CHAPTER 5:

Project Management
5.1 Introduction to Project Management
5.2 Project Planning
5.3 Project Scheduling
5.4 Project Staffing and Organizing
5.5 Project Team Building
5.6 Project Controlling
5.7 Project Crashing and Resource Allocation
5.8 Project Risk Management
5.1 Introduction to Project Management
Project is a temporary endeavor undertaken to produce a unique out come. A
project has a specific set of objectives and a definite schedule, budget, and set
of performance requirements. It has a finite life span and is usually a team
effort led by a recognized project manager.
Project management is a process of planning, staffing, organizing, leading,
and controlling organizational resources to successfully complete a project. It
is the application of knowledge, skills, tools and techniques to project activities
in order to meet stakeholder’s needs and expectations from a project. It is also
the process of integrating everything that needs to be done as the project
involves through its lifecycle (from concept to handover) in order to meet the
project's objectives.
Project Constraints
The constraints are an interdependent set; a change in one can cause a change
in another constraint to restore the equilibrium of the project.

The constraints of the project include:

 Scope
 Quality
 Cost
 Time
 Resources
Phases of the Project
The four main phases of the project are:
1. Initiation phase
2. Planning phase
3. Execution phase
4. Closure phase
5.2 Project Planning
The two most important facets of project management are planning and team
building.
Project Charter: A project charter is a formal establishing of the project by the
upper management chartering authority. As a minimum, the charter should:
(1) designate the purpose of the project,
(2) establish the general organizational format for the project,
(3) appoint a project manager, and
(4) state management's support for the project
What is Project Planning?
• Planning is a process of determining what needs to be done, by whom and
when.
• Planning is the act of decision making based upon futurity.
• Planning is the way of selecting enterprise objectives, and establishing
policies/procedures/programs necessary for achieving them.
• Planning is an iterative process and must be performed throughout the life of
the project (Kerzner,1998).
Project Planning Steps. The steps in sound project planning are:
1- Establish objectives
2- Develop statement of work
3- Prepare detailed specifications
4- Establish project milestones
5- Create the work breakdown structure
6- Establish detailed schedules
7- Establish detailed budgets
8- Define responsibilities
9- Replan as required
Objectives. Objectives must be clearly stated, specific, measurable, and
achievable. They should also be realistic and agreed upon by all parties
concerned. Objectives should be consistent with the resources available and
with other organizational plans and projects.
Statement of Work (SOW). The statement of work specifically states what the
project will do for the customer. The SOW specifies the reason for establishing
the project, the desired end results, and the performance, budget, and schedule
goals. It may also include specific acceptance criteria, as well as a management
section which discusses client relationships, management philosophies, project
organization and personnel reporting, contingencies, and communications.
Specifications. Depending upon the size of the project, detailed specifications
may be listed separately or included as part of the SOW. They define the
standards which must be met with respect to materials, labor, prices, equipment
and any supports for the project.
Project Milestones. Project milestones establish the start and end dates of the
project (if known), as well as all the significant subsets. Milestones are
designated points in time by which certain specific project
tasks/accomplishments are to be completed. The set of milestones forms a group
of waypoints which provide a basis for status assessment, management reviews,
and replanning the project.
Work Breakdown Structure. The work breakdown structure (WBS) is a
systematic way of defining the component parts of the project. The WBS breaks
down the work to be accomplished into a logical hierarchy of sets, subsets, etc.,
so that it is put into ―bite-sized‖ chunks which can be easily understood by
planners, schedulers, workers, and managers.
More specifically, breaking the project's work into manageable pieces:
• Facilitates the planning process by describing the total job in terms of discrete
tasks.
• Allows assignment of these tasks to specific groups and individuals.
• Forms the framework upon which the budget and schedule are built, since
each WBS task can easily be estimated in terms of labor, duration, and other
required resources.
• Facilitates the chore of scheduling, supervision, and project control and
information systems by defining exactly who is responsible for each task and
establishing a target completion time.
• Simplifies purchasing, scheduling, and staging of required materials.
In creating a WBS, the following principles should be kept in mind:
1. Routine or repetitive work should not be excessively subdivided.
2. Subdivide each block of work to a level which is useful to project
management.
3. Each task should be easily understood and should have an identifiable
schedule.
4. The cost of the smallest subtask should be significant.
The WBS forms the skeleton upon which the plan, schedule, budget, and
control system are built.
An example of work breakdown structure
Scheduling/Budgeting/Responsibilities/Replanning. The remaining components
of project planning — developing a schedule and budget, and assigning
responsibilities — naturally follow the creation of the WBS. Once the project’s
work has been separated into a set of manageable subtasks, it is a straightforward
process to set about estimating the time and resources required to complete each
one. These estimates are then compiled into a project budget. Similarly,
responsibility for each WBS component can be assigned to individuals and
groups as appropriate and compatible with available resources. While the
scheduling process involves a few more intermediate steps (see the next section),
it too is a logical extension of the work breakdown structure.
Since plans relate to future events but are based upon current knowledge, it
follows that plans will need to change during the course of the project. As the
project team learns lessons along the way, and as events unfold in the dynamic
project environment, project plans will need to be adjusted accordingly.
5.3 Project Scheduling
Creating a viable schedule and adjusting it as necessary throughout the life of
the project is an important part of the project manager’s responsibilities.
The scheduling cycle (see figure below) begins with the work breakdown
structuring process, which subdivides the project’s work in to a set of
manageable and easily understood tasks. The next step is to estimate the time,
man hours, and other resources required to complete each task.
The project manager should make a final check to ensure that the proposed
schedule will in fact satisfy the project constraints (scope, quality, cost, time,
and resources). Once the schedule is formulated, it must be checked against
available resources for feasibility.
Project scheduling and estimating cycle
Scheduling Methods
a. The Gantt chart or bar chart (see figure below) was one of the first
techniques used by project managers to schedule and control projects. It is
simple, graphic, easy to construct and change, and convenient for displaying
progress. Project task times are usually shown as horizontal bars that begin and
end at the scheduled activity start and end times, respectively.
However, Gantt charts do not do a good job of displaying task dependencies and
interrelationships.
Gantt chart example
b. Critical path method (CPM), and program evaluation and review technique
(PERT) are two critical path systems developed to address the shortcomings of
the Gantt chart, and enable project managers to do a better job scheduling of
complex projects. They both show project task durations, and indicate the
earliest task start times as the Gantt chart does, but they also show the
precedence between activities.
This allows the project manager to determine the most critical activities and to
more easily modify and determine the status of the schedule.
Figure below depicts a simple CPM network drawn in the activity on node
(AON) and activity on arrow (AOA) formats. The nodes or circles denote
activity. The connecting arrows show precedence between activities. The longest
route defines the predicted total project duration. The activities on this longest
route, or critical path, are called critical activities.
Example 1 of AON CPM network
Example 2 of AOA CPM network
5.4 Project Staffing and Organizing
In staffing and organizing a project, management must bring together a diverse
group of people, equipment, information, and other resources that is capable of
achieving the project objectives.
Selecting the Project Manager. The project manager is the most critical
selection. A person should be selected who:
• Serves full time on the project.
• Has a proven track record.
• Functions as a manager, not a doer. If the project manager spends all of his or
her time performing technical tasks, then the budgets, schedules, customer
relations, and other critical project management components are left unattended.
• Possesses good interpersonal skills. A project manager may be a communicator,
mediator, negotiator, motivator, coach, counselor, and leader.
Project Team Staffing. The project manager may have little or no control over
the composition of the project team, as the functional managers of the
contributing departments are often the ones who decide which individuals serve
on the project. Hence, project managers must be able to mold a potentially broad
mix of talents, functional backgrounds, and professional experience into an
integrated team. This is one reason why team building skills are vitally
important. Given a choice, the project manager would opt for project team
members who are assigned full-time to the project, experienced in project work
and their discipline, are team players, and relate well with customer
representatives when direct interchange is required.
Organizing for Project Management. Projects are conducted under an infinite
variety of organizational structures. Project managers usually have little input in
this area and must learn to make the best of the organizational structure in which
they find their project operating. However, project managers should bear in mind
that, while organizational structures may serve either to facilitate project progress,
they are usually not a principal factor in determining overall project success or
failure. Other factors like thorough planning and building a cohesive, motivated
project team are more predictive of project success.
5.5 Project Team Building
Today’s projects characteristically require the efforts of many people from
multiple disciplines whose efforts must be effectively integrated to meet project
objectives. Further, project managers must cope with dynamic environments, high
degrees of organizational complexity, and ever-increasing competitive pressures.
Experienced project managers know that the only way to effectively deal with
these challenges is to mold their project personnel into true project teams or
groups of people with complementary skills who are committed to a common
purpose, set of performance goals, and approach for which they hold themselves
mutually accountable.
Teams feature enhanced efficiency, increased motivation, self-regulation,
synergistic output, flexibility, and heightened confidence, all of which are vital to
project success in the present competitive environment.
Six key team building elements
1. Demonstrate respect and consideration for all employees
Are employees encouraged by example and admonition to respect each other? Do
they know enough about each other’s job to appreciate the contributions others
are making?
2. Identify individual job responsibilities and performance standards
Are individual discussions held to ensure that each employee knows their job’s
standards and responsibilities? Does each team member understand how their
portion of the project is important to overall project success?
3. Work to secure good communications with employees
Do team members feel their inputs and suggestions are valued? Do they receive
regular feedback on how they are doing? Are team members included in decision-
making?
4. Establish individual and group goals
Are individual goals established for each team member? Are group goals
established and communicated to the team? Is a goal established that encourages
growth in team development factors like team planning, conflict resolution, and
problem solving?
5. Reward teamwork and team building efforts
Are rewards mostly based on extrinsic job factors like pay, bonuses, and working
conditions, or are they based on intrinsic job factors like accomplishment,
recognition, responsibility, and growth? Are individuals singled out and rewarded
for their performance on the project team? Do team members have input into
what and how rewards are given and to whom?
6. Practice and encourage loyalty to the team
Does the project manager defend team members against unfair criticism? Is there
a climate of trust on the project team?
5.6 Project Controlling
Planning puts the team in a position to launch a project. However, rarely does
everything go according to plan. As soon as the project begins, deviations start to
occur. Thus, once the project is launched, conforming to the plan becomes a
principal function of project management.
It is up to the project control system to keep the project manager apprised of how
all components of the project are progressing, and highlight significant problems
and deviations from plan, so that corrective action can be taken. Without a control
system, the project manager has little influence over the project, and it will
meander to completion in some form or fashion.
An effective project control system combines a cost accounting function and a
cost control function with appropriate mechanisms for monitoring progress
against schedule and technical performance targets.
The cost accounting function accumulates actual costs, ensures costs are properly
allocated, and verifies work is carried out and billed correctly.
The cost control function provides the information to support cost analysis,
prediction, and reporting. Costs are maintained within budget by taking corrective
action wherever predicted costs exceed the budget.
Among the most critical requirements of a project control system is providing a
capability to compare budgeted costs to actual costs, and then conduct variance
analyses which lead to corrective action. The earned value approach to variance
analysis is widely used. It compares the budgeted cost of work performed
(BCWP), or earned value, with the actual cost of work performed (ACWP) to
determine the cost variance (CV). It compares the BCWP with the budgeted cost
of work scheduled (BCWS), or planned earned value, to determine the schedule
variance (SV).
Figure below gives a graphic presentation of the earned value approach and
summarizes some quantitative indices useful to project managers conducting
variance analysis. Once identified, each critical variance must be investigated to
determine the cause and the appropriate corrective action. Such an investigation
should begin at the lowest organizational level by the supervisor involved. It then
progresses upward to the project manager, who reviews variance causes and
approves corrective actions. Normally the project manager will review these
results with upper-level management prior to preparing the contractually required
reports to the customer.
Variance analysis indices and graphics
Example:
Assume that operations on a Work Package cost Birr 1,500 to complete.
They were originally scheduled to finish today. At this point, we actually
spent Birr 1,350. And we estimate that we have completed two thirds (2/3)
of the work. What are the cost and schedule variances?
Solution:
CV = BCWP – ACWP = 1500 (2/3) – 1350 = - 350 (negative value –
indicates cost overrun)
SV = BCWP – BCWS = 1500 (2/3) – 1500 = - 500 (negative value –
indicates behind schedule)
5.7 Project Crashing and Resource Allocation
Project Crashing
Estimates of activity times for projects usually are made for some level of
resources. In many situations, it is possible to reduce the length of a project
by injecting additional resources. The impetus to shorten projects may reflect
efforts to avoid late penalties, to take advantage of monetary incentives for
timely or early completion of a project, or to free resources for use on other
projects. In new product development, shortening may lead to a strategic
benefit: beating the competition to the market. In some cases, however, the
derive to shorten the length of a project merely reflects an attempt to reduce
the indirect costs associated with running the project, such as facilities and
equipment costs, supervision, and labor and personnel costs.
Managers often have certain options at their disposal that will allow them to
shorten, or crash, certain activities. Among the most obvious options are the
use of additional funds to support additional personnel or more efficient
equipment, and the relaxing of some work specifications. Hence, a project
manager may be able to shorten a project by increasing direct expenses to
speed up the project, thereby realizing savings on indirect project costs. The
goal in evaluating time-cost trade-offs is to identify a path that will minimize
the sum of the indirect and direct project costs.
In order to make a rational decision on which activities, if any, to crash and
on the extent of crashing desirable, a manager needs certain information:
1. Regular time and crash time estimates for each activity
2. Regular cost and crash cost estimates for each activity
3. A list of activities that are on the critical path
Activities on the critical path are potential candidates for crashing, since
shortening noncritical activities would not have an impact on total project
duration. From an economic standpoint, activities should be crashed
according to crashing costs: crash those with the lowest costs first. Moreover,
crashing should continue as long as the cost to crash is less than the benefits
received from crashing. These benefits might take the form of incentive
payments for early project completion as part of a government contract, or
they might reflect savings in the indirect project costs, or both. Figure below
illustrates the basic relationship between indirect, direct, and total project
costs due to crashing.
The general procedure for crashing is:
1. Obtain estimates of regular and crash times and costs for each activity
2. Determine the lengths of all paths and path slack times
3. Determine which are the critical activities
4. Crash critical activities, in order of increasing costs, as long as crashing
costs do not exceed benefits. Note that two or more paths may become
critical as the original path becomes shorten, so that subsequent
improvements will require simultaneous shortening of two or more
paths. In some cases, it will be more economical to shorten an activity
that is on two or more of the critical paths. This is true whenever the
crashing cost of a joint activity is less than the sum of crashing one
activity on each separate path.
Resource Allocation
A major task for the project manager concerns the allocation of resources to
different parts of the project. Before plans can go forward for analysis, it is
vital that the part of the organization has the resources available to carry out
the tasks that have been assigned to them. Inevitably, some parts of the
organization will have little problem meeting the objectives with the
resources under their control. If the plans are to have any credibility, they
must consider the limitations imposed by the availability of people and
equipment. The importance of resources varies from project to project.
Most modern computer programs incorporate facilities for resource loading
or resource allocation.
Resource Loading versus Activity Duration
The duration of an activity is influenced by the amount of resources
scheduled to work on it. But there is not necessarily a direct linear
relationship between the amount of resource assigned to an activity and its
duration.
Adding more resources to hold an activity's duration within the planning
limits can be effective. This is called ―crashing the activity.‖ The project
manager will have to consider the optimum loading of a resource on a task.
 5.8 Project Risk Management
What is Risk?
• A dictionary definition of risk is ―the possibility of loss or injury‖.

• Project risk involves understanding potential problems that might occur on the
project and how they might impede project success.

Types of Risk

• Market Risk: Will the new product be useful to the organization or marketable
to others? Will users accept and use the product or service?

• Financial Risk: Can the organization afford to undertake the project? Is this
project the best way to use the company’s financial resources?

• Technology Risk: Is the project technically feasible? Could the technology be

obsolete before a useful product can be produced?
Project Risk Management
The goal of project risk management is to minimize potential risks while
maximizing potential opportunities. The major processes of risk management
include:
– Risk management planning: deciding how to approach and plan the risk
management activities for the project
– Risk identification: determining which risks are likely to affect a project
and documenting their characteristics
– Qualitative risk analysis: characterizing and analyzing risks and
prioritizing their effects on project objectives
– Quantitative risk analysis: measuring the probability and consequences
of risks
– Risk response planning: taking steps to enhance opportunities and reduce
threats to meeting project objectives
– Risk monitoring and control: monitoring known risks, identifying new
risks, reducing risks, and evaluating the effectiveness of risk reduction
Class Discussion 5:
Compare and contrast 'Project' and 'Organization'