Tutorial 1: Introduction to Project Management

What is Project Management? Project management Institute (PMI), which is an International professional society for project managers, defines a project as a Temporary endeavour undertaken to create a unique product, service or result.

In the required text, Kathy Schwalbe, gives six attributes that a project should have Purpose/Objective Be Temporary Developed in Increments Requires resources Has a primary customer/sponsor Involves uncertainty

Activity: Identify project attribute in the following case

Case
Anne Roberts, the new Director of the Project management Office for a large retail chain, stood in front of the five hundred people in the large corporate auditorium to explain the companys new strategies. She was also broadcasting to thousands of other employees, suppliers, and stockholders throughout the world via the Internet. The company had come a long way in implementing new information systems to improve inventory control, sell products using the web, and streamline the sales and distribution processes. However, the stock price was down, the nations economy was weak, and the people were anxious to hear about the companys new strategies. Anne began to address the audience. Good morning. As many of you know, our CEO promoted me to a new position as Director of the Project Management Office. Most of what we do in this department involves projects, and my role in this new position is to turn the company around by helping us effectively select and mange those projects. Our challenge is to develop a culture in which we all work together to provide high-quality goods and services to our consumers while earning a profit in this difficult market. To meet this challenge, we must decide what projects will most benefit the company, how we can continue to leverage the power of information technology to support our business, and how we can exploit our human capital to successfully plan and execute those projects. If we succeed, well become a world-class corporation.

What is the project? - Improve operations of the company

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Has a unique purpose - Create a collaborative report with ideas from people throughout the company. The results would provide the basis for further discussions and project. Is temporary - Here a team might be form to come up with results within a specific time frame Developed in increments - Take main idea, and break it down into manageable steps. Requires resources - Such as people , HW, SW Has a primary customer / sponsor - Who will fund the project, in this case Anne would Involves uncertainty - Project may have overrun

Project Management is the application of knowledge, skills, tools &techniques towards activities of a project to meet specified requirement. Figure 1 demonstrates this concept.

Scope Mgt.

Time Mgt.

Cost Mgt.

Quality. Tools & Techniques

Stakeholders needs and expectations HR Mgt.

Project Management Integration

Project success

Comm.

Risk Mgt.

Procure.

Nine Knowledge Areas

Figure 1: Project Management Framework

The boxes in green are called the Core Functions and these normally lead to specific objectives. The boxes in red are called the Facilitating Functions and these are processes through which objectives are achieved.

Nine Knowledge Areas Scope management defining and managing all the work required (use WBS) Time management how long it will take to complete work (use CPM, PERT) Cost management preparing a budget (use NPV, ROI, payback) Quality management defines the standard the project should satisfy (use six sigma, fishbone) Human Resource management making effective use of people (use motivation techniques like Maslows hierarchy of needs) Communication management how information is disseminated (use status reports) Risk management identifying, analysing & responding to risks (use make or buy analysis) Procurement management acquiring goods and services from outside the organization (use probability and input matrix) Tutorial 1: Introduction to Project Management Page | 2

Integration management coordinate all of the other project management knowledge areas, making sure all elements of a project come together at the right time to complete project successfully (use project charter)

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Tutorial 2: Project Selection

Details: Projects are undertaken for various reasons, and we should have a clear justification as to why a project was chosen. Reason a Project Chosen ganization Strategic goals of organization Market need Technology Advancement Competitive Advantage Profitability There a two types of Project Selection

Project Selection

Benefits Measurement Methods

Constrained Optimization

npv

roi

payback

LP programming

non-LP programming

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Benefits Measurement Methods [Comparative Approach] This the method most commonly used; it is based on measuring the benefits in taking up a project and comparing the results against other projects. Constrained Optimization [Mathematical Approach] Is more complex, as it uses mathematical calculation based on different worst/base case scenarios, along with the probability of outcome and then selecting projects with the best results.

Activity: Calculating NPV, ROI & payback of two project, and based on calculations select the best Benefits Measurement Methods Net Present Value (NPV) Net present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time. =

1+

where t equals the year of cash flow, n is the last year of cash flow, A is the amount of cash flow each year, and r is the discount rate.

Calculating NPV
Yr 1 $500,000 $700,000 -$200,000 -$173,913.04 Yr 2 Yr 3 $250,000 $1,500,000 $400,000 $1,000,000 -$150,000 $500,000 -$113,421.55 $328,758.12 $155,774.17 Yr 4 $400,000 $200,000 $200,000 $114,350.65 NPV

Inflows Outflows Cash flow Present Value

Note: Another way of calculating NPV is by determining the annual discount factor; this is a multiplier for each year based on the discount rate and year. When this is calculated you then apply it to the inflows and outflows for each year. The formula for discount factor is 1 1 + where r is the discount rate and t is the year.

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Calculating NPV
Discount Factor 0.87 Yr 1 $ 500,000
$ 435,000

Project A
Inflows
Discounted Inflows

0.76 Yr 2 $ 250,000
$ 190,000

0.66 Yr 3 $ 1,500,000
$ 990,000

0.57 Yr 4 $ 400,000
$ 228,000

Total

$ 1,843,000

Outflows
Discounted Outflows Discounted (Inflows -Outflows)

$ 700,000
$ 609,000 $ (174,000 )

$ 400,000
$ 304,000 $ (114,000 )

$ 1,000,000
$ 660,000 $ 330,000

$ 200,000
$ 114,000 $ 114,000 $ 1,687,000 $ 156,000

Project B
Inflows
Discounted Inflows

Yr 1 $ $ -

Yr 2 $ 300,000
$ 228,000

Yr 3 $ 200,000
$ 132,000

Yr 4 $ 500,000
$ 285,000 $ 645,000

Outflows
Discounted Outflows Discounted (Inflows -Outflows)

$ 140,000
$ 121,800 $ (121,800 )

$ 400,000
$ 304,000 $ (76,000 )

$ 100,000
$ 66,000 $ 66,000

$ 100,000
$ 57,000 $ 228,000 $ 548,800 $ 96,200

Remember: The higher the NPV, the better Therefore in this case we would choose to do Project A

Return on Investment (ROI) Return on investment (ROI) is calculated by subtracting the project costs from the benefits and then dividing by the costs. The higher the ROI, the better.

ROI = total discounted inflows - total discounted outflows / discounted outflows

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Calculating ROI
ROI = (total discounted inflows - total discounted outflows) / discounted outflows Project A ROI = (1,843,000 - 1,687,000) / 1,687,000 = 0.09 9% Project B ROI = (645,000 - 548,800) / 548,800 = 0.18 18%

Remember: The higher the ROI, the better Therefore in this case we would choose to do Project B

Payback Analysis The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the total dollars invested in a project. Payback occurs when the cumulative discounted benefits and costs are greater than zero. Many organizations want IT projects to have a fairly short payback period. = . +
| | | |

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Calculating Payback
Discount Factor 0.87 Yr 1 $ 500,000
$ 435,000

Project A
Inflows
Discounted Inflows

0.76 Yr 2 $ 250,000
$ 190,000

0.66 Yr 3 $ 1,500,000
$ 990,000

0.57 Yr 4 $ 400,000
$ 228,000

Total

$ 1,843,000

Outflows
Discounted Outflows Discounted (Inflows -Outflows) Opening Balance Closing Balance

$ 700,000
$ 609,000 $ (174,000) $ $ (174,000 )

$ 400,000
$ 304,000 $ (114,000 ) $ (174,000 ) $ (288,000 )

$ 1,000,000
$ 660,000 $ 330,000 $ (288,000 ) $ 42,000

$ 200,000
$ 114,000 $ 114,000 $ 42,000 $ 156,000 $ 1,687,000 $ 156,000

Project B
Inflows
Discounted Inflows

Yr 1 $ $ -

Yr 2 $ 300,000
$ 228,000

Yr 3 $ 200,000
$ 132,000

Yr 4 $ 500,000
$ 285,000 $ 645,000

Outflows
Discounted Outflows Discounted (Inflows -Outflows) Opening Balance Closing Balance

$ 140,000
$ 121,800 $ (121,800 ) $ $ (121,800 )

$ 400,000
$ 304,000 $ (76,000 ) $ (121,800 ) $ (197,800 )

$ 100,000
$ 66,000 $ 66,000 $ (197,800 ) $ (131,800 )

$ 100,000
$ 57,000 $ 228,000 $ (131,800 ) $ 96,200 $ 548,800 $ 96,200

Project A

Payback = 2 + Project B Payback = 3 +

288,000 = 2.87 yrs 42,000 + 288,000 131,800 = 3.58 yrs 96,200 + 131,800

Remember: organizations want IT projects to have a fairly short payback period Therefore in this case we would choose to do Project A

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Tutorial 3: Payback and Project Charter

Details: To complete Project Selection, do payback analysis. Problem below will be given for calculation of NPV / ROI / payback

Cash Budget (Cash Flow Projections)

Yr1 Inflows Bank Loans Personal Savings Tangible Benefits Principal repayment Utilities Interest on Bank Loan Salary/Wages Purchases (Major) Other Admin Cost 10.00 2.00 2.00 Yr2 15.00 15.00 4.00 45.00 Yr3 70.00 Yr4 100.00 Yr5

Outflows

1.00 5.00 8.00 0.30

2.50 2.30 5.00 2.00 0.40

2.50 5.00 2.00 7.00 10.00 1.50

2.50 5.00 1.20 7.00 2.00 0.50

2.50 5.00 0.50 8.00 0.60

State whether or not project above is Feasible. Give reasons for your answer

Group Project was given, along with what is required of them. The group, The project name Project goals and objectives.

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Tutorial 4: Schedule Development

The WBS is designed to help break down a project into manageable chunks that can be effectively estimated and supervised. Some widely used reasons for creating a WBS include:

Assists with accurate project organization Helps with assigning responsibilities Shows the control points and project milestones Allows for more accurate estimation of cost, risk and time Helps explain the project scope to stakeholders

Activity Sequencing After finding out what activity needs to be done, from the WBS, we now need to find out the relationship between these project activities. Activity Sequencing does just that. This is the second process under Project Time Management, and when completed it produces the project network diagram and Project document updates.

Network Diagram There are two types of network diagrams: The Arrow Diagram Method (ADM) Activities are represented by arrows and connected at points called nodes to illustrate the sequence of activities (Activity-on-arrow) The Precedence Diagram Method (PDM) Activities are represented on the node, in form of a box, that are connected by arrows to illustrate sequence of activities (Activity-on-node)

PDM is most commonly used, and therefore we will concentrate on this method.

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Example of PMD Activity A B C D E F Prior Activity None None A A,B B C, D, E

Activities are defined and their dependency determined, it is now time to estimate resources (will be done within lab) and duration of activities.

Schedule Development Schedule Development is the process of analysing activity sequences, durations, resource requirements and schedule constraints to create the project schedule. Besides the project schedule, schedule development will also produce, schedule baseline, schedule data, and project document updates. The tools and technique we will be looking at for schedule development process are: Gantt chart A Gantt chart is a graphical representation of the duration of tasks against the progression of time. People assigned to each task also can be represented. Note: Activities on the Gantt chart should coincide with the activities on the WBS, which should coincide with the activity list and milestone list. Critical path analysis Program Evaluation and Review Technique (PERT)

Critical Path Method (CPM) CPM is a procedure for using network analysis to predict the duration of a project, and the activities on the critical path. The critical path, also project duration, is the longest path through the network

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diagram. The activities that lie on it cannot be delayed without delaying the project. The critical path can be identified by determining the following four parameters for each activity: Earliest start time (ES): the earliest time at which the activity can start. Earliest finish time (EF): the earliest start time plus the time required to complete the activity. Latest finish time (LF): the latest time at which the activity can be completed. Latest start time (LS): the latest finish time minus the time required to complete the activity.

The slack of an activity is the length of time an activity can be delayed without delaying the entire LS - ES or LF - LS project. Slack can be calculated as follows:
ES Activity LS D LF Duration EF

Example of CPM Use table below to find the Critical Path of Project Task Duration Dependency A 7 None B 3 None C 6 A D 3 B E 3 D, F F 2 B G 3 C H 2 E, G

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Step1 - Build Network Diagram displaying activity and duration

A 7

C 6

G 3

S
D 3

H 2

B 3

E 3

F 2

Step2 Do Forward Pass (calculate ES and EF)

0 A 7

7 C 6

13

13 G 3

16 Take the largest EF from predecessors

16

18 H 2

3 D 3 0 B 3 3 F 2 3

Take the largest EF from predecessors

6 E 3 5

Note: Start nodes ES is always zero

Step3 Do Backward Pass (calculate LS and LF) Tutorial 4: Schedule Development Page | 13

0 A 0 7

7 C

13

13 G

16

13

13

16

16

18 H

3 D 10 0 B 7 3 10 3 F Take the smallest LS from successors 11 2 3 3

6 16 13 6 E 13 5 3 16 9

F
18

13

Note: Finish nodes LF is equal to the largest EF of all finish nodes

Step4 Calculate Slack

0 A 0 7 Slack = 0

7 C

13

13 G

16

6 Slack = 0

13

13

3 Slack = 0

16

16

18 H

3 D 10 0 B 7 3 Slack = 7 10 3 F 11 2 Slack = 8 3 3 Slack = 7

6 16 13 6 E 13 5 3 Slack = 7 16 9

F
18

2 Slack = 0

13

Note: An activity with the slack of 0 is critical

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A delay in the critical path delays the project. Similarly, to accelerate the project it is necessary to reduce the total time required for the activities in the critical path. Program Evaluation and Review Technique (PERT) PERT charts depict task, duration, and dependency of an activity in a given project. It is commonly used in conjunction with the critical path method. It takes into consideration three estimates; Optimistic (a). the best-case estimate Most likely (m). the most realistic estimate Pessimistic (b). the worst-case estimate = +4 + 6

These values are used to calculate an Expected Duration (E) value and a Variance (var), where:

= Example

Given the following data determine the expected project completion time and variance and the probability that the project will be completed in 25 days or less. Activity A B C D E F G H Predecessors None None A B C C D, E E, G Time Estimates in weeks Optimistic Most-likely Pessimistic 2 4 6 3 5 9 4 5 7 4 6 10 4 5 7 3 4 8 3 5 8 2 3 6

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Step1 - Find Expected Time and Variance Remember: = +4 Activity A B C D E F G H + 6 Optimistic a 2 3 4 4 4 3 3 2 = 6 Pessimistic b 6 9 7 10 7 8 8 6 E 4 5 5 6 5 5 5 3 var 4/9 1 1/4 1 1/4 2/3 2/3 4/9

Predecessors None None A B C C D, E E, G

Most-likely m 4 5 5 6 5 4 5 3

Step1 - Build Network Diagram

F 5 A 4 C 5 E 5 H 3

B 5

D 6

G 5

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Step2 Forward Pass

9 F 0 A 4 4 4 C 5 9 E 5 14 19 H 3 22 9 5 14

0 B 5

5 D 6

11

14 G 5

19

Note: Project Duration is 22 weeks

Step3 Backward Pass

9 F 0 A 0 4 4 4 4 4 C 5 9 9 E 9 5 9 17 5

14

22

14

19 H

22

F
22

14

19

0 B 3 5

5 D

11

14 G

19

14

14

19

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Step4 Calculate Slack and find critical activities

9 F 0 A 0 4 Slack = 0 4 4 4 4 C 5 Slack = 0 E 9 Slack = 0 5 14 19 H 3 Slack = 0 22 9 9 9 17 5 Slack = 8 22 14

14

19

22

0 B 3 5 Slack = 3

5 D

11

14 G

19

6 Slack = 3

14

14

5 Slack = 0

19

Step5 Calculate Standard Deviation () Critical nodes A, C, E, G, H = = = = 1 2 5

Sum of above nodes variance + + + + = 1

Now to answer the question; if project can be completed in 25 week, we will use confidence interval.

= 22 (project duration) and x = 25 = 2.55 (See Table7 for Distribution table) = 0.99461 99%

25 = 0.5 + 0.49461

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Table 1: Distribution Table

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Tutorial 5: PERT contd

Details: Given the Project below with the specified three-point estimates, find the following a. What is the probability that this project will be completed by week 16? b. What is the probability that this project will be completed by week 14? c. What is the probability that this project will be completed between week 14 and 16? Must Follow A B,D D C Optimist (a) 2 1 3 2 5 4 Must likely (m) 3 2 4 5 5 6 Pessimist (b) 5 3 6 7 5 9

Activities A B C D E F

Tutorial 5: PERT contd

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