management (discussed further below).
1.24.1 The Waterfall method

In the section on project management methodologies above, we
discussed the use of the waterfall method in managing projects -
where all the activities within each project stage are completed and
signed off before the next one is commenced.
It is a highly structured and rational approach to developing and
installing a new information system in which each phase of
development is completed before the next one is started.
The phases of development are:
1. Initiation – a new system is proposed in response to a business
need for change.
2. Feasibility – the technical, economic and operational feasibility
of the proposed system is evaluated.
3. Systems and requirements analysis – the current system is
mapped and evaluated and the specific user needs from the
new system identified.
4. Systems design – how the new system will work in key areas
such as user interface, program modules and security is
determined.
5. Systems build - programmers write and test the new system.
63
6. Implementation – a controlled changeover from the old system

takes place and the new system goes live.
7. Review and maintenance – managing errors arising and later
upgrades.
This logical approach ensures that every step is completed and fully
operational before the next stage begins. However it has a number
of disadvantages:
▪ No working software is produced until late during the life cycle.

There is therefore little to show users during the early stages
and their involvement in the development is restricted
▪ Once a system has been developed and is being tested it is

difficult to go back and alter any aspect that is not liked by the
users. Late stage changes cost far more and may cause
significant delays to the project.
▪ It is not suitable for projects which are complicated, long lasting

or with requirements which are likely to change. IT projects
work best when the development process is flexible enough to
develop alongside the business’ needs.
1.24.2 The agile approach

The agile approach to systems development a flexible, iterative
method which stresses collaboration, teamwork and stakeholder
involvement.
The outputs from the project are broken down into smaller elements,
groups of which will be delivered in a ‘sprint’ – a process rarely
lasting longer than two weeks during which all the phases of
development are carried out include planning, requirements
analysis, design, coding, unit testing and acceptance testing. The
aim of agile is to produce a basic working system quickly so that
stakeholders can review it and provide feedback. This feedback is
taken on and the process is repeated until this aspect of the
software is right. Testing is a fundamental part of the agile process,
so that potential problems are identified and addressed immediately.
Since different tasks may be worked on at the same time, agile
requires that all team members are in constant communication and
teams usually meet daily to update each other on their progress.
Each team will have at least one representative from the stakeholder
group so that feedback can be constantly incorporated into the next
iteration.
64
Advantages of agile
▪ Flexible enough to accommodate changing requirements.
▪ Provides stakeholders with a prototype to review fast, allowing

for adjustments to be made where requirements cannot be fully
determined at the start.
▪ More involvement of stakeholders at all stages rather than at

the end of the process where changes are difficult to make.
▪ Faster end result as different elements of the project are all

achieved at the same time.
▪ Reduces risk that end result is not what is required.

E X A M P L E 12
An investigation carried out in 2014 by the National Audit Office
(NAO) found that a UK government IT project known as GPES which
was designed to extract data from the computers in doctors’ surgeries
came in three times over budget and almost four years late.
The NAO investigation report12 suggests the following factors were the
main contributors to the project’s problems:
▪ Both the procurement strategy and the technical design were

changed part way through the project.
▪ The client found it difficult to agree all the detailed requirements

for the GPES query tool. This delayed development and meant
some elements of the system were never built, or never used.
▪ After the system was accepted it was found that it had

fundamental design flaws and did not work. The system test did
not reflect the complexity of a ‘real life’ data extract and was not
comprehensive enough to identify these problems.
These are the classic ‘waterfall problems’ associated with large scale
IT projects where changes which occur after the initial planning has
been completed are difficult if not impossible to incorporate. Yet the
length of public sector projects (often spanning several years) means
changes are inevitable. The use of agile methodology is not yet
common place in public sector IT projects but the adoption of this
approach could well help to reduce the number of project failures.
12
Comptroller and Auditor General, (2014) General Practice Extraction Service – Investigation NAO
Communications
65
E X A M P L E 13
Hartshap Hotel
The marketing campaign for the upgraded chain will be combined
with a new website which will offer an integrated booking system
and a loyalty scheme. The marketing director, who will be
responsible for overseeing the project, is not clear at this stage
exactly how the system will work. She hopes that working closely
with the IT firm contracted to provide the system will help her to
understand exactly what can be achieved and how they can best
integrate the system into their existing business model.
It is this kind of project – where the scope is not clear and the
customer / client will need to provide regular feedback – that agile is
designed for.
1.25 e-business projects

IT projects are of particular importance in the public service arena
because of the huge growth in e-business in general and e-
government in particular.
We will look here at some of the typical e-business projects being
undertaken and the reasons for their importance in delivering
business change.
E-business (and e-government) essentially mean using electronic
processes to provide business (and government) services.
A common misconception with these terms is that they are related
solely to the internet. This is incorrect. The ‘e’ is for electronic and
therefore an automated telephone banking system would be an
example of e-business as much as online banking would be.
Another widely used term that you may come across is e-commerce.
This usually refers to electronic business that involves a financial
transaction and as such can be thought of as one part of e-business.
The precise difference between e-commerce and e-business can vary
depending on which expert is using the terms.
Advantages of e-business
▪ Increased sales.
▪ Cost reductions in marketing, supply chain and administration.
66
▪ Improved corporate image, branding and market

communications.
▪ Improved customer service.
▪ Significant opportunities for data gathering to better understand

customers.
Disadvantages of e-business
▪ High levels of investment needed.
▪ Levels of internet access may not be sufficient amongst

customer base.
▪ Resistance to use of the internet from customers and other

businesses.
▪ Greater potential for fraud.
▪ Risks to confidentiality of data.
▪ Reliability of technology.
There are four common terms used to describe e-commerce
transactions that you may come across:
▪ B2B: online transactions between two business organisations.
▪ B2C: online transactions between a business and a consumer.
▪ C2C: online transactions between two consumers.
▪ C2B: online transactions where a consumer specifies what they

want and the business responds with offers.
1.25.1 e-government
This term is used for the application of the principles of e-business to
the public sector. It has three principle objectives:
▪ Cost saving.
▪ Improved services.
▪ Improved public access.
Development of e-government
The term e-government emerged in the late 1990s and can be
defined as the use of information and communication technologies to
67
improve the activities of public sector organisations. It is also known

as digital government, one-stop government, and online government.
Governments across the world from the US and Canada, to South
Korea and Pakistan have recognised the benefits that e-government
can bring to their countries and introduced ambitious e-government
programmes.
Whilst initially the focus was on improving national government
efficiency and accessibility, the United Nations believe that the global
financial and economic crisis now requires e-government to play a
crucial role in achieving internationally agreed development goals.
As part of its ongoing review of e-government the UN assesses the
level of e-government development in countries across the world
using an agreed set of KPIs. They suggest there is an inevitable link
between high income countries and high rankings in the index
compiled, and the UN13 makes the point that:
‘For emerging and developing countries, the challenge is to invest in
… online services, telecommunication infrastructure and education,
to narrow the current digital gap… having a great website does little
in e-service provision if the majority of people in the country cannot
read or write, nor if they have no access to the Internet.’
It is estimated that spending on e-government during the first
decade of the 2000s was in excess of US$3 trillion14, making
governments one of the largest customers of the technology
industry. Some examples of the diverse range of services provided
using information systems are as follows:
▪ The UK National Insurance Recording System manages over

£300 billion and is one of Europe’s largest IT systems15.
▪ In the US the Indiana Bureau of Motor Vehicles simplified the

process of certifying driver records to be admitted in county
court proceedings. Indiana became the first US state to allow
government records to be digitally signed, legally certified and
delivered electronically by using Electronic Postmark
technology.
13
UN Dept. Economic and Social Affairs (2010), United Nations E-Government Survey 2010 Leveraging
e-government at a time of financial and economic crisis, UN Publishing Section, New York
14
Heeks, R.B. (2006) Managing and Implementing eGovernment, Sage, London
15
2010, Chief Information Officer (CIO) Council, [Online] Available
https://www.gov.uk/government/publications/the-chief-information-officer-council [25th June 2015]
68
▪ The Foreign & Commonwealth Office’s network links 16 000

users in 240 posts across 144 countries, making it one of
world’s largest and most geographically dispersed IT networks16.
▪ The government of India is committed to making all

government services available to its citizens via electronic
media under its NeGP (National e-Governance Plan) from land
records to the court system. Stakeholders encompass 20 central
departments, 360 departments across 35 states and nearly 500
implementation agencies17.
1.25.2 Transformational government

The current focus of government is on what is being called
‘transformational government’. This concept is explained in
‘Transformational government: enabled by technology’ which was
published by the UK e-Government Unit in November 200518. The
publication sets out a vision for public services in the 21st century
and requires public sector bodies to undertake three key
transformations (and set out an action plan for their completion) in
order to achieve this vision.
▪ Service design: services enabled by IT must be designed around

the citizen or business, not the provider, and provided through
modern, coordinated delivery channels. This will improve the
customer experience, achieve better policy outcomes, reduce
paperwork burdens and improve efficiency by reducing
duplication and routine processing, leveraging delivery capacity
and streamlining processes.
▪ Shared services culture: government must move to a shared

services culture – in the front-office, in the back-office, in
information and in infrastructure – and release efficiencies by
standardisation, simplification and sharing.
16
Ibid
17
2006, National e-Governance Plan, [Online] Available http://india.gov.in/e-governance/national-e-
governance-plan [25th June 2015]
18
2006, HM Government, Transformational Government, Enabled by Technology, Annual Report 2006,
HMSO, Norfolk
69
▪ Government’s professionalism: there must be broadening and

deepening of government's professionalism in terms of the
planning, delivery, management, skills and governance of IT
enabled change. This will result in more successful outcomes;
fewer costly delivery failures; and increased confidence by
citizens and politicians in the delivery of change by the public
services.
The significant changes which organisations within the public
services have made to their front and back office systems to achieve
the requirements of transformational e-government government
include:
Front-office:
▪ web site improvements
▪ intranet development
▪ contact centres
▪ smart cards
▪ customer relationship management software – information

technology used to obtain and analyse information on customer
behaviour
▪ video conferencing
▪ kiosks/public access
▪ remote working
▪ marketing using web technology

Back-office:
▪ document imaging
▪ data management
▪ e-learning
▪ workflow management software
▪ geographical information systems – uses maps to display

information about different geographic locations
▪ e-procurement
70
Consider the extent to which e-business has been introduced within

your own organisation. Has it been successful? What has worked
well and what has met with problems? How could those problems
have been solved?
1.25.3 Mixed success

One of the difficulties facing governments introducing e-government
projects is that success is by no means guaranteed. Even in wealthy
nations with large sums available to invest, projects can fail:
In the UK the NHS project Connecting for Health, cost over £20bn
and aimed to integrate care records, bring in electronic prescriptions
and appointment bookings, and introduce medical imaging software
amongst other aims. However it was criticised for failing to deliver
intended clinical benefits and risking data security and by 2011 it
had been abandoned in favour of local solutions19.
Research carried out by the Institute for Development Policy and
Management at the University of Manchester, found that in
developing and transitional countries, of e-government initiatives
introduced, 35% were total failures, 50% were partial failures and
only 15% were successes20.
In East Africa, the Ministry of Finance implemented a decision
support system for human resource management. It was found that
the payroll component of the system worked as intended but other
components (relating to recruitment, selection, appraisal, and staff
development) either did not work at all, or contained inaccurate and
incomplete data and/or are not used to support HR decision
making21.
1.25.4 e-government – the future

As governments find themselves with constrained budgets and
mounting demands, the need for providing better value for money
19
Maughan, A, 2010, Six reasons why the NHS National Programme for IT failed, Computer
Weekly.com, [Online] Available http://www.computerweekly.com/opinion/Six-reasons-why-the-NHS-
National-Programme-for-IT-failed [25th June 2015]
20
2008, Heeks R, eGovernment for Development Information Exchange, [Online] Available
http://www.egov4dev.org/success/sfrates.shtml [25th June 2015]
21
2002, World Bank/International Records Management Trust Partnership Project, Personnel and
Payroll Records and Information Systems in Tanzania, [Online] Available
http://www.irmt.org/documents/research_reports/case_studies/personnel_rec_case_studies/tanzani
a/IRMT_Personnel_CS_Tanzania.pdf[25th June 2015]
71
has never been so pressing in the recent history of the public sector.
E-government is a vital tool in achieving that goal.
As the UN e-government survey 201422 says:
‘At the United Nations Conference on Sustainable Development held
in Rio de Janeiro in June 2012, a global consensus was reached that
to achieve our sustainable development goals we need institutions at
all levels that are effective, transparent, accountable and
democratic. E-government holds tremendous potential to improve
the way that governments deliver public services and enhance broad
stakeholder involvement in public service.
The 2014 edition of the United Nations E-Government Survey,
coming on the heels of a ten-year period of the World Summit on
the Information Society (WSIS) action line implementation, asserts
that information and communication technologies are potent
enablers of the effective, transparent and accountable institutions
envisaged by world leaders at Rio. Countries in all regions of the
world and at all levels of development continue to make significant
investments in public sector ICT for these reasons. Such efforts are
vital to achieving broad public participation in decision-making,
enhancing access to information and removing barriers to public
service—all essential if we are to assure a future of equitable
economic growth and sustainable development that are free of
poverty and hunger.’
1.26 Information systems and the law

In this section we will look at the necessity of codes of conduct and
legal provisions to regulate information systems.
We expect developers, managers and users of computer-based
information systems to behave:
▪ Professionally - acting to meet the standards set by a profession

in terms of individual conduct, competence and integrity.
▪ Ethically – acting in accordance with generally held beliefs

concerning right and wrong.
This has given rise to the development of professional codes of
conduct and national legislation. The specific codes of conduct
22
2014, UN Dept. of Economic and Social Affairs, UNITED NATIONS E-GOVERNMENT SURVEY 2014, E-
Government for the Future We Want, [Online] Available
http://www.unpan.org/DPADM/MajorPublications/UNEGovernmentSurvey/tabid/600/language/en-
US/Default.aspx [25th June 2015]
72
developed by each profession and the specific legislation enacted in

different legal jurisdictions may vary but the basic concerns which
give rise to the regulation are universal. You should make yourself
familiar with the specific legislation which governs information
systems in your country.
1.26.1 IT projects and governing codes of conduct

Professional IT bodies
Many professional organisations, including those for IT professionals,
set minimum standards for the qualifications or experience which is
required from those wishing to join. Membership of a professional
organisation therefore affords status to the member and provides
independent recognition that they have achieved a high level of
competence in their field. Membership also provides a variety of
other benefits, such as training and official representation. However,
to ensure an appropriate standard of behaviour is maintained most
professional organisations develop codes of conduct for their
members that clarify their expectations and in return for
membership, the individual accepts a duty to meet certain standards
of conduct and behaviour. Failure to adhere to this code will result in
fines and / or loss of membership.
E X A M P L E 14
CIPFA members and students are bound by the CIPFA Statement of
Professional Practice on Ethics (SoPP). The SoPP identifies
fundamental principles which all members and students should
observe:
▪ Integrity.
▪ Objectivity.
▪ Professional Competence and Due Care.
▪ Confidentiality.
▪ Professional Behaviour.
IT professionals are also required by their own professional body to

protect confidential information and public safety. This would
include:
▪ the duty to protect sensitive or confidential information – by

developing security measures to prevent hackers and other
unauthorised users from gaining access to company data.
73
▪ the duty to the public i.e. the right of individuals to view

personal data held on them and the privacy of e-mail messages
and other communications.
▪ the duty to maintain public safety – this is not restricted simply

to ensuring that safety-critical systems function correctly. Many
computer-based information systems can have an indirect
impact on public safety by producing inaccurate or incomplete
information that is relied upon by users. For example, many
companies publish medical software programs designed to help
home users find information related to illnesses and their
treatment: despite the prominent warnings displayed by these
programs, there is clearly a danger that users may accept a
suggested diagnosis or treatment and act upon the information.
1.26.2 Legislation
It is common for nation states to attempt to maintain standards of
behaviour by enacting legislation to regulate the behaviour of
companies and employees with regard to data use and computer
crime.
Data protection
A vast amount of personal and corporate data is now held on
computer systems including medical records, financial history,
criminal records, banking data etc. Many countries have introduced
legislation aimed at protecting people and businesses from the
unauthorised gathering, storage, use and disclosure of that data by
others.
Legislation clarifies the situations in which such gathering, storage,
use and disclosure is permissible (such as where permission has
been given by the person involved, or where it is necessary to
protect national security or prevent the commission of a crime).
However the circumstances in which it is permissible are constantly
being challenged by governments and security forces on the one
hand, and pressure groups wishing to protect privacy on the other.
It can be difficult for an organisation to ensure it is complying with
the latest regulations and care must be taken to ensure that the
data held and used by the organisation does not breach the current
legislative requirements. Many organisations have responded by
creating new posts with titles such as Chief Information Officer to
co-ordinate the management of information across the organisation
and ensure compliance.
74
Freedom of information
The corollary of the need for data protection is the need to allow
individuals to know what data is held on them. Most countries have
therefore also passed legislation which allows the public the right to
access information held by public authorities under specific
circumstances. Publishing or providing access to relevant information
would also fall under the remit of the Chief Information Officer.
Computer crime
Some of the main forms of computer crime which are currently the
focus of legislation include:
▪ Theft
This could involve altering or destroying computer records to
disguise the theft of money. For example, an employee of an
insurance company might create a number of fictitious clients
and then make claims on their behalf.
Alternatively computers may be used to violate copyright and
download material such as music, films and software. Many
countries have now passed legislation to make such downloads
illegal.
▪ Malicious software
The creation and dissemination of programs or software which
damage the computer systems and which can lead to significant
losses (as a result of thefts or destruction of the system.
▪ Hacking
This occurs where a private computer is broken into. Sensitive
or confidential data may be accessed without the owner even
realising. Data may be stolen or altered or attacked by
malicious software. Some hackers then hold the organisation to
ransom, demanding money in return for releasing the system.
In many countries there are serious penalties attached to a
conviction for hacking.
▪ Identity Theft
This is a growing problem which arises from the increase in
internet use for cash and banking transactions. Personal data is
accessed and used to siphon funds or buy items in the victim’s
name.
75
As the use of technology has become more widespread, so too

has the incidence of computer crime. Acts such as theft, fraud,
unauthorised access and vandalism have become almost
commonplace and the losses or damage caused by such acts
have increased dramatically. Legislation is constantly being
introduced and updated to deal with the increasing incidence of
computer crime. You should ensure that you familiarise yourself
with the legislation in your country which governs your use of
computers and the internet.
Exercise 1.14
Think about the effects hackers might have on your organisation and
the measures that can be taken to stop them.
1.27 Models to deliver process improvement

Having discussed how general projects are managed, we are now
going to consider some specific types of projects – those focussing
on process improvement. A key feature of such projects is the drive
to reduce waste and inefficiency through the introduction of lean
thinking.
1.28 Lean thinking

The concept of the lean enterprise is underpinned by the philosophy
and principles of lean operations. This approach was first developed
for manufacturing in the Far East (most notably by Toyota). The
process was developed at a time of managing in intense competition
with scarce resources. The lean approach (also referred to as the
Toyota Production System, TPS) was considered to be a radical
alternative to the traditional method of mass production and batch
processing.
Lean thinking has evolved over the years and though very relevant
to the private sector, has been fully embraced by the public sector.
Note that lean thinking involves cost reduction which is not the same
as cost-cutting. Cost-cutting simply means spending less and does
not necessarily involve any concern for efficiency and service levels.
Cost reduction is a more strategic approach.
The basic philosophy involves the organisation moving towards the
elimination of all waste, in order to develop an operational approach
that is faster and more dependable and which produces higher
quality products at a lower cost. The lean operation philosophy must
embrace everyone and every process within an organisation. It is a
76
‘total’ system, involving an approach to people management known

as the respect for humans system.
The basic elements of the lean philosophy are:
▪ Elimination of muda or waste where waste is any activity that

does not add value
▪ Kaizen or continuous improvement - While the aim of perfect

quality and no waste may not be achievable straight away the
lean belief is that it can be approached over time.
These elements are discussed further below:
1.28.1 Elimination of waste

The essence of lean thinking is value. Value is determined by the
ultimate customer and relates to whether a specific product or
service meets their needs at a price they are prepared to pay.
Where costs are incurred on non-value items, then this is deemed
waste and should be eliminated.
According to the Toyota system, waste can arise as a result of:
▪ Unnecessary movements (in a construction process but also

searching for files, hunting through manuals etc.)
▪ Waiting for work or materials (or replies to e-mails)
▪ Transportation (not just transporting raw materials but taking

files to someone else or going to get a signature)
▪ Over-production (making extra unneeded copies, producing

more than the next process can use)
▪ Processing (using expensive rather than simple tools, holding

meetings that are not needed, entering the same data into a
system more than once)
▪ Inventory (office supplies, unread e-mails, unused database

content)
▪ Correction (data entry errors, lost records, reworking of items).

Other behaviours which are contrary to the concept of ‘lean’ are:
Variability
This refers to any variability in the way a process operates which is
not caused by the end customer. This would include employees
working at full speed in the morning only to sit around in the
77
afternoon, or a production line stopping and starting rather than

running smoothly.
Just-in-time systems (discussed further below) which involve
minimal inventory and a process speed set by customer demand are
a response to eliminating variability.
Overburdened equipment, facilities or staff
The philosophy suggests that demanding too much of the elements
in a system can be as damaging as asking too little, leading to safety
and quality problems, machine breakdowns and defects.
This, again, can be dealt with through standardisation – establishing
an achievable, reasonable standard that is known by everyone and
can be repeated consistently throughout the process.
1.28.2 Kaizen
The Kaizen approach directs specific attention to the improvement of
business processes.
The word Kaizen is Japanese for improvement and has become
linked to a business philosophy based on continuous process
improvement. The aim is to set standards and then constantly
improve upon them.
To be used effectively in a business, it requires the involvement of
all staff, from the most senior to the most junior, and applies to all
processes including purchasing and logistics which involve external
parts of the supply chain. Suggestions for improvement are expected
from every member of the organisation, and in addition to individual
suggestions, quality circles are formed for groups of employees to
identify potential improvements.
Typically Kaizen generates up to 30 suggestions per employee, per
year, with as many as 90% implemented. For example, a much
quoted statistic from Toyota (the most well-known firm which
applies the Kaizen philosophy), states that in 1999 at one U.S. plant,
7 000 Toyota employees submitted over 75 000 suggestions, of
which 99% were implemented.
The expectation is not radical change, but continued, small
incremental improvements which over time produce significant
results in terms of productivity. If a single error occurs, workers are
expected to stop, assess how it has occurred, work out a way to
prevent it and implement the improvement. The new process should
then be standardised to ensure the improvement is entrenched.
Standardisation is a key part of the Kaizen process.
78
Using Kaizen in the public sector

All organisations in both private and public sectors can implement
aspects of Kaizen into their processes; for example staff suggestion
schemes are popular in many organisations and may even attract
tax exemptions in some countries.
However one of the difficulties for many firms is the incremental
nature of the Kaizen philosophy. In cultures where the methods
adopted tend to be more ‘big bang’ in nature, and particularly in the
politically charged public sector arena, changes are often announced
as part of a plan to reshape policy. Gradual change is not seen as a
way to attract headlines nor to win votes and it is therefore more
common for change to be in the form of wholesale alterations to
process.
1.28.3 Six Sigma

Six Sigma is the structured application of tools and techniques on a
project basis to improve quality and minimise defects. It is an
approach not just to production processes but to all aspects of the
business.
The Six Sigma approach is applied systematically to one particular
process at a time as a project and as such may be more attractive to
management.
The project follows the DMAIC system:
▪ Define the project scope and expectations
▪ Measure and benchmark the current performance
▪ Analyse the process to identify the root cause of the problem
▪ Improve the process using a range of quality tools and ensure

they work
▪ Control the process by tracking performance over time

The term Six Sigma stems from terminology applied to
manufacturing processes where the sigma rating indicated the level
of defects generated by the process. A six sigma process is
99.99966% free of defects (this equates to 3.4 defects per million).
The philosophy therefore sets a goal for all business processes, from
manufacturing to customer services, of no more than 3.4 defects per
million. All defects, no matter how small, are recorded to ensure it is
achieved.
79
A key innovation of the Six Sigma philosophy is the elevation of

quality control to key business role, with a cross functional hierarchy
from the executive managers who champion the process, through
master black belts who are employed full time to apply Six Sigma, to
green belt employees who have some Six Sigma responsibilities in
addition to their day to day roles.
1.28.4 Combining Six Sigma and Kaizen

Six Sigma can bring about breakthrough changes in the operation of
an organisation’s process. However, to achieve lasting results, it
should be combined with an ongoing focus on making incremental
improvements to the new process to maximise its benefits. The
project approach of Six Sigma therefore will be enhanced by the
concurrent long term adoption of a Kaizen philosophy.
1.28.5 Value analysis

The lean philosophy emphasises providing customer value at the
lowest cost. One useful tool in achieving this is value analysis – a
cost reduction technique specifically focused on maintaining value.
The value of an item or a service is measured by how well it
performs its function relative to its cost. So if two items cost the
same, but one performs better it has a higher value. In the same
way, if two items perform equally but one costs less, the cheaper
item has the higher value.
Value analysis is a planned scientific approach to improving the
value of a product or service by offering the same level of
functionality at a lower cost. It recognises the various types of value
which a product/service provides, analyses this value and then looks
for ways of improving or maintaining aspects of this value but more
cheaply. When this process is used at the design stage, rather than
as part of a cost reduction programme, it is known as value
engineering, and is therefore a valuable tool in target costing
(covered in your Management Accounting studies).
The value analysis process
The organisation first identifies products or services in areas where
costs are too high, problems have been identified or demand is
expected to become significantly higher (and therefore new
economies of scale may become available).
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The different types of value which a customer requires from the

product or service are then determined. These may be:
▪ Cost value – cost of producing the product or service.
▪ Exchange value - the sum of all the attributes which enable

them to swap or charge for the item or service.
▪ Use value – the attributes which enable it to perform its

function.
▪ Esteem value – the additional premium which the product or

service attracts because of its intrinsic attractiveness to the
customer.
Each aspect of value is considered in turn and multi-disciplinary
teams work together to identify those aspects of the product or
service which add no value to the service but incur cost to provide,
and those which can be achieved at lower cost.
The functions offered by the product are then subject to a process
known as functional analysis. The importance of each function to the
customer is evaluated, along with the costs incurred by the business
to provide it. The current cost of achieving the function is compared
to the cost of producing it at the most minimal level and alternative
suggestions about to how close the gap between the two are
discussed.
Solutions may involve eliminating aspects which are little valued or
modifying aspects to make them cheaper to provide.
Uses of value analysis
The most obvious use of value analysis is in manufacturing. In one
typical example a stationary supplier reviewed a number of stapling
and hole-punching products. After analysing how they were used
and what functions were required, the company replaced many of
the metal components with plastic at a major cost saving.
The same approach can be applied within public sector
organisations.
In one group of hospitals, the product under analysis was a
particular type of operation. Some of the elements reviewed as part
of the analysis were various small items of equipment used during
the operation. Individual surgeon’s preferences and different buying
histories within the hospitals meant that there was a vast range of
slightly different items available for each operation – not only did
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this result in a high inventory value, but time was wasted laying out
the preferred equipment for each surgeon before an operation.
Analysis of the functions performed by the equipment showed that only
six key pieces were really necessary and that a standard version of
each could be bought in bulk and therefore more cheaply. The
recommendation resulted in the creation of a ‘pack’ for each operation,
pre-prepared by suppliers. Not only was money saved on purchasing,
but down time between operations was significantly reduced.
E X A M P L E 15
Example of functional analysis
A secondary school needed to review the school reports provided for
parents. They currently took weeks of teacher time to prepare and
were expensive to produce because of the number of pages per
report. The functions of the report were analysed and a functional
family tree was produced. A simplified version is shown below:
Functional family tree diagram for school report

Report on student at
school
Improve pupil
Keep parents
performance
informed
Report on key areas

Report on past performance
for improvement
Explain Give target
syllabus Teacher written List weak
grades
areas topic areas
comment
covered
Give Teacher
written
grades
Teachers and administration staff were asked to provide time

estimates for writing or collating the content necessary to fulfil each
of the functions and parents were invited to attend a workshop
during which they ranked the functions in order of importance to
them.
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A second workshop was then held attended by parents, teachers,

administrators and school governors. During this workshop the
report was redesigned. Alternative, quicker, ways of providing highly
valued functions were considered, and aspects ranked as low
importance (such as syllabus coverage) were eliminated altogether.
The new report was far shorter (a big reprographics saving) and
believed to be significantly quicker and simpler to produce.
Of course this is not the end of the process – the reports would then
need to be trialled and feedback on time taken and parental
satisfaction reviewed, to establish whether the functional analysis
process had been successful.
1.29 Just in time systems

Just in time systems (JIT) have been a major contributing factor to
the success of Japanese firms in providing high quality low cost
products. A complete contrast to the traditional push-through
system of manufacturing in many economies, the philosophy behind
JIT has spread far beyond its initial application to manufacturing and
is now found in areas as diverse as supermarkets and hospitals.
A JIT system can be defined as:
… a system designed to produce or procure products or components
as they are required for use or by a customer, rather than to add to
inventory.
JIT production is driven by demand for the final product such that
a product is only made on the production line when it is needed by
the next process.
There are five main features of a JIT production system:
▪ Manufacturing cells which group all the equipment used to

manufacture a given product in the same place to minimise
materials handling.
▪ Multi skilled working so that all workers can carry all the
operations in the cell.
▪ Total quality management - A zero tolerance for defects. If a

problem is found the whole production line is shut down until it
is eliminated.
▪ Reducing machine set up time and manufacturing lead time to a

minimum.
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▪ Carefully selected suppliers and strong supplier relationships -

goods must be delivered as soon as requested and have zero
defects as no buffer inventory is held.
JIT purchasing contracts the time between receipt and usage of an
item so that as far as possible they coincide. Supplies are delivered
at exactly the moment the current inventory runs out so that only a
minimum inventory is held (enough for ½ to 1 day’s use).
Financial benefits of JIT
▪ Lower inventory costs. In large firms inventory records may be

integrated with the supplier's information systems so that
reordering is automatic.
▪ Low risk of obsolescence
▪ Reduced set up and manufacturing costs
▪ Reduced wastage
▪ Competitive advantage arising from fast response to customers
▪ Reduced paperwork
▪ In a JIT system costing (and hence pricing) is more accurate

since more costs can be treated as direct. For example if a
factory is organised on a functional basis it may be possible to
establish the cost of materials entering the machining shop but
not to associate them directly with the different products
passing through the shop. This could hide the fact that some
products involve greater waste than others. Since JIT
production replaces the functional structure with manufacturing
cells, each relating to one product, all the costs of a cell relate
directly to that one product.
Use of JIT in the public sector
The principles of JIT have found widespread acceptance in the public
sector in all areas of stock control. A good example is hospital
supplies. In addition to the advantages of holding lower inventory
levels, the need for clearer information about factors such as clinical
needs and supplier reliability has been found to improve
communication and integration within the hospital.
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Criticisms of JIT
▪ Environmental campaigners point out that daily deliveries

require high levels of transportation with the associated use of
fossil fuels and pollution that entails.
▪ Price volatility – implicit in the JIT philosophy is that prices

remain constant over time. In reality firms may wish to increase
inventory levels to take advantage of price movements.
▪ Quality volatility – JIT also assumes that the quality of

deliveries will always high such that they can be used
immediately. However in practice, and particularly when applied
to fresh produce rather than engineered components, such
quality cannot be ensured.
▪ Supply volatility – whilst small scale problems of supply can be

anticipated and planned for, large scale problems can cause
huge difficulties. For example:
In the UK supermarkets use JIT stock control systems for
almost all foodstuffs and typically carry no more than 3 day’s
supply of food. In 2000, fuel protests in the UK began in earnest
on 10th September. By 13th September the lack of fuel available
to deliver food around the country, coupled with panic buying
on the part of some consumers, led to severe shortages in
many supermarkets and some began rationing. One major chain
reported that they would have run out of food within days had
the protests continued.
In 2011 the joint earthquake and tsunami disaster in Japan
massively disrupted supplies of components from Japanese
factories to the Honda and Toyota car manufacturing plants
worldwide. Since the factories carried no inventory under the
JIT system, both firms suffered huge production losses.
1.30 Servqual
Managers in all service sectors, public and private, are under
increasing pressure to deliver ever improving, customer-focused
services. Given the financial and resource constraints under which
most organisations operate, it is essential that customer
expectations are understood, and where they are not being met,
cost-effective solutions are implemented.
Servqual is a service quality framework designed to improve the
customer experience. It examines the difference between a
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customer’s expectations from a service and their perception of the

service they received.
Under the framework, also known as RATER, service quality is
broken down into five aspects:
▪ Reliability – ability to perform the service dependably and

accurately
▪ Assurance – ability of staff to inspire confidence and trust
▪ Tangibles – standard of physical facilities, equipment, staff

appearance etc.
▪ Empathy – the extent to which caring individualised service is

provided
▪ Responsiveness – willingness to help and respond to customer

need
For each aspect, organisations should measure and work to minimise
the gap between expectation and perception with regard to:
▪ What customers expect from a service and what management

think they expect
▪ What management believe to be the level of service they should

deliver and the actual specification of the customer experience
▪ The specification of the customer experience and what is

actually delivered by the organisation
▪ What is provided to customers and what they are led to believe

will be provided
▪ How customers perceive the experience and what they expected

to receive
A range of questions and a scoring system has been developed to
help organisations identify where the gaps in each aspect of service
quality lie. Once the gaps are identified, they are prioritised in terms
of their impact on service quality and then a programme of activities
is developed to close the gap, and processes are implemented to
ensure future service quality.
Advantages of a Servqual approach
▪ A valuable tool for assessing service quality

▪ Extensively used and generic so excellent tool for benchmarking
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▪ Can be adapted for use in any service organisation

▪ Suitable for use in the public sector
Criticisms of the Servqual approach
▪ It ignores needs of wider stakeholders by concentrating only on

the group surveyed
▪ Other issues such as improved access to existing services and

equality of service provision are as important as service quality
▪ Measuring customer expectation can itself lead to increased

expectation and therefore widen the gap!
Exercise 1.15
Suggest how the current restaurant service at the Hartshap hotel
could be evaluated under each of the five aspects of the RATER
quality framework
Exercise 1.16
Carry out a RATER exercise for a service organisation or department
you have worked in or are familiar with.
1.31 Identifying quality problems

Many of the methodologies referred to in the last section rely on the
monitoring and elimination of defects within a process. In this
section we consider three common methods used to identify quality
control issues:
▪ Control charts – used to identify when output is drifting beyond

acceptable levels of variation
▪ Pareto diagrams – used to identify the most commonly

occurring problems
▪ Cause and effect diagrams – used to analyse commonly

occurring problems
1.31.1 Control charts

Statistical quality control (SQC), or statistical process control (SPC),
is a formal means of distinguishing between random variation and
non-random variation in an operating process.
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A key tool in SQC is a control chart. A control chart is a graph of a

series of successive observations of a particular step, procedure or
operation taken at regular intervals of time. Each observation is
plotted relative to specified ranges that represent the expected
distribution. Only those observations outside the specified limits are
ordinarily regarded as non-random and worth investigating.
Consider the manufacturer of metal bars which are produced to a
nominal length of 10cm. Perhaps a tolerance of plus or minus 2mm
is acceptable to customers.
An automatic measuring device may be built into the production line
which can measure lengths and plot them on a graph. As long as the
bars lengths lie between the tolerance limits the production line
continues. But as soon as a bar which is too long or too short is
detected (more than 2mm away from 10cm) an alarm sounds or
production stops. The graph produced is essentially a control chart
which enables us to see – in this case – the lengths of our metal
bars and also how far away from the required length our output the
output tends to be.
1.31.2 Pareto diagrams

Observations outside control limits serve as inputs to Pareto
diagrams. A Pareto diagram indicates how frequently each type of
failure (defect) occurs. The Pareto principle states that about 80% of
defects or failures can be explained by 20% of possible defect
causes. By identifying the most likely causes of a problem efforts
can be focussed on those areas first, especially in situations where
checking everything might not be feasible.
1.31.3 Cause and effect diagrams

The most frequently occurring problems identified using the Pareto
principle can be further analysed using cause-and-effect diagrams.
A cause-and-effect diagram identifies potential causes of failures or
defects. The causes of the most frequently occurring failure are
drawn on the diagram.
The defect is noted in the centre of the diagram (usually drawn on a
flip chart or whiteboard as part of a brainstorming session). Different
categories of cause are then established (materials, manpower,
methods, machines etc.)
For each category reasons for each failure are sought and as
additional arrows are added for each cause, the general appearance
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of the diagram begins to resemble a fishbone (hence, cause-and-

effect diagrams are also called fishbone diagrams). Sometimes
reasons are broken down further to provide a more detailed
analysis.
A cause and effect (or fishbone) diagram

Cause 1
Cause 1
Defect
Cause 1 Cause 1
The cause and effect diagram may lead to proposed solutions. These
need to be appraised by identifying the relevant financial and non-
financial results of each, to establish which (if any) offers the best
solution.
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Summary
▪ A project is a unique process, consisting of a set of coordinated

and controlled activities with start and finish dates, undertaken
to achieve an objective conforming to specific requirements,
including the constraints of time, cost, and resources
▪ PRINCE2 is a project management method specifically designed

to ensure that projects achieve their objectives
▪ Before a project is begun it must first be approved ideally in the

form of a formal project mandate
▪ A project governance structure must be drawn up which

identifies all the stakeholders in the process
▪ During the project initiation phase a business case must be

drawn up to provide formal justification of the project, the
outputs must be agreed and the criteria for success developed
▪ The end of the initiation phase is the creation of the Project

Initiation Document (PID). Once the PID is approved the project
can begin
▪ A detailed plan involves subdividing the work using a Work

Breakdown Structure (WBS)
▪ Dependencies should be plotted using a network diagram or a

Gantt chart
▪ A communications plan should be drawn up to ensure that all

stakeholders are kept engaged with the project
▪ A risk, assumption, issue, dependencies (RAID) log should be

kept. Organisations must assess their risk appetite, determine
the significance of the risks they identify and implement
controls to reduce risks to an acceptable level.
▪ Government Gateway reviews at key decision points in a project

can improve the chance of a successful delivery
▪ To avoid the failure of IT projects budgets must be accurately

estimated and include significant contingencies. An agile
development method often work better than using the waterfall
approach
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▪ E-business is growing in importance and has brought with it

new legal and ethical issues and the need to defend the
business against computer based crimes
▪ Lean thinking is a philosophy based on the elimination of waste

and the pursuit of continuous improvement. A Six Sigma
approach to minimising defects may be adopted. Just-in-time
purchasing and production methods have also become popular.
▪ Servqual is a service quality framework designed to improve the

customer experience. It examines the difference between a
customer’s expectations from a service and their perception of
the service they received.
▪ There are several models that can be used to identify quality

control problems including control charts, pareto diagrams and
cause and effect diagrams.
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Quiz questions
1. What is the purpose of a project initiation document?

2. What is contained in a work package?
3. In project planning, what is a float?
4. Distinguish between inherent and residual risk
5. What are the four Ts in the model used to determine a response
to downside risk?
6. What is a RAID log and what is its purpose?
7. What is the meaning of a red traffic light in a Gateway review?
8. Give an example of how the benefits of cloud computing might
it be used by an organisation which has irregular spikes in its
system demands?
9. What is just-in-time purchasing?
10. What are the five aspects of the RATER quality framework?
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Quiz answers
1. A PID includes the key information needed to start the project.

The project sponsor will reviews PID to confirm that the project
has a sound business basis before formally approving it to
proceed to the detailed planning stage. It also provides a base
for the sponsor and the project manager to evaluate the
subsequent progress and success of the project.
2. A work package is a description of the product, details of the
activities which must be carried out to achieve the product and
the standards to be used.
3. The float is the time by which the duration of an activity could
be extended without becoming critical (assuming no delays on
any other activities) – i.e. the floats provide the project
manager with some flexibility. Critical activities have a float of
zero.
4. Inherent risk: The exposure arising from a specific risk before
any action has been taken to manage it. Residual risk: The
exposure arising from a specific risk after action has been taken
to manage it and making the assumption that the action is
effective.
5. The four Ts in the risk response model are tolerate, treat,
transfer and terminate.
6. The log records the Risks, Assumptions, Issues and
Dependencies in a project. It is a key project management tool
which provides stakeholders with evidence of the project’s
status and helps to determine the agenda for project meetings.
7. A red light means that to achieve success the programme or
project should take remedial action immediately. It means ‘fix
the key problems fast’, it does not mean ‘stop the project’.
8. An organisation may take advantage of cloud computing where
by running its own software using the hardware of another
provider. This may be used for example by organisations to run
their websites where they have predictable steady traffic for the
majority of the time, with sudden spikes in use which put the
system under extreme pressure.
9. JIT purchasing contracts the time between receipt and usage of
an item so that as far as possible they coincide.
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10. The five aspects of the RATER model are reliability, assurance,
tangibles, empathy and responsiveness.
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Scenarios
Scenario: Cloud airlines

Cloud Airlines (CA) is the national flag carrier airline of Shanland, a
medium sized European country. Its head office is based in the
capital city of Tadnow. The airline serves Northern Europe, North
Africa and the Mediterranean and has a strong record on safety,
reliability, value for money and good customer care.
The company is largely privately owned, although the state
government still holds 28% of the shares (down from its original
85% after floating much of its holding in 2002).
The company is divided into three wholly owned subsidiaries; Cloud
Airlines Europe (CAE), Cloud Airlines Africa (CAA), Cloud Airlines
Mediterranean (CAM).
To increase profitability, the executive board of CA is planning an
ambitious expansion programme into North America. Their aim is to
be one of the top fifteen transatlantic airlines within the next ten
years. They intend to offer a competitive service, and maximise
revenues by pricing to attract market share from established market
players whilst maintaining their reputation as an excellent provider.
They are aware that to achieve this they will need to focus on quality
and efficiency throughout the development.
To achieve this goal will involve, amongst other things, building a
new transatlantic terminal building at Tadnow airport, increasing
their fleet of aircraft and upscaling their capacity in terms of
bookings, in-flight catering, baggage handling etc. They will also
need to open up at least two commercial bases in the US, probably
in New York and Washington. The business will be run by a new
subsidiary Cloud Airlines US (CAU).
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Tadnow transatlantic terminal

The new terminal building is scheduled to open in 2020 and is
expected to cost in the region of £2.3 billion (i.e. £2 300 million). In
addition to the national Cloud airline, the terminal will be used by a
number of independent airlines and one major customer, the
Songline Alliance, a group of airlines working together to provide
international air transport under one banner.
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Scenario: Hartshap Hotels Chain
History
The Hartshap Hotels Chain (HHC) opened its first hotel in France in
1964. Over the past fifty years it has expanded across Europe and
now owns 30 hotels in ten countries and employs over 4 000 people.
It has traditionally targeted the lower end of the luxury market,
offering a stylish stay at affordable prices.
Each hotel is run by a designated hotel manager accountable to one
of the four regional directors all of whom sit on the executive board.
The company is run by the executive board based in France, headed
by the new CEO, Jeanette Dupont.
Recent performance
The CEO until last year, Jacques Robert, was a firm believer in hands
off management and under his leadership the chain’s fortunes began
to falter. Over the past decade profits have been falling and market
share has diminished. A dividend has not been paid for the past two
years and after pressure from shareholders the old CEO resigned
and was replaced by Ms Dupont. She has worked with the executive
board to agree a demanding five year plan to revive the company’s
fortunes and return it to profitability.
Current problems
The Hartshap brand is not well known. Traditionally hotel managers
have been encouraged to make their own stamp on the hotels they
run and the different hotels within the chain are not consistent with
each other in terms of style, service or standard of service.
Performance goals were based on budgets submitted by the
managers themselves and were rarely challenged. Many hotels are
dilapidated, service can be poor and the food offering is variable,
dependent on the chef’s preferences, and poorly rated by guests.
The chain’s rating on Tell Me – the holiday review website has fallen
considerably, and Qualhol, the exclusive high end holiday magazine,
no longer features their hotels.
The new strategic aims
The company wishes to reinvent itself as a hotel chain providing ‘a
five star luxury experience offering the best of local culture and the
finest European cuisine’. It hopes to reposition itself as an upmarket
brand and recover profitability. The initial budget estimate for the
plan is £85m of which a significant proportion is to be spent on the
building of a new hotel.
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How the aims will be achieved

The approach to the planned change will include the following:
▪ The existing hotels are to be fully refurbished in the new luxury

‘house style’. This should improve margins and increase
customer numbers. The aim is to refurbish the hotels several at
a time but never more than two in the same country at once.
They will be closed, refurbished and relaunched as part of the
new brand image.
▪ A new flagship hotel is to be opened in Kravej, a European city

currently developing into a major tourist destination. It is
hoped that the publicity will help to revitalise the Hartshap
brand. The hotel project is expected to cost approximately
£40 million. The planned opening date is May 2018. The
director in charge of the project is Louis Augustin, director of
development who will move to Kravej to oversee the build.
▪ The hotel restaurants are to be redesigned and reimagined to

offer a gourmet dining experience in keeping with the luxury
refit. Experienced local chefs will be recruited and encouraged
to devise menus which meet the exacting standards of the
Qualhol restaurant reviewers whilst making the best of local
ingredients.
▪ An advertising company has been appointed to launch a new

marketing campaign is to be launched to strengthen the brand
and clearly position the hotel chain at the luxury end of the
market.
▪ The marketing campaign will be combined with a new website

which will offer an integrated booking system and a loyalty
scheme although the detailed requirements are not yet clear.
An IT contractor has not yet been selected.
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Scenario: Pawton fire and rescue service

There is no centralised firefighting and rescue provision in the
country of Pawton. Instead there are 46 separate fire and rescue
services each responsible for up to thirty fire stations in their local
area. Some of the services cover large metropolitan areas, others
extensive rural areas whilst others cover a mix of towns, cities and
countryside villages. Each service is accountable to an autonomous
local fire authority. The authority collects funding for the service
from all the councils in the local area and pays it over to the service
to spend as needed.
Each fire and rescue service is responsible for operating its own
control room which accepts and directs emergency calls and
coordinates a response from the fire stations within the local area.
The control rooms have also developed systems for answering calls
on behalf of neighbouring areas and coordinating responses with
them during busy periods.
The processes and systems used vary between individual fire and
rescue services and between control rooms as they have evolved to
meet local needs. Even within one control room there is no standard
agreed approach to responding to emergency calls. Call handlers use
their expertise to process calls, using a range of different methods
depending on the need arising and the other demands currently
being made on the system. Currently local fire and rescue services,
their controlling authorities, and the fire stations within each service
have a good working relationship and are happy with the systems
they use.
However, the government does not directly control the services and
there is currently no way to coordinate a national response to
emergency situations. After several national disasters including
terrorist attacks and widespread flooding following severe storms,
the Pawton government department responsible for supporting fire
and rescue authorities within Pawton has decided to implement a
major reorganisation programme to be started immediately.
The 46 control rooms are to be replaced with a network of nine
purpose-built regional control centres using an integrated national
computer system. A national control framework will be developed
governing the whole country and all 46 local fire and rescue services
will use the new system.
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The aim of the department is to facilitate an effective national

response to major disasters and in the process:
▪ Increase efficiency and ensure faster response times to local

emergency calls
▪ Upgrade response and deployment capacity through new

technology
Projects include:
▪ Building nine state of the art regional control centres which will
be networked to share information.
▪ Developing and building a new IT system to handle incoming

calls and redirect them to the correct fire and rescue service.
The system will incorporate caller location technology, satellite
tracking of vehicles and mobile data terminals in each vehicle to
communicate with firefighters on the ground.
▪ Moving the emergency call operations from the existing 46 local

control centres to the new regional control centres.
▪ Redesigning ways of working to align with the new technology

and provide coordinated responses including introducing
standardised policies and procedures across all services.
▪ Developing and delivering specialist training for all services to

deal with major incidents.
The government minister in charge of the department is very keen
to see the programme implemented and has already made an
announcement to the press about the plans. It is expected to take
five years and the estimated cost of the programme has been
budgeted at £120 million. It is believed that the overall savings in
national fire and rescue could be as much as £86 million.
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Scenario: Colswell City Council

Colswell is a small city of approximately 225 000 people, although
the population is expected to grow by 9% over the next 15 years
with the largest increase in the over 45 age group. In particular the
over 75 age group is expected to increase by 30% (67 500).
Colswell City Council
The council is run by a city cabinet of elected councillors who take
most of the strategic decisions. The cabinet leader is Sam
Beechwood. He has a reputation for decisiveness and has little time
for people who challenge him. He sets high standards and can be
unsympathetic towards those who make mistakes.
The council is currently divided into five separate directorates each
on a separate floor of the main council building. The offices are
computerised although each directorate has its own separate IT
system. The council is run by an executive team made up of the five
directorate heads and Mick Hartford the CEO.
▪ Housing and Adult Social Care
▪ Children, Schools and Families
▪ Culture and Environment
▪ Central Services
▪ Chief Executive’s Department

Promotion within the council has traditionally been based on length of
service and evidence of consistent, reliable adherence to duty. Staff
are expected to work within the existing systems, defer to those
above them in the hierarchy and dress formally at all times. Senior
staff are provided with reserved parking places and private offices
and mainly communicate with their teams by email. There is little
communication between the directorates below the executive level
and most decisions have to be authorised by senior management.
Care for older people
Colswell City Council is aware of the growing importance of the
provision of services for older people within the city. Government
statistics show that an ageing population tends to have a higher
prevalence of chronic diseases, physical disabilities, mental health
problems and other medical disorders.
The Housing and Adult Social Care directorate is under increasing
pressure as the numbers of older people increase and the funds
101
available are squeezed further. Staff are overworked and have little
time for individual clients. The cabinet has therefore decided to form
a specific Social Care and Housing for Older People (SCHOP) division
within the Housing and Adult Social Care directorate. It is to be fully
operational by the end of the financial year.
The need to achieve more with less will require innovative solutions
to the problems faced by the division. Its role will be to control the
expenditure budgets for social care and housing for older people and
ensure they are helped to live fulfilling daily lives.
The division will be run by David Elsworth, currently a senior staff
member within the Housing and Adult Social Care directorate. It will
be staffed by a mix of existing directorate staff and new employees
and will need to work in partnership with other parts of the council
as well as other organisations within the city. The intention is to
locate the division in a recently acquired office block next door to the
main council offices.
The budget for the reorganisation is £200 000 and the new division
is to be fully operational by December 2016.
The council strategy for older people (based on the government’s
national health and wellbeing outcomes) is to improve the health of
older people and to reduce the inequalities they experience.
Stated outcomes include:
▪ Greater empowerment and independence for older people
▪ Greater access to all services and equality of access for older

people
▪ Greater social inclusion of older people

One particular area of the strategy concerns the living arrangements
of older people:
▪ Older people, including those with disabilities or long term

conditions, or who are frail, should be able to live, as far as
reasonably practicable, independently and at home or in a
homely setting in their community.
▪ Older people should retain as much control of their own lives as

possible including in decisions about their care and support.
Living at home
For those who wish to remain in their own homes, the council need
to ensure that there is a wide enough range of support services
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available to facilitate their wish. This would include services such as

home adaptations, home care visits by medical professionals and
community transport.
One service which is currently provided directly by the council is the
‘meals on wheels’ service. The catering service cooks, packages and
delivers a hot daily meal to each eligible household in the city. In a
bid to save money, Colswell Council is now planning to put the
service up for tender. The in-house service intends to bid for the
work but is aware that it may be awarded to an external provider.
Frailty, ill health and dementia
For older people living in Colswell who are unable to look after
themselves at home as a result of frailty, ill health or dementia, the
council has to ensure that there is an appropriate range of
residential care available in the city to suit their differing needs.
Some may require residential support only, some also need nursing
care and whilst others require specialist dementia care.
Funding
The council provides financial assistance for the elderly residents
requiring a care-home place at a rate dependent on their level of
financial capital. Older people are free to select their own nursing
home from those available in the city and their funding allowance is
paid by the council direct to the provider. If the cost of the home
they choose exceeds the level of assistance provided by the council
they will need to pay the additional costs from their own funds.
Current provision
There a number of care homes in the city, many run and managed
by the council. The council holds a list of the non-council run homes
it has vetted and approved although older people are free to choose
any care home they wish. Of these, some are privately run, some
are council run, some are run by independent not-for-profit
organisations and some are run by specific charities (such as the war
veterans society).
However the current level of provision is insufficient for the growing
numbers of older people in Colswell. A commissioning group has
been set up within the SCHOP division to look at how the home care
needs of the older population can be best met over the coming years.
103
Exercise solutions
Exercise Solution 1.1
▪ What the aims / goals for the hotel are
▪ Exactly what is to be achieved – how big / how grand / what

features
▪ What standard to carry everything out to so we can measure

success
▪ Whose interests should be taken into account when deciding on

the aims / objectives / standards for the hotel (the board,
QualHol, current employees etc.)
The point is that you can’t just launch in and start planning – you
don’t have enough detail about what to plan.
104

Cloud Airlines:
▪ Sponsor – board of Cloud Airlines (CA)
▪ Client – board of Cloud Airlines US (CAU)
▪ Customers – travel companies, Songline Alliance

Other stakeholder groups:
▪ Local citizenry affected by the build
▪ Other airlines using the terminal
▪ Passenger groups
▪ ‘Green’ groups monitoring the build
▪ Shanland government minister for transport
▪ Tadnow city leaders

Colswell council:
▪ Sponsor – Colswell city cabinet
▪ Client – Housing and Adult Social Care directorate
▪ Customer – David Elsworth – incoming Head of SCHOP

Other stakeholders:
▪ Staff within the current directorate
▪ Other divisions within the council
▪ Partner organisations outside the council
▪ Other staff groups located in the new office block
▪ Service users
Hartshap Hotel:
▪ Sponsor – executive board headed by CEO, Jeanette Dupont
▪ Client and customer – Louis Augustin, director of development

Other stakeholders:
▪ Marketing department
▪ Local people and local government in Kravej
105

Cloud Airlines
▪ Energy efficient - Achievement of appropriate environmental

standards (carbon emissions, use of fossil fuels etc.)
▪ Innovative - Design awards
▪ Smooth management:
1. Customer rankings / feedback – from passengers / airlines
during initial phase etc.
2. Queue times during tests at major points e.g. customs /
passports / car parks / runways
▪ Shops and restaurants – range of businesses signed up

The stages in the dinner project may be: devise menu, shop for
food, cook and serve meal.
▪ Provided A has finished on time then C can take up to 2 days

longer than originally planned without delaying the project
(i) From the network we can see that activity C can start as
early as the end of day 2 (assuming A is completed time).
However it must be completed by day 15.
Since it will take 8 days to complete it has a float of 5 days
– i.e. there are an extra 5 days available to complete
activity C provided E is finished on time. So it could start as
late as the end of day 7.
(ii) F can start at the end of day 11 (provided there has been
no delay to A, C or E) but it must be finished by the end of
day 20. Since it takes three days to complete it has a float
of six days. So the start could be delayed by 6 days to the
end of day 17 without delaying the project.
Note you will be given the duration of the floats in the exam.
106

The network diagram clearly shows the dependencies. They are also
shown as arrows on the Gantt chart however in this form they are
perhaps less straightforward to follow.
However the length of the activities and the extent to which they
overlap is clearer on the Gantt chart, which makes it easier for the
project manager to control the project.
Float times can also be readily shown on a Gantt chart.

1. 31 weeks
2. F, I and J
3. B and E would start a week later but both have sufficient float
so no other impact
4. B could start 5 weeks late. It takes 2 weeks to complete and so
G would still start on time.

There may be several appropriate forms of communication in some
of the examples and you may have chosen a different method. In an
exam situation what matters is that you can explain the factors that
have brought you to make the choice you have.
(a) It is essential that the relationship with a client is not
compromised as a result of the delay. If the delay in the service
is not likely to be significant (for example, a replacement
product will be delivered within a couple of days an e-mail may
be sufficient.
However if the delay is important (e.g. a project is no longer
expected to be completed on time) it is likely that a telephone
call or a face-to-face meeting will be required. This will allow for
a more detailed explanation and for the client to ask questions.
It is also important for the client to see that they are considered
worth the time and trouble of personalised contact. If there are
several stakeholders in diverse locations the meeting may take
the form of a conference call or video call.
(b) It is likely that there will be a large number of status updates
during a long-term project. For routine updates, it may not be
107
necessary to speak to, or meet with, the client. A written report,

sent or e-mailed, which provides the key information is likely to
be sufficient. A pro-forma approach may be taken to writing the
report to avoid unnecessary expense.
(c) Parents will probably want to receive the information regularly
throughout the trip. Updates on the school website with
photographs would be one possibility. Others would include
providing a Twitter feed or encouraging the children to write an
approved blog about their day. Younger children may also be
encouraged to send home a letter or postcard.
(d) Provided the change is made with enough time, staff may be
informed of the time change by e-mail – probably with a read
receipt attached so that the sender knows they are aware of the
change. At shorter notice the change could be sent by text
message.
(e) Agreeing a change to the design specification will undoubtedly
require a meeting of the stakeholders who will need to be able
to discuss the various issues as they arise. Particularly where
projects are being managed using an agile approach, speed of
agreement is essential so communication must be immediate.
As before, the meeting would be best face-to-face but may have
to be carried out by conference call or video, if the stakeholders
are far apart.
(f) Assuming that the change is not controversial (i.e. jobs are not
threatened by the new system), staff can be kept up to date by
information on the firm’s internal intranet. If there are likely to
be a number of questions then a series of briefings may be
more suitable which would allow for two-way communication.
(g) Sharing best practice may be done in a variety of ways. If the
aim is simply to demonstrate a technique then a live
presentation to other staff members or even a YouTube
recorded presentation may be sufficient. If the aim is for staff to
discuss best practice an on-line forum could be set up on the
firm’s intranet.
108

A suggested communications plan for the Colswell project is shown
below:

City Cabinet Assure the cabinet Board meetings Monthly

that the new Informal
structure will relationship
deliver value meetings
A trusting
relationship and
support in
innovations
Divisional Have a clear Update internal Early
employees understanding of website October
the new division Induction 2015
Have a sense of training December
belonging to the E-mail newsletter 2016
division and
understand the Link to staff
benefits evaluation
questionnaire
Able to engage
with and influence
the division
Other council Council divisions Develop one to November
divisions are informed and one relationships 2016
understand the with divisional
structure so they managers
can provide the
necessary central
support
Partner Open and trusting Initial workshop October
organisations relationship to explain new 2016
Work structure and
collaboratively gather input
with SCHOP to Specific email to
solve problems as confirm
they arise discussions
had/decisions
made
Scheduled
individual
meetings in 6
months to
address any
problems
109

Service users Have a clear Generic by start Dec

understanding of newsletter, 2016
the new division Talks where
Know how to appropriate
access the right Information
part of the packs
division
Have confidence
in the division
We will look in detail at the way in which stakeholders can be

managed and how to deal with any barriers to effective
communication during a change process in Workbook 3.
110
Failure to get from A to B in time No – this is simply the converse

for the meeting of the stated objective
Being late and missing the No – this is a statement of the
meeting impact of the risk not the risk
itself
No buffet car on the train so I No – this does not impact on
arrive at the meeting hungry achievement of the objective
Missing the train causes me to Yes – this (missing the train) is a
be late and I miss the meeting risk which can be controlled by
leaving plenty of time to get to
the train station
Severe weather prevents the Yes – this (severe weather) is a
train from running so I can’t risk which can’t be controlled. A
make the meeting contingency plan will need to be
drawn up.
The pool cleaning system is No – this does not impact on

inefficient such that the pool achievement of the objective. It
requires twice daily maintenance may affect other objectives such
as ‘the pool is cheap to maintain’.
Construction company Yes – this is a risk which can be
inexperienced and so fail to build controlled by vetting all potential
the pool to competition standard suppliers to ensure they have
previous experience of
competition standard builds
Pool is built too shallow to meet No – this is a statement of the
competition standard impact of the risk not the risk
itself
The swimming pool is not No – this is simply the converse
constructed to competition of the stated objective
standard
The builders hit unexpected Yes – this is a risk which can’t be
bedrock when digging the pool controlled. A contingency plan will
and can’t make it deep enough need to be drawn up
to meet competition standard.
111

1. Hartshap
Probability: Probable (4)
Impact: Major (3)
Combined score = 12
Action: Report to board and review plans
2. Cloud Airlines
Probability: Remote (1)
Impact: Severe (4)
Combined score = 4
Action: Keep under review. No need to escalate
3. Colswell council
Probability: Certain (5)
Impact: Fatal (5)
Combined score = 25
Action: Escalate at once to the project board. The project will
presumably be cancelled if no funds are available. (In practice
in a situation such as this the project board would undoubtedly
already know of the cuts.)

Risk: The serving staff know little about the food and provide poor
service which upsets customers
Directive control: All staff to undergo rigorous staff training.
Corrective control: Senior floor manager to monitor all staff and take
action if service falls below par.
Risk: The food supplied to the kitchen does not meet the fresh
standard required.
Directive control: Only using top quality suppliers who can guarantee
fresh food.
Risk: The chefs do not use the food whilst it is still fresh.
Preventative control: Regular food inspections to ensure everything
used is fresh before it is used.
Be sure to give risks not impacts – the ‘the food served is not fresh’
is the impact of the risk and would not earn marks. The risks are
that the suppliers, chef or serving staff let the hotel down by not
performing their roles correctly.
112

You will probably have identified the main effects that hackers could
have on your organisation as being:
▪ Access to or loss of sensitive information
▪ Use of IT systems to commit fraud
▪ Interruption or sabotage of computer services

Thinking about measures that can be taken to stop hackers is more
difficult, but you should have identified some of the points below.
You should be aware that the threat to organisations is as much
from internally generated crime (for example, disgruntled
employees) as it is from external threats. Internal threats are more
difficult to protect against.
▪ Implement password protection and ensure that strong

passwords are used, requiring six or more characters and
including a mix of upper and lower case letters and some
numerals.
▪ Use one time only passwords for sensitive transactions; these

are generated at the time of the transaction in such a way that
only an authorised user can use them; for example employees
or on-line customers can be issued with calculator type devices
which generate a new password when a system generated code
is typed in.
▪ Restrict physical access to computer systems, particularly

outside of normal working hours.
▪ Install firewalls to protect externally accessible systems.
▪ Encrypt sensitive information.
▪ Ensure that key operating system and application software is

kept up to date by installing updates regularly.
▪ Install virus protection software and ensure it is kept up to

date; this will reduce the risk of spyware, which can (for
example) steal passwords by recording keystrokes.
▪ Restrict email which have executable files attached.
113
▪ Adopt and publicise a corporate computer usage policy and

ensure it is enforced. Employees should be asked to sign a copy
of this policy as evidence that they are aware of it and agree to
abide by it.

Guests could be asked questions about their expectations and
experiences of the service offered under five quality aspects:
Reliability (ability to perform the service dependably and
accurately): Quality and consistency of room standard, dependability
of booking system
Assurance (ability of staff to inspire confidence and trust): Staff
knowledge of local area, Number of languages spoken in the hotel,
Provision of physical security – doormen, strong box, pool lifeguards
etc. Training and qualifications of spa, pool and gym staff
Tangibles (standard of physical facilities, equipment, staff
appearance etc.): Cleanliness of bedrooms and common areas,
equipment available in the gym, smartness of uniforms, options
available in restaurants, quality of food, ease of navigation of
website
Empathy (the extent to which caring individualised service is
provided): Willingness to provide tailored assistance (booking taxis /
restaurants), Ability to remember individual guests
Responsiveness (willingness to help and respond to customer
need): Provision of out of hours reception / housekeeping / catering
service, Speed of response to queries and complaints, Attitude of
staff to requests
For each aspect, the hotel should measure, and work to minimise,
the gap between expectation and perception of the service provided.

There is no solution provided to this exercise as your solution will
depend upon the service organisation or department you have based
your analysis on. However the process should have helped you to
understand the different aspects of quality involved in the provision
of a service. You should be prepared to apply the framework to a
specific scenario in your exam.
114
77 Mansell Street
London E1 8AN
+ 44 (0)20 75435600
Email: studentsupport@cipfa.org
Website: www.cipfa.org

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BUSINESS AND CHANGE MANAGEMENT

Updated December 2021

First published 2016

Copyright © 2020 Chartered Institute of Public Finance and Accountancy

Learning outcomes and content

▪ The benefits of the PRINCE2 project management method

▪ Waterfall and agile approaches

▪ Project start up and initiation and the Project Initiation

▪ Detailed project planning

Discuss the importance of the post-project review process

▪ Closing out a project

▪ Post project review

▪ Consequences of inadequate planning in IT projects

▪ Acquisition methods including buy or build and SaaS, host or

▪ Systems development lifecycle

▪ The importance of e-commerce and e-government

▪ Identifying quality problems

1.1 Topic diagram

Methodologies IT projects Delivering

E-business Just in Time

1.2 Project management process: an overview

1.3 Introduction to project management

Key features of a project:

correct way to manage a project but one well-known management

▪ clear structures of authority and responsibility

▪ creates too much paperwork

1.4 Project methodologies

The stages are:

▪ Project start up and initiation: The project team first analyses,

▪ Project planning: The best way to meet user needs is

▪ Project implementation: The project is commenced. Each stage

▪ Project closure, evaluation and maintenance.

▪ Easy to plan because the full project scope is defined in

▪ Simple to communicate and manage as the project has discrete,

▪ Well known and understood.

▪ Emphasis on documentation so that should individual team

1.5 Project mandate

1.6 Project start-up and initiation

To convert a project from an abstract idea to a series of practical

▪ The project governance structures

▪ The project details

1.7 Project governance structures

1.7.1 Project stakeholders

Named individuals or groups should be appointed to each of the

major plans and authorise any major deviations. It is made up of

▪ People – project team, suppliers, stakeholders

▪ Process – planning, organising and controlling all the activities

▪ Product – delivering the end result on-time, within budget and

It would be extremely unusual for any large scale project not to

▪ Reduced final cost resulting from efficient use of resources and

▪ Higher quality outcomes from better communication between

▪ Achievement of all project outcomes from coordinated planning

▪ Be responsible for carrying out the individual project tasks

▪ Contain people from different departments and/or organisations

▪ Often be managed outside the normal management structure

▪ Be led by the project manager.

1.7.2 Project accountant

▪ Project finances are recorded in a separate account from

▪ Because project spending is harder to predict than day to day