Project Management

What is a project?
• “A temporary endeavour undertaken to create a unique product,

service or result.”
PMBOK Guide, Fourth Edition
• Projects are progressively elaborated
2 Understanding Project Management

Project Constraints

Projects and Operations
• Operations – units that perform activities that produce the same

product or provide a repetitive service (on-going)
• E.g. production, manufacturing, accounting
• Projects – temporary, create a unique product or service

Project Managers
Inspires a Shared Vision
Competence Ability to Delegate Tasks
Good Communicator Cool Under Pressure
Empathy Team-Building Skills
Enthusiasm Problem-Solving Skills
Integrity
ProjectSmart.co.uk, “Top 10 Qualities of a Project Manager,

http://www.projectsmart.co.uk/top-10-qualities-project-manager.html

Projects, Programs & Portfolios
• Project Management
• Managing a single project
• Program Management
• Managing a group of strategically grouped projects to facilitate effective
management
• Portfolio Management
• Managing a group of related projects in a coordinated way to obtain
benefits and control

Project Life Cycle
Standardize the how,

when and why
Plan
Take the correct action
at the correct time
Do the activities
Act Do and document
while you do
Check your plan with the

actual work by comparing Check
the plan with the records

Project Life Cycle – Single Phase
Monitoring & Controlling

Processes
Initiating Planning Executing Closing

Processes Processes Processes Processes

Project Life Cycle – Multiple Phases (Sequential)
Development Phase Testing Phase
Monitoring & Controlling Monitoring & Controlling

Processes Processes
Initiating Planning Executing Closing Initiating Planning Executing Closing

Processes Processes Processes Processes Processes Processes Processes Processes

Project Life Cycle – Multiple Phases
(Overlapping)
Design Phase

Processes

Development Phase

Processes


Project Stakeholders
• Persons or organizations involved in the project or whose

interests are affected by the completion of the project
• May exert influence over project deliverables and team members
• Need to be identified and managed (pay particular attention to
negative stakeholders)

• Operation Managers
• Functional Managers
• Business Partners
• Customers
• Government
Other
Stakeholders
Project Team
• Sponsor
• Project Manager
• Team Members

Organizational Structures
• Functional
• Matrix
• Weak Matrix
• Balanced Matrix
• Strong Matrix
• Projectized

Project Management Methodologies
• Many different project management methodologies:

• PRINCE2
• Critical Chain (CCPM)
• Joint Application Development
• Systems Development Life Cycle
• Proprietary – unique and customized
• The PMBOK describes best practices in project management

Project Management Tools
• Pen and paper!

• Document, spreadsheet and presentation software (e.g. MS
Office)
• Project management software (e.g. MS Project, Primavera)
• Wikis and websites
• Communication tools

Project Charter
• A project starts with an idea

• The idea is evaluated using a feasibility study (project selection)
• NPV, RRR, B/C, payback period, etc.
• If a “go” decision is made, the project lifecycle is entered
Monitoring &
Controlling
Processes

Project Charter Initiating
Processes
• A project charter is a document that formally authorizes a project

or a phase
• Includes initial requirements that satisfy the stakeholder’s needs and
expectations
• Establishes a partnership between the organization performing
the project and the organization requesting the project
• The approved project charter formally initiates the project

Project Charter
• Inputs to the project charter include:

• Project Statement of Work (SOW)
• Business case
• Contract (possibly)

Project Management Plan
• Defines how the project is executed, monitored and controlled,

and closed
• Progressively elaborated until project closure
• Integrates subsidiary plans:
• Scope Management Plan, Schedule Management Plan, Cost Management
Plan, Quality Management Plan, Human Resource Plan, Communications
Management Plan, Risk Management Plan, Procurement Management
Plan, etc.

Scope Management
• What will be covered in the project?

• What will not be covered in the project?
• Where will the project end up?
• What is the project going to achieve?
• What will the project do after completion?
• What does the project look like after it is finished?
• How will the project perform after it is completed?

Time Management
• What are the activities required to complete the project?

• What is the order in which the activities need to be completed?
• What is required to complete the activities (resources and time)?
• What is the project schedule for completing all project activities?
• How will the schedule be monitored, controlled, and changed, if
required?

Project Scope Management
• Making sure the project includes all the work required to

complete the project successfully
• What is included in the project?
• What is NOT included in the project?
23 Project Scope Management

Scope
• Product Scope – the features and functions of the product,

service or result of the project
• What the project will create
• Project Scope – the work that needs to be performed to create

the product, service or result of the project
• How the project will create the products

Project Scope Management
• Collect Requirements
• Define Scope
• Create WBS
• Verify Scope
• Control Scope

Collect Requirements
• Defining and documenting stakeholders’ needs to meet the

project objectives
• Sponsor, customer and other stakeholders
• Product requirements
• Quantified needs and expectations (need to be measured)
• Provide the foundation of the WBS – cost, schedule and quality planning
are built upon these requirements

• Importance of Project Charter

• Preliminary scope statement
• Stakeholder Register
• Section 10.1, page 246 (see sample)

• Interviews
• Focus groups
• Facilitated workshops
• Group Creativity Techniques
• Brainstorming, Nominal group technique, The Delphi Technique,
Idea/mind mapping, Affinity diagram
• Group Decision Making Techniques
• Unanimity, majority, plurality, dictatorship
• Questionnaires/surveys
• Prototypes

• Requirements Management Plan

• Describes how requirements will be analyzed, documented and managed
• How will requirements activities be planned, tracked and reported?
• How will changes to the project products/results/services be managed?
• How will requirements be prioritized?
• What are the product metrics and how will they be used?

• Document
• How requirements meet the business needs
• How the requirements originated

Define Scope
• Defining and documenting stakeholders’ needs to meet the

project objectives
• Sponsor, customer and other stakeholders
• Product requirements
• Quantified needs and expectations (need to be measured)
• Provide the foundation of the WBS – cost, schedule and quality planning
are built upon these requirements

Define Scope
• Requirements:
• Project Charter
• Preliminary scope statement
• Stakeholder Register
• Section 10.1, page 246 (see sample)

Define Scope
• Detailed Scope Statement

• Critical to project success
• Must be accurate and complete
• Builds upon the major deliverables, constraints and assumptions in
Project Charter
• Progressively elaborated throughout project planning

Detailed Scope Statement
• Product scope description

• Product acceptance criteria
• Project deliverables
• Project exclusions
• Project assumptions and constraints

Create WBS
• Subdividing project work into manageable components

• Hierarchical decomposition
• Decomposed in multiple ways
• Phases, major deliverables, subprojects, etc.
• Represented in multiple ways
• Graphically (e.g. hierarchical diagrams)
• Textually (e.g. indented lists)

WBS Example
Car
1.0 Engine 2.0 Interior 3.0 Controls 4.0 Exterior
1.1 2.1 Car 3.1

4.1 Doors 4.2 Paint 4.3 Lights
Cylinders seats Accelerator
1.2 2.2 Sound 4.3.1 Head

3.2 Break
Alternator system lights
2.3 Steering 4.3.2 Tail

1.3 Piston
wheel lights

WBS Example
Project
1.0
2.0 Design 3.0 Build
Requirements
3.1 3.2 3.3

1.1 Baseline 2.1 Specify
Deliverable 1 Deliverable 2 Deliverable 3
1.1.1 Focus 2.2 Proof of 3.1.2 Initial 3.2.1 Initial

group concept Testing Testing
1.1.2 Survey 3.2.2 Training

WBS Example

WBS Example
• Practice Standard – WBS, page 51

• WBS for Construction of a Bicycle
• Notice
• Project scope vs. product scope
• Different views
• Identifiers
• Hierarchical decomposition

Work Packages
• Lowest level WBS components

• Can be scheduled, cost estimated, monitored and controlled

Rolling Wave Planning
• Decomposition may not be possible for aspects of the project

completed in the far future
• Rolling wave planning occurs when the details are available

WBS Dictionary
• Supports the WBS

• Provides more detailed descriptions of the components in the
WBS
• Includes:
• Identifier
• Description of work
• Responsible parties and resources required
• Milestones
• Practice Standard – WBS, page 60

Scope Baseline
• Project Scope Statement

• WBS
• WBS Dictionary
• A baseline is used for comparing planned to actual variance in

scope, schedule, cost, etc.

Create WBS
• Methods
• Top-Down
• Bottom-Up
• WBS Standards
• WBS Templates

Other Examples - WBS
• Appendices in Practice Standard – WBS

• Oil, Gas and Petrochemical
• Environmental Management
• Process Improvement
• Pharmaceutical
• Process Plant Construction
• Service Industry Outsourcing
• Web Design
• Telecom
• Refinery Turnaround
• Government Design-Bid-Build
• Software Implementation

Verify Scope
• Formalizing acceptance of the completed project deliverables

• Verifying the deliverables are satisfactory with the customer or
sponsor
• Scope verification – acceptance of the deliverables
• Quality control – correctness of the deliverables
• Quality control often comes before the scope is verified but the
two processes can be done in parallel

Verify Scope
• Scope verification – acceptance of the deliverables

• Quality control – correctness of the deliverables
• Quality control often comes before the scope is verified but the
two processes can be done in parallel

Verify Scope
• Inspection
• Measure
• Examine
• Verify (against baseline)
• Inspections are often called reviews, product reviews, audits or

walkthroughs

Verify Scope
• Outputs
• Accepted deliverables
• Formally signed off by the customer or sponsor
• Change requests
• For deliverables not accepted
• Include reasons for non-acceptance

Control Scope
• Monitoring the status of the project and product scope

• Managing changes to the scope baseline
• Change requests should be processed according to the Perform

Integrated Change Control process (Section 4.5, page 93)

Control Scope
• Scope creep
• Incremental expansion of the project scope or delivered
product/service/result
• Gold plating
• Giving the customer or sponsor an “improved” product/service/result
(more than they asked for)
• Considered a failure

Control Scope
• Use variance analysis to control the scope

• Variance Analysis
• Comparing/measuring the impact of changes from the original baseline
• Schedule variance
• Cost variance
• Scope variance

Control Scope
• Outputs
• Work Performance Measurements
• Planned vs. actual performance (scope, time, cost)
• Change Requests
• To request changes to the scope; can be initiated by the customer/sponsor or the
project team

Project Time Management
• The processes required to manage timely completion of the

project
• Schedule development and management
• Tightly linked to scope management
• Why?
55 Project Time Management

Examples of Project Schedules
Activity List
Network Diagram Bar Chart

Project Time Management
• Define Activities
• Sequence Activities
• Estimate Activity Resources
• Estimate Activity Durations
• Develop Schedule
• Control Schedule

Define Activities
• Identifying the specific activities to produce the project

deliverables
• Decomposing project work packages into activities (or action
items) so that the work package can be completed

Rolling Wave Planning
• A form of progressive elaboration planning

• Near term work is planned in detail
• Future work is planned at a high level, and details are added once
more is known

Milestones
• A milestone is a significant point or event in the project

• Milestones are SMART: specific, measurable, attainable, relevant,
time-bound
• A milestone list identifies all milestones in the project

Sequence Activities
• Identifying and documenting relationships among the project

activities
• Identifying predecessor (before) and successor (after) activities
for all project activities

Types of Activity Relationships
A B
• Finish-to-start (FS) (most common)

• Activity B cannot start until Activity A is completed
• Finish-to-finish (FF)
• Activity A must finish before Activity B can finish
• Start-to-start (SS)
• Activity A must start before Activity B can start
• Start-to-finish (SF) (very rare)

• Activity A must start before Activity B can finish
Precedence Diagramming Method (PDM)
• A method used in Critical Path Methodology (CPM) to construct

network diagrams to represent a project schedule
• Activities are represented by nodes
• Relationships are represented by arrows
• Also called Activity-On-Node (AON)

Precedence Diagramming Method (PDM)

Types of Activity Dependencies
• Mandatory Dependency
• Contractually required or inherent in the nature of the work (hard logic –
required)
• Discretionary Dependency
• Preferred actions based on best practices or desires (soft logic – not
required)
• External Dependency
• Involve a relationship between project activities and non-project
activities and are outside the project team’s control

Lead Time
• Allows a successor activity to be started early

• Example – landscaping on a house (Activity B) can start two weeks before
completing the roof (Activity A).
This would be a finish-to-start relationship with a two week lead.

Lag Time
• Creates a delay in the start of a successor activity

• Example – a lag time of one day is required before painting a second coat
of paint (Activity B) after the first coat of paint (Activity A).
This would be a finish-to-start relationship with a one day.

Estimate Activity Resources
• Estimating the type and amount of resources required to

complete the activities
• Closely coordinated with the Estimate Cost process during Cost
Management
• Resource categories:
• Materials (raw, bulk, fabricated, designed)
• People/labour (direct – doing the work, indirect – supervising the people
doing the work, overhead – support work, e.g. admin assistant)
• Equipment/tools (full time usage and part-time usage)
• Other supplies required (e.g. fees, licenses)

Tools and Techniques
• Expert judgment
• Alternatives analysis
• Published estimating data
• Bottom-up estimating (requires further decomposition)

Resource Breakdown Structure
• Hierarchical structure of required resources by category and type

• Resource categories:
• Materials
• People/labour
• Equipment/tools
• Supplies
• Resource types:
• Skill level
• Grade level
• Other information, as appropriate



Estimate Activity Durations
• Estimating the amount of time required to complete the

individual activities
• Requires an estimation of the amount resources required

Methods of Estimation
• Analogous Estimating (“Top Down” Estimation)

• Parametric Estimating
• Three Point Estimates (PERT)

Analogous Estimating
• Uses the actual time (or cost, etc.) from a previous, similar project
to estimate time required (or cost, etc.) for a future project (root
of the word analogy)
• Uses historical information and expert judgment
• Typically used early in the project
• Less costly and time consuming than other methods…but also can
be less accurate!
• Example – Rough Order of Magnitude

Parametric Estimating
• Determined by identifying the duration per unit of work and the

number of units of work required to be performed
• Example:
• Project 1 – it took 4 hours to cut 2 acres of grass (2 hours per acre)
• We can then estimate it will take 16 hours to cut 8 acres of grass in future
projects
• If 1 hour of the 4 hours was spent transporting a tractor and preparing to
cut, how would the estimate for future projects be scaled?

Three-Point Estimates (PERT)
• Program Evaluation and Review Technique (PERT) uses three

estimates to define an approximate range of duration and the
expected duration for an activity
1. Most likely (tm)
2. Optimistic (to)
3. Pessimistic (tp)
• Expected (te) = (to + 4 tm + tp)/6

Contingency Reserves
• Time reserves or buffers can account for schedule uncertainty

• Can be expressed as a percentage of estimated duration or a fixed
number of work periods
• Can be used, reduced or eliminated as more information about
the project becomes available

Develop Schedule
• Creating the project scheduling using the activities,

relationships, resources and durations previously
defined
• Iterative process!
1. Create a baseline (planned start and finish dates for
activities and milestones)
2. Revise and track progress as project work progresses
(compare planned with actual)

Tools & Techniques
• Schedule Network Analysis – generates the project

schedule using:
• Critical Path Method (CPM)
• Critical Chain Method
• Resource leveling
• What-if Scenario Analysis
• Scheduling Tools

Critical Path Method
• Identifies how long the entire project will take to complete

• Identifies the activities that determine total project time
• Assists with resource allocation planning for activities
• A network analysis procedure to identify the activities on the

critical path

Critical Path
• The set of project activities that if delayed will lengthen the

project time to complete
• In other words, the set of tasks which must be completed on time
for the whole project to be completed on time

Activity Float (or Slack Time)
• The amount of time an activity can be delayed without
delaying the project
• Free float: the amount of time a task can be delayed without
delaying a successor task
• Total float: the amount of time a task can be delayed without
delaying project completion
• Float is calculated by subtracting the early finish from the
late finish OR the early start from the late start
• Activity float time can be:
• Positive (most often)
• Negative (when lead time is required) or
• Zero (activities on the critical path)

• Activities are nodes:

ES EF
A
3 weeks
LS LF
• Relationships are arrows:
A B
(Activity A occurs before activity B)

1. Identify the activities

2. Determine the sequence of the activities
3. Create a network diagram by connecting the activities based on
their predecessor and successor tasks
4. Enter the completion time for every activity on the nodes
5. Do a forward pass to identify the early start and early finish
times
6. Do a backward pass to identify the late start and late finish
times
7. Identify the float and critical path

Example
1. Identify the activities
2. Determine the sequence of the activities
Activity Duration (weeks) Predecessor(s)

A 7
B 3
C 6 A
D 3 B
E 3 D, F
F 2 B
G 3 C
H 2 E, G

Example (cont’d)
3. Create a network diagram by connecting the activities
based on their predecessor and successor tasks
4. Enter the completion time for every activity on the nodes
A C G
(7) (6) (3)
H
Start Finish
(2)
B D E
(3) (3) (3)
F
(2)

Example (cont’d)
5. Do a forward pass to identify the early start and early
finish times
0 7 7 13 13 16
A C G
(7) (6) (7)
16 18
H Finish
Start (2)
0 3 3 6 6 9
B D E
(3) (3) (3)
3 5
F
(2)

Example (cont’d)
6. Do a backward pass to identify the late start and late
finish times
0 7 7 13 13 16
A C G
(7) (6) (7)
0 7 7 13 13 16
16 18
H Finish
Start (2)
0 3 3 6 6 9 16 18
B D E
(3) (3) (3)
7 10 10 13 13 16
3 5
F
(2)
11 13
Example (cont’d)
7. Identify the float and critical path
0 0 0
0 7 7 13 13 16
A C G
(7) (6) (7) 0
0 7 7 13 13 16
16 18
Start 7 7 7 H
(2)
Finish
0 3 3 6 6 9 16 18
B D E
(3) (3) (3)
7 10 10 13 13 16
8
3 5
F
(2)
11 13
Critical Chain Method
• Modifies the project schedule when resources are limited

• Uses duration buffers (extra time added) to manage uncertainty
• Project buffers – added to the end of the project
• Feeding buffers – added to the end of an activity

Resource Leveling
• Applied to a schedule developed using the critical path method

• Spreading out resources to make usage more even when required
• Necessary when resources have been over-allocated and are
limited
• May change the critical path

Schedule Compression
• Shortens the project schedule without changing the

project scope
• Crashing
• Shortening activity duration for the least incremental cost
(e.g. overtime, adding additional resources, paying to
expedite delivery, etc.)
• Fast tracking
• Shortening activity duration by doing activities in parallel
rather than sequentially (only works if activities can be
overlapped)
• Increased risk and potential rework!
Law of Diminishing Returns

Schedule Baseline
• A version of the project schedule that is accepted and

approved
• Used for comparison (planned start and finish dates vs.
actual start and finish dates)

Project Schedules
• Include activities & planned start/finish dates

• Tabular Form
• Graphical Form
• Milestone Schedule
• Bar Charts (e.g. Gantt)
• Network Diagrams

Control Schedule
• Monitoring the project to update progress and manage changes

to the schedule baseline (and potentially other project aspects
such as the cost and scope)
• Knowing the status of the schedule at all times
• Influencing the factors that create schedule changes
• Updating the schedule as required
• Managing schedule changes as they occur

• Performance Reviews
• Earned Value Management (EVM)
• Schedule Variance (SV)
• Schedule Performance Index
• Determining if schedule variance requires corrective action
• Variance Analysis
• Project Management Software

Change Requests
• Changes to the schedule should be managed using change

requests according to the Change Management Plan
• Integrated Change Control will ensure the impact of schedule
changes on other aspects of the project will be understood

Pick any two!
101 Project Management

Keys to Project Success
Establish real requirements Scope

Management
Derive good WBS
Perform network analyses

Time
Management
Create practical schedules
Develop realistic budgets

Cost
Management
Use earned value management

Establish Real Requirements
Identify where requirements originate
How to determine …
• What is a requirement?
• What is not a requirement?
Types of requirements:
• Functional requirements
• Non-functional requirements
• Hidden and generated requirements

Derive Good WBS
Project Project
1.0 Plan
2.0 Execute
1.0 2.0 3.0
Plan Execute Control 2.1 Phase 1
2.1.1 Design
2.1.2 Focus Group
2.1 2.2 2.3
Phase 1 Phase 2 Phase 3 2.2 Phase 2
2.3 Phase 3
2.1.2 2.3.1 Upgrade
2.1.1 2.3.1
Focus
Design
Group
Upgrade 3.0 Control
4.0 Close
Graphical Textual

WBS Dictionary
WBS WBS Detailed Work Time G/L Cost
Who
# Item Description (Hours) Code
Project plan including
1.0 Plan Ali 25 3115
scope, time, cost, …
2.0 Execute Phase 1-3 work … Engineering 90 3116
2.1 Phase 1 Initial prototype for … Amal 30 3116
2.1.1 Design Simulation of the … Ahmed 20 3116
Focus Get feedback of
2.1.2 Marketing 10 3117
Group prototype from …
2.2 Phase 2 2nd prototype with … Amal 30 3116
2.3 Phase 3 Final model for the … Amal 30 3118
Reverse engineer
2.3.1 Upgrade Shaikha 20 3118
version 4.8 before …

Responsibility Assignment Matrix (RAM)
Engineering
Marketing
WBS
PMO
# WBS Item  Who is … Description
1.0 Plan C C RA R Responsible Assigned work
2.0 Execute RA C I A Accountable Owns the work
2.1 Phase 1 RA C I C Consulted Must see before

I Informed Tell them after
2.1.1 Design RA C I
2.1.2 Focus Group AC R I
2.2 Phase 2 RA C I
2.3 Phase 3 RA C I
2.3.1 Upgrade RA C I

Perform Network Analysis
2.1.1
Design
1.0
2.2 2.3.1
Plan
Phase 2 Upgrade
2.1.2
Focus
Group
Dependencies, Leads, Lags, Feeding Buffers,

Critical Path, Critical Chain Method, etc.

Create Practical Schedules
• Practical schedules must account for:

• Interruptions
• Contingencies
• Productivity rate
• Resource availability
• Real world (holidays, sick days, etc.)
• Experience (Historical lessons learned)
• Murphy’s Law!

Cost Management Plan
• Is data rounded?
Level of accuracy
• Are there contingencies in the estimates?
Organizational • Use WBS as control account (CA) reference for

procedures links cost accounting
• What is permissible variance thresholds

Control thresholds
• Usually expressed in %
Rules of performance • Earned value measurement (EVM) techniques

measurement and calculations
• Format and frequency of the various cost

Reporting formats reports

Cost Management Terms
• Since most executive board members better understand financial terms than
project terms, project managers must speak accountanese
Life cycle Cash flow

Profit Profit margin Sunk costs
costing analysis
Tangible vs. Capital vs.

Fee vs. Profit Direct vs. Fixed vs.
Intangible Operating
Rate Indirect costs Variable costs
costs costs

• Reason a business exists. PRICE = COST + PROFIT

Profit • i.e. REVENUES minus EXPENSES
• To compare different projects

Profit
• i.e. ratio of revenues to expenses
margin ( PROFIT / EXPENSES ) x 100%
Life cycle • Total cost of ownership (TCO) over product lifetime

costing • i.e. Development costs plus support costs
Cash flow • Estimated costs and benefits with resulting cash flow
analysis • i.e. CASH IN and CASH OUT
• Money spent in the past

Sunk Cost • Ignore sunk costs when deciding on projects to invest in or
continue

Profit
Fee
Rate
Fee is based on Profit Rate is
COST based on PRICE
• $1,000,000 Job • $1,000,000 Job

• Fee of 10% • Profit Rate of 10%
• PRICE = $1,100,000 • COST = PRICE – 10%
• PROFIT = $100,000 • PRICE = $1,111,111
• PROFIT = $111,111

Direct Indirect
Costs Costs clearly Costs Costs only
traceable indirectly related
(associated) with to performing
project the project
• Labour • Overhead
• Material • Taxes
• Equipment • Risk
• Fees • Office Rent
• Administrative staff
• Benefits

Fixed Variable
Costs Occur at regular Costs Occur in
intervals at a proportion to
relatively fixed some usage
rate factor
• Office Rent • Labour costs

• Administrative Staff • Material

Tangible Intangible
Costs Costs
Easy to measure Difficult to
in monetary measure in
terms monetary terms
• Less job steps • Improved customer

• Increased sales goodwill
• Reduced expenses • Improved employee
morale

Capital Operating
Costs Costs
Capital Operating
expenditures or expenditures or
Cap. Ex. Op. Ex.
• Build new hospital • Pay cleaning staff

• Create new web • Maintain web site
site

Cost Management Theory
Learning Curve Theory

• In repetitious work, unit cost decreases as more units are
produced
• i.e. Novices become experts by learning
Reserve Funds
• Money set aside to allow for difficult to predict situations
• Contingency reserves allow for future situations that may be
partially planned for (sometimes called known unknowns) and
are included in project cost baseline
• Management reserves allow for future situations that are
unpredictable (sometimes called unknown unknowns) but are
not included in project cost baseline

Project Cost Management
Estimate • Approximate monies needed

Costs to complete project activities
Determine • Establish overall cost baseline

Budget and allocate approved budget
Control • Monitor & control planned vs.

Costs actual expenditures

Estimate Costs
Determine Budget
Control Costs
Estimate Costs
Objectives:
• Make a project “go/no go” decision (feasibility analysis)
• Project evaluation
• Provide a basis for cost control
Good budgets start with good estimates:
• To complete projects within budget limits
• Budgets only as good as estimates
• Estimates built upon assumptions
Project managers must know:
• Types of cost estimates
• How to prepare cost estimates
• Typical problems associated with cost estimates

Estimate Costs
Projects are progressively elaborated

• Refine cost estimates throughout project as more details
become available
135%
Rough Order of Magnitude (ROM)
Estimate – Actual Cost
125%
115%
±50%
Variance
105%
95% ±5%
85%
75%
65%
Time
Estimate Costs
Before creating an estimate:

• Know what it will be used for
• Gather as much information about project as possible
• Clarify ground rules and assumptions for estimate
If possible:
• Estimate costs by major WBS categories
Create a cost model:

• Documents the estimate
• Makes it easy to change

Estimate Costs - Assumptions
• Only direct costs? • WBS completed?
• Any constraints? • Who derived WBS?
• Fixed timeline? • Schedule baseline?
• Limited budget? • Flexible team members?
• Risks?
• Available skilled resources?
• HR/Org. policies?
• External dependencies?
• Cost of Quality (COQ)?
• In-house or procure?
• ± range, confidence level?
• Market conditions? • Lessons learned?
What are some standard assumptions?

Estimate Costs – Techniques
Analogous or top- • Uses actual cost of previous, similar project

down estimates • Uses historical information and expert judgment
Parametric • Uses project characteristics (parameters) in a

modeling mathematical model to estimate project costs
Bottom-up • Estimate individual work items in WBS

estimates • Sum up WBS activities to get total
Three-point • Uses three estimates to define approximate range

estimates • PERT (optimistic + 4 x most likely + pessimistic) ÷ 6

Estimate Costs – Tools
• Computerized tools can

make cost estimating easier:
• Project management software
• Spreadsheets
• Templates
• Industry specific estimating models
• Online vendor tools (Cost calculators)

Estimate Costs – Example
Top-down Estimate % QAR
Analogous project total 18,000
Add changes 10% 1,800
Add contingency reserve 20% 3,600
TOTAL ESTIMATE 23,400

Parametric Model QAR
Number of Square Meters 1,000
Cost per square meter (QAR) 22 22,000
Add contingency reserve 20% 4,400
TOTAL ESTIMATE 26,400

Cost/
Bottom-up Hours / Day
# Units
Unit
Total
WBS Items 1 2 3 4 5 6 7 (Hours) (QAR)
(QAR)
1. Initiate & Plan 8 16 1 25 200 5,000
2. Execute
2.1 Phase I
2.1.1 Design 16 4 20 150 3,000
2.1.2 Focus Group 10 10 100 1,000
2.2 Phase II 5 10 15 30 120 3,600
2.3 Phase III
2.3.1 Upgrade 16 4 20 175 3,500
2.3.2 Integration 10 10 100 1,000
3. Monitor & Control 3 3 3 3 3 15 200 3,000
4. Close 10 10 150 1,500
5. Reserves (20%) 4,320
TOTALS 8 32 23 13 34 17 13 140 25,920
Cost/ Sub- WBS
Bottom-up # Units
Unit total Level 2
%
WBS Items (Hours) Total
(QAR) (QAR) Total (QAR)
1. Initiate & Plan 25 200 5,000 5,000 19%
2. Execute
2.1 Phase I 4,000 15%
2.1.1 Design 20 150 3,000
2.1.2 Focus Group 10 100 1,000
2.2 Phase II 30 120 3,600 3,600 14%
2.3 Phase III 4,500 17%
2.3.1 Upgrade 20 175 3,500
2.3.2 Integration 10 100 1,000
3. Monitor & Control 15 200 3,000 3,000 12%
4. Close 10 150 1,500 1,500 6%
5. Reserves (20%) 4,320 17%
TOTALS 140 25,920 100%
Estimate Costs – Failures
Problem Consequence
Each bid is “new”
Lack of historical cost information
Do not learn from failure/success
Technical staff write proposals,
Techies are not cost accountants
as additional duty
Obsolete estimating databases Inaccurate cost estimates
Guesstimates Ballpark guesses often too low
Arbitrary changes by senior Why cost estimate?
management Unreasonable budgets
Complex accounting systems Useful functionality under-utilized
Management secrecy Estimator must assume numbers,
– labour, indirect costs not shared though they are available
James Taylor, Project Scheduling and Cost Control: Planning, Monitoring and Controlling the Baseline (2007) J Ross
Publishing, P.85

Estimate Costs
Determine Budget
Control Costs
Cost Baseline – Example
Cost Baseline Cost (QAR) / Day Total
WBS Items 1 2 3 4 5 6 7 (QAR)
1. Initiate & Plan 1600 3200 200 5,000
2. Execute
2.1 Phase I
2.1.1 Design 2400 600 3,000
2.1.2 Focus Group 1000 1,000
2.2 Phase II 600 1200 1800 3,600
2.3 Phase III
2.3.1 Upgrade 2800 700 3,500
2.3.2 Integration 1000 1,000
3. Monitor & Control 600 600 600 600 600 3,000
4. Close 1500 1,500
5. Reserves (20%) 4,320
TOTALS 1600 5600 3000 1800 5200 2300 2100 25,920
Cost Aggregation (Bottom-up)
Reserve Analysis
• Contingency Reserve (Include known risks)
• Management Reserve (Exclude unknown risks)
Expert Judgment
Historical Relationships
• E.g. Building type has cost per square meter
Funding Limit Reconciliation

Cost Performance Baseline
Cost Baseline, Expenditures, and Cash Flow

Funding Requirements
Cost Baseline
Cumulative Monies
Expenditures
Time

Time Value of Money
• Due to Inflation, QAR 100 today is worth more than QAR 100 in
one year
• Discount Rate is annual investment return
• Always DISCOUNT future amounts to a given time (today) so comparisons
are meaningful
• i.e. Opportunity Cost of investing money today
• Present Value PV is value of Riyal today.
PVn = FVn
i = discount rate
(1+i )n
n = number of years

Benefit/Cost Analysis
• Payback Analysis
• The time it takes for Benefits to equal Costs
• Net Present Value
NPV = Σ Discounted Benefits – Σ Discounted Costs
• Return on Investment (ROI)
Lifetime Benefits – Lifetime Costs
Lifetime ROI =
Lifetime Costs
Annualized ROI = Lifetime ROI ÷ Time in Years

Benefit/Cost Example
Discounted Benefits/Cost Analysis
Year 1 2 3 4 5 6
2011 2012 2013 2014 2015 2016
Annual Tangible Benefits $0 $5,000 $15,000 $20,000 $35,000 $55,000

Annual Costs $25,000 $30,000 $5,000 $5,000 $5,000 $5,000
Annual Discount rate 10%

Annual Discounted Benefits $0 $4,545 $12,397 $15,026 $23,905 $34,151
Annual Discounted Costs $25,000 $27,273 $4,132 $3,757 $3,415 $3,105
Cumulative (Lifetime) Benefits $0 $4,545 $16,942 $31,968 $55,874 $90,025

Cumulative (Lifetime) Costs $25,000 $52,273 $56,405 $60,162 $63,577 $66,681
Net Present Value ($25,000) ($47,727) ($39,463) ($28,193) ($7,703) $23,343
Lifetime ROI after six years 35% (90,025 – 66,681) ÷ 66,681

Annualized ROI 6% 35% ÷ 6

Benefit/Cost Example
Discounted Benefits/Cost Analysis
$100,000
$80,000
$60,000
$40,000
$20,000
$0
1 2 3 4 5 6
Year
Cumulative Lifetime Benefits Cumulative Lifetime Costs

Estimate Costs
Determine Budget
Control Costs
What is Cost Control?
• Direct progress
• Direct actions
• Control results
• Conserve resources

Cost Control
• Monitor cost performance

• Ensure only appropriate project changes in revised cost baseline
• Inform stakeholders of authorized project changes that will affect
costs

Cost Control
Many organizations around the globe
have problems with cost control
Australia
USA
UK/France
Canada
• Sydney • A planned • Chunnel • F35 Joint
Opera $2 million • 80% for Strike
House gun registry construction Fighter
• 1,400% ended up costs project at
costing • 140% for $388
over $1 financing billion
billion. costs • 50% over
initial
estimated
budget

Earned Value Management
• EVM is Project performance measurement baseline that

integrates scope, time, and cost baselines
• Determine how well project is meeting goals relative to
original baseline (original plan plus approved changes)
• Each WBS task is mutually exclusive and “value earned”
only when finished.
• Many international organizations use EVM to help control
project costs

Name Description Formula

BAC Authorized budget for all work aka
Budget At Completion
PMB Performance Measurement Baseline
Work planned and authorized budget
PV Planned Value
for that work
AC Actual Cost Actual cost of monies spent to date
Work completed to date and budget for
EV Earned Value
that work (Sum of WBS tasks)
Cost exception report may document
CV Cost Variance EV – AC
large differences
SV Schedule Variance Described in monetary terms EV – PV
Cost Performance How much are we losing (gaining) for
CPI EV / AC
Index every dollar spent?
Schedule Performance Relates work to planned schedule,
SPI EV / PV
Index or how far behind (ahead) are we?

CPI = EV / AC
SPI = EV / PV
BAC = Budget At Completion

CV =
Cumulative Monies
Cost
Variance
SV =
Schedule
AC = Actual Costs PV = Planned Value Variance
EV = Earned Value
Time
Identify EV curve first, then compare to PV
(schedule) and AC (cost) variances
Name Description Formula

PC Percent Complete Percentage of work completed EV / BAC
PS Percent Spent Percentage of budget spent AC / BAC
Est. to Complete Assume anomalies will not continue.
BAC – EV
(atypical variances) i.e. unexpected event will not repeat
ETC
Est. to Complete If real situation different than
(BAC – EV) / CPI
(typical variances) assumption for original estimates
Forecast new bottom-up estimate AC + ETC
Estimate at
EAC Forecast at budgeted rates AC + BAC – EV
Completion
Forecast using CPI AC + (BAC – EV) / CPI
To Complete What is needed CPI to get project back
TCPI (BAC – EV)/(EAC – AC)
Performance Index on track?
Variance at
VAC Projected final variance BAC – EAC
Completion
Project Variance Only known at end! BAC – AC
EVM Example
Planned Earned Actual Schedule Budget
Value – PV Value – EV Cost – AC Performance Performance
100 100 100 On Schedule On Budget
100 100 75 On Schedule Under Budget
100 100 150 On Schedule Over Budget
Ahead of
75 100 100 Schedule
On Budget
Ahead of
75 100 150 Schedule
Over Budget
Ahead of
100 150 100 Schedule
Under Budget
Behind
150 100 75 Schedule
Under Budget
Behind
100 75 100 Schedule
Over Budget
Behind
150 100 100 Schedule
On Budget

EVM Example
Task Cost Actual % Planned %

AC EV PV
Estimate Complete Complete
A $1,000 50% 50% $480 $500 $500
B $1,000 10% 15% $125 $100 $150
C $1,000 30% 20% $350 $300 $200
Total $3,000 $955 $900 $850
CV = EV–AC $ –55 SV = EV–PV $ 50
CPI = EV/AC 0.94 SPI = EV/PV 1.06
PS = AC/BAC 32% PC = EV/BAC 30%

EVM Example
• Project to install new server and network cabling
• Estimated to take: 10 days
• Materials cost: QAR 4,000
• Labour cost: QAR 800 per day
• After four days, (customer signed-off on) work is 3/4 done by hiring
additional labour for QAR 4,000
• BAC = QAR 4,000 + 800 x 10 = QAR 12,000
• PV = QAR 4,000 + 800 x 4 = QAR 7,200
• AC = QAR 4,000 + 800 x 4 + 4,000 = QAR 11,200
• EV = QAR 4,000 + 800 x 10 x 3/4 = QAR 10,000
• Days to complete with regular labour: 10x¼=2½
EVM Example
• BAC = QAR 12,000
• PV = QAR 7,200
• AC = QAR 11,200
• EV = QAR 10,000
• CV = EV – AC = –QAR 1,200
• SV = EV – PV = +QAR 2,800
• CPI = EV / AC = 0.89 Between 0..1 is BAD
• SPI = EV / PV = 1.25 1.0 or above is GOOD
• ETC = BAC – EV = QAR 2,000
• EAC = ETC + AC = QAR 13,200
• VAC = BAC – EAC = –QAR 1,200
At completion,10% (1,200/12,000) over budget, but
finish 35% ( (10 – 4 – 2½) / 10) ahead of schedule
What is Risk?
Instinct Perception Fear Feelings
Reason Reality Rational Facts
• Instinct is evolutionary survival strategy

• High awareness = High perception of risk
• Basic psychology says uncertainty raises fear
• Actuarials have real numbers for risks
• Knowledge reduces negative risk perception?
152 Project Risk Management

Risk Attitude: Org. Culture
Risk Averse Risk Risk

• Gain less Neutral Seeking
satisfaction • Balance • Satisfaction
from more between risk increases
risk and payoff with risk

Choose an Option
Option A Option B Option C Option D
Sure 50% Sure 50%

GAIN GAIN LOSS LOSS
of of of of
$500 $1,000 $500 $1,000
84% choose option A 70% choose option D

Risk averse on gain Risk seeking on loss
But, “risk” (EMV) is same for (A,B) and (C,D) !
Disease Expected to Kill 600
Option A Option B Option C Option D
1/3
1/3 Chance Chance
200 People that 600 400
that no
will be saved, People
saved 2/3 that
one dies,
will die
none saved 2/3 that
600 die
72% choose option A 78% choose option D

All options are the same. The wording is not!
http://www.schneier.com/essay-155.html (2008 January 8)
What is the Real Risk?
Food
Flying Driving Terrorism
Poisoning
Under Over 9/11 Over

1,500 40,000 Under 5,000
yearly yearly
deaths deaths in
3,000 deaths
world- USA deaths in USA
wide alone! in 2001 yearly

Risk Common Sense
• Spectacular, Rare • Common, Familiar
• New, NEWS • Well understood
• Talked about • Not discussed
• Immediate, Sudden • Long term, Slowly
• Directed against children • Self directed
• Morally offensive • Morally desirable
• Beyond one’s control • Within one’s control
• Action: OVERREACT • Action: IGNORE
Magnified Risks Downplayed Risks

Risk Common Sense
• Evolution:
• Brain reaction: Amygdala vs. Neocortex
• Evolution has bias towards “lucky”
• People often poor judges of risk
• Bad at dealing with large numbers
• 1:2 1:4 1:1,000,000 1:1,000,000,000
Over-
Novelty Dread
reaction

Risk Common Sense
• Risk Management is a Cost/Benefit trade-off

• If coin flips HEADS 6 times in a row,
• What is probability next coin flip is HEAD, assuming a balanced coin?
• It’s still 50:50
• If USA couple have three Boys already,
• What is probability next child is Boy/Girl, given Boy/Girl birth ratio is
51/49?
• It’s 56:44

Risk Common Sense
Severity of risks
Probability of risks
Magnitude of risks
Effective mitigation countermeasures?
How to compare disparate risks?

Project Risk Management
• A risk is a future uncertainty

• Issue is a risk that has occurred
uncertainty = probability
• Have uncertainty in all projects

• Effects on project objectives
• scope, schedule, cost & quality
• Manage risk throughout
project lifecycle
effects = impact

Known risk
• Identified & analyzed
with planned response
Unknown risk
• Cannot be proactively
managed
• Need a contingency
plan

Positive risk
• Opportunity
• Good things happen
• Aim to maximize
Negative risk
• Threat
• Project problems
• Aim to minimize

Risk Management Success
Recognize value of risk management
Individuals take ownership of risk
Open communication
Organizational support
Risk effort scaled to project
Integrated with project management

Risk Role for PM
• Get support of senior • Apply contingency funds

management • Oversee supplier risk
• Set level of risk management
• Approve risk plan • Report risk status
• Facilitate open communications • Monitor efficiency &
• Participate! effectiveness of process
• Approve risk response • Audit risk response

Risk Management Principles
• Focus on what’s likely to go wrong

• Focus on real threats
• “Worst case” thinking is flawed:
• E.g., A population that is more susceptible to being terrorized is easier to
terrorize
• Worst case ≠ Normal
• Movies ≠ Reality
• Risk management is iterative, structured and disciplined
• Not optional and interfaces with all other PM processes

Plan Risk Management • How to perform project risk management
Identify Risks • Document which risks may affect project
Perform Qualitative
• Prioritize risks for further analysis
Risk Analysis
Perform Quantitative
• Numerical models of risk analysis
Risk Analysis
Plan Risk Responses • Options, actions & contingency plans
Monitor and Control

• Implement and manage risk plan
Risks

Risk Management Plan
• Document procedures for managing risk throughout project

• Review and document organization’s and sponsor’s approaches to
risk
• Level of detail varies with project needs

Risk Management Tailoring
Define risk objectives
Define scaling elements
Define thresholds & tolerances
Define assessment framework

Risk Plan Table of Contents
I. Methodology
II. Roles and Responsibilities
III. Budget and Schedule
IV. Risk Categories
V. Define Probability and Impact terms
VI. Risk Documentation
VII.Risk Tracking Mechanism

Identify Risks
• Document risks that may affect project

• Participants: Risk is everyone’s concern!
• Project Manager
• Project Team Members
• Customers
• End Users
• Stakeholders
• SME (Subject Matter Experts)
• Risk Management Experts
• …
• An iterative process done throughout life cycle

Identify Risks: Inputs
• Risk Management Plan • Assumptions Log

• Scope, Time, Cost & Quality • Project files
Estimates, Baselines & Plans • Process controls
• Stakeholder Register • EVM
• Benchmarks • Network Diagrams
• Templates • Academic studies
• Published checklists
• Lessons learned

Documentation Reviews
Brainstorming
The Delphi Technique
Interviewing
Root Cause Analysis (RCA)
SWOT analysis
Diagramming Techniques

Documentation Reviews
• Structured review of documentation:

• Plans
• Assumptions
• Previous project files
• Contracts
• …
• Check original quality
• Check consistency of plan vs. actual

Brainstorming
• Who?
• Project team and multidisciplinary experts
• Experienced facilitator should lead session
• What? Generate ideas about project risk
• How?
• Spontaneously and without judgment
• Can be free form, within RBS framework, or structured
• Be careful not to overuse or misuse brainstorming
• Psychology research says individuals produce more ideas working alone than through
brainstorming
• Group effects often inhibit idea generation

Delphi Technique
• Reach consensus from panel of experts on predictions about

future developments
• Provides independent, anonymous input on future events, risks
• Uses repeated rounds of questionnaires
• Facilitator summarizes written responses and re-circulates
• Avoids biasing effects possible in oral methods, such as
brainstorming

Interviewing
• Fact-finding technique for collecting information in face-to-face,

phone, email, or instant-messaging discussions
• Interview people with similar project experience
• Subject matter experts (SME) also good source of information

Root Cause Analysis (RCA)
Identify problem • An iterative process to

correct or eliminate root
Discover underlying cause cause of variance, defect or
risk, not just handle
Develop preventative action symptoms of problem
• Process is proactive,
• Safety Based not reactive
• Production Based
• Process Based
• Failure Based
• Systems Based
SWOT Analysis S W
O T
• Helps identify the broad negative and positive risks that apply to a
project
Risks + –
Internal Strengths Weaknesses
External Opportunities Threats

Diagramming Techniques
TECHNICAL ORGANIZATIONAL
Requirements Politics
Technology Resources
Quality Funding
Vendors Estimating Training

Subcontractors Planning
Market Communications
Environment PROJECT
Cost Morale
EXTERNAL MANAGEMENT
Cause and effect diagram

(fishbone or Ishikawa diagram)
Staff
Recruitment
Turnover
Design Plan Build Test

Influence diagram
System or process flow chart
Broad Categories of Risk
Market Risk
Financial Risk
Technology Risk
People Risk
Structure / Process Risk
Risk Breakdown by Knowledge Area
Integration Scope Time
• Inadequate planning • Poor definition of scope or work • Errors in estimating time or
• Poor resource allocation packages resource availability
• Poor integration management • Incomplete definition of quality • Poor allocation and
• Lack of post-project review requirements management of float
• Inadequate scope control • Early release of competitive
products
Cost Risk Human Resources

• Estimating errors • Ignoring risk • Poor conflict management
• Inadequate productivity, cost, • Unclear assignment of risk • Poor project organization and
change, or contingency control • Poor insurance management definition of responsibilities
• Poor maintenance, security, • Absence of leadership
purchasing, etc.
Communications Quality Procurement

• Carelessness in planning or • Poor attitude toward quality • Unenforceable conditions or
communicating • Substandard design, materials, contract clauses
• Lack of consultation with key workmanship • Adversarial relations
stakeholders • Inadequate quality assurance
program

Risk Breakdown Structure (RBS)
• Hierarchy of potential risk categories

• Similar to work breakdown structure (WBS) but identifies &
categorizes risks
Project
Technical External Organizational
Management
• Requirements • Vendors or sub- • Politics • Estimating

• Technology contractors • Project • Planning
• Interfaces • Regulatory Dependencies • Controlling
• Reliability • Market • Resources • Commun-
• Quality • Customer • Funding ication
• Environment • Prioritization

Sample RBS
IT Project
Project
Business Technical Organizational
Management
Executive
Competitors Hardware Estimates
support
Suppliers Software User support Communication
Cash flow Network Team support Resources

Identify Risks: Outputs
• A risk register is:

• A list of identified risks and other attributes
• EVENT
• CAUSE
• EFFECT
• ROOT CAUSE
• …
• A list of potential responses
• Often displayed in a table format

186
Risk Number
Risk Rank (Priority)
Date Risk Updated
Risk Name
Risk Description
Risk Category
Risk Register Contents
Root Cause
Triggers / Symptoms
Potential Responses
Owner
Probability (High/Medium/Low)
Impact (High/Medium/Low)
Status (Open/Closed/Issue)
Risk Register Contents
I. Identification number for VIII. Triggers for each risk; i.e.

each risk event indicators or symptoms of risk
II. A rank for each risk event event
III. Date risk updated IX. Potential responses to risk
IV. Name of risk event X. Risk owner who takes
responsibility for risk
V. Description of risk event
XI. The probability and impact of
VI. Category under which risk risk occurring
event falls
XII. The status of each risk
VII. Root cause of risk event

Plan Risk Management
Identify Risks
Perform Qualitative Risk Analysis
Perform Quantitative Risk Analysis
Plan Risk Responses
Monitor and Control Risks

Qualitative vs. Quantitative
• Qualitative discusses identified risks

• Quantitative field is usually poorly understood
• Banks and insurance companies failed during 2008 Credit Crisis.
E.g., AIG
• Who insures the insurer?
• Relative scale ("Rare" to "Almost Certainty") or numerical
probabilities
• E.g., Impact vs. Likelihood of forest fires by season (temperature)

Qualitative Risk Analysis
• Prioritize risks by:

• Probability of occurrence
• Impact on project objectives
• Time criticality (urgency) of risk actions
• Tools & Techniques include:
• Probability / Impact matrix
• Expert judgment
• Followed by Perform Quantitative Risk Analysis or Plan Risk
Response

Qualitative Risk Analysis
Probability and Impact Matrix

[Negative] Impact Scales of a Risk on Project Objectives
(Example from PMBOK p.281)
Project Very Low Low Moderate High Very High
Objective (0.05) (0.10) (0.20) (0.40) (0.80)
Insignificant < 10% 10%-20% 20%-40% > 40%
Cost Cost Increase Cost Increase Cost Increase Cost Increase Cost Increase
Insignificant < 5% 5%-10% 10%-20% > 20%
Time Time Increase Time Increase Time Increase Time Increase Time Increase
Scope reduction
Scope decrease Minor areas of Major areas of Project result is
Scope barely noticeable scope affected scope affected
unacceptable to
useless
sponsor
Quality Only very Quality reduction Quality reduction
Project result is
Quality degradation demanding requires unacceptable to
useless
barely noticeable users affected sponsor approval sponsor


PMBOK 4th Ed. p.292

Qualitative Risk: Outputs
• Risk register updates

• Relative ranking of risks
• Risk grouped by categories
• Discover concentrations of risks
• List of risks to attend in near-term
• Watchlist of low priority risks
• Risk trends

Quantitative Risk Analysis
• Often follows qualitative risk analysis, but can be done together

with qualitative
• Large, complex projects involving leading edge technologies often
require extensive quantitative risk analysis
• Main techniques include:
• Sensitivity analysis
• Expected Monetary Value/Decision Tree analysis
• Modeling and Simulation

Sensitivity Analysis What if
• Shows effects of changing variables on an outcome

• Variables include duration and costs
• Looks at how these variables affect main project
outcomes, such as finish time, duration and total cost
• Spreadsheets are a good tool for sensitivity analysis
(What If scenarios)

Decision Tree, EMV Example
P=0.20 EMV=
O=$300,000 $60,000
Project 1
Project 1
P=0.80 EMV=
EMV=
O=$-40,000 $-32,000
$28,000
Decision P=0.10 EMV=
O=$-20,000 $-2,000
P=0.20 EMV=
O=$-50,000 $-10,000
Project 2
Project 2
P=0.70 EMV=
EMV=
O=$60,000 $42,000
$30,000
EMV
Probability Outcome Expect
(P) (O) Monetary
Value

Simulation
• Simulation uses model of system to analyze expected behavior of

system
• It translates specified detailed uncertainties of project into their
potential impact on objectives
• Monte Carlo analysis simulates a model’s outcome many times to
provide a statistical distribution of the calculated results

Quantitative Risk Example
A Simplified Quantitative Approach
# Risk Probability Impact $ Risk $ Mitigation Plan
Fire drills.
Fire in Smoke alarm tests.
1. Server 1% $90,000 $ 900 Backup server.
room Alternative to sprinklers
in server room.
Earth- Off-site Backup in
2. .01% $4,000,000 $ 400
quake different city.
3. PM Death .001% $150,000 $15 Key man insurance.
4. ... ... ... ... ...
Total Risk
$ 1,315
Costs Σ

Risk Responses Must Be …
Appropriate to risk significance
Cost-effective
Realistic in project context
Agreed to by all parties
Owned by responsible person
Timely

Risk Response Strategies
Negative Risk Positive Risk
Accept the risk and provide contingency reserve of money,
time, and resources (i.e. Self insure)
Avoid: Eliminate risk by Exploit: Make it happen by
changing project plan eliminating uncertainty
(e.g., clarify requirements) (e.g., assign best talent)
Mitigate: Reduce risk to Enhance: Increase probability
acceptable threshold of outcome
(e.g., add redundancy) (e.g., add more resources)
Transfer: Shift ownership
Share: Work with third party
responsibility to third party
(e.g., joint venture)
(e.g., insurance, fixed price)
Plan Risk Response
Contingency Plans
• Predefined actions that project team will take if an
identified risk event occurs
Fallback Plans
• When primary response proves inadequate
Contingency Reserves
• Provisions held by project sponsor or organization to
reduce risk of cost or schedule overruns to an acceptable
level

Monitor and Control Risks
• Risk management throughout lifecycle

• Look for new, changing, outdated risks
• Re-check assumptions
• Ensure risk policies followed
• Risk audits
• Variance / Trend analysis
• Reserve analysis
• Status meetings

References
• Project Management Institute, A Guide to the Project

Management Body of Knowledge, (PMBOK® Guide) –Fourth
Edition, Project Management Institute, Inc., 2008.

Project Communication Management
Ensuring timely and appropriate …

• Generation
• Collection
• Distribution (Dissemination)
• Storage, Retrieval
• & Ultimate Disposition
… of project information
206 Project Communication Management

Identify Stakeholders
Plan Communications
Distribute Information
Manage Stakeholder Expectations
Report Performance
207 Project Communication
Role of Communication in PM
Information you need to receive:

• Client needs
• Objectives • Changes
• Plan • Risks
• Progress
• Constraints
Information you need to give:

• Roles
• Expectations
• Progress

Dimensions of Communication
• Internal and external

• Formal and informal
• Vertical and horizontal
• Official and unofficial
• Written and oral
• Verbal and non-verbal

Effective Communication
Oral
• Presentation
• Audience Awareness
• Body Language
• Paralingual
Non-Verbal Written
• Academic Writing
• Critical Listening
• Revision & Editing
• Empathy
• Critical Reading
• Emotion
• Data Presentation

Pay
Attention
Monitor
Visualize
Non-verbals
Effective
Listening
Encourage
Paraphrase
the Other to
& Repeat
Talk
Make No
Assumptions

Identify Stakeholders
• Identify all people or organizations impacted by project, and

document relevant information regarding their interests,
involvement, and impact on project success

Identifying Stakeholders: Inputs
Project charter
Procedural Documents
Enterprise Environmental Factors
Organizational Process Assets

Who are Stakeholders?
• Actors and Their Interests

• Key Actors or Core Groups
• Primary Actors
• Secondary Actors or Intermediaries
Your boss Shareholders Government

Senior executives Alliance partners Trades associations
Your coworkers Suppliers The press
Your team Lenders Interest groups
Customers Analysts The public
Prospective customers Future recruits The community

Stakeholder Concerns
• Economic gains and their distribution

• Ecological or environmental impact
• Moral values promoted
• Contributions gained or lost

Stakeholder Analysis
• Document interests and motivations

• Identify conflicting interests
• Identify relationships between them
• Determine level of participation required from each

Stakeholder Models
• Power/Influence Grid • Salience Model
• Power/Interest Grid
• Influence/Impact Grid
High
Keep Manage
Satisfied Closely
Power
Keep
Monitor
Informed
Low High
218 Influence
Expert Judgment
• Senior management
• Other departments
• Key stakeholders
• Experienced PM on similar projects
• Subject matter experts (SMEs)
• Industry groups and consultants
• Professional and technical associations

Delphi Technique
• Reach consensus from panel of experts on predictions about

future developments
• Provides independent, anonymous input on future events, risks
• Uses repeated rounds of questionnaires
• Facilitator summarizes written responses and re-circulates
• Avoids biasing effects possible in oral methods, such as
brainstorming

Interviewing
• Fact-finding technique for collecting information in face-to-face,

phone, email, or instant-messaging discussions
• Interview people with similar project experience
• Subject matter experts (SME) also good source of information

Brainstorming
• Who?
• Project team and multidisciplinary experts
• Experienced facilitator should lead session
• What? Generate ideas about topic of interest
• How?
• Spontaneously and without judgment
• Can be free form, within RBS framework, or structured
• Be careful not to overuse or misuse brainstorming
• Psychology research says individuals produce more ideas working alone than through
brainstorming
• Group effects often inhibit idea generation

Stakeholder Register
• Contains all documents related to the identified stakeholders,

including:
Identification Assessment Stakeholder

Information Information Classification

Stakeholder Management Strategy
Defines an approach to increase support and minimize negative

impacts of stakeholders
• Key stakeholders who can significantly impact project
• Level of participation in project desired for each stakeholder
• Stakeholder groups and their management

Project Quality Management
Plan Quality • Identify quality requirements

Management • How will project demonstrate compliance?
Perform Quality • Audit quality requirements

Assurance • Ensure correct quality standards used
• Monitor & record results

Perform Quality • Assess performance
Control • Recommend necessary changes
225
Plan Quality Management
• Quality must be planned into project
• Identify relevant quality standards
• Determine how to satisfy them
• Pareto Principle
or 80/20 rule
• No Gold Plating!
226
Plan Quality Management
• Quality policy
• Organization directives on quality
• Who is responsible?
Quality • Both process and product responsibilities
Management
Plan • Where are we going?
• Depends on specific performance targets
• How are we going to get there?
• Processes, resources, and standards
• Process boundaries
• Process configuration
Process • Process metrics
Improvement
Plan • What is measured?
• What are thresholds and tolerances
• Targets for improvement
227
Quality Assurance vs. Control
• Prevent – Do right things in right • Detect – Keep mistakes out of
way deliverables
• Prevent mistakes from entering • Inspect – What’s done vs. What
project was expected
• Work is done properly the first • Ensure results conform to
time specifications
• Select relevant standards or • Provide basis for corrective action
specifications • Assess performance
• Collect data and compare results
• Recommend necessary changes
to plan
• Develop and apply metrics
Quality Assurance Quality Control
228
Basic Quality Tools
TECHNICAL ORGANIZATIONAL
Requirements Politics
Technology Resources
Quality Funding
Vendors Estimating
Subcontractors Planning
Market Communications
Environment PROJECT Checklists
EXTERNAL MANAGEMENT Item 
Cause and effect diagram A ✓
(Fishbone or Ishikawa diagram)
B ✓
C
…
Start Do … ? Stop
Flow chart Fix …

229
Tools & Techniques
 Benchmarking
 Compare to similar project
 Design of Experiments (DoE)
 Determine optimal (best) conditions for process
 Statistical Sampling
 Establish sample frequency and size
 A/B Testing
• Brainstorming
• Force field analysis
• Nominal group technique (NGT)
230
Quality Metrics
• On-time performance
• Cost of Quality (CoQ)
• Fault frequency
• Failure rate
• Availability
• Reliability
• Test coverage
231
EVM is a project performance measurement baseline

that joins
scope, time, and cost baselines
Determine how well project is meeting its’ goals relative
to original baseline (original plan plus approved
changes)
Each WBS task is separate and “value earned” only
when finished
Many international organizations use EVM to help
control project costs
232
Project Team
• Sponsor
• Project Manager
• Team Members
Other Stakeholders
• Functional Managers
• Business Partners
• Customers
• Government
233
Closing Processes
Initiating Planning Closing

Processes Processes Processes
Monitoring
and
Controlling
Processes
Executing
Processes
234
Closing Processes
• Gain stakeholder and customer acceptance

• Final report and presentation to sponsor or senior
management
• Closing even if project not completed
• Outputs include:
Project Lessons Closure

Archives Learned Reports
235
Unde 236
The Role of a Project Manager
Define project scope

Identify:
 Stakeholders,
 Decision-makers,
 Escalation procedures
Develop work breakdown structure WBS
Estimate time requirements
Develop project management flow chart
Identify required resources and budget
237
Suggested Skills for Project Managers
Communication & • Listen, persuade (encourage), adaptable,

Coping skills creative, patient, determined
Organizational skills • Plan, set goals, analyze
• Show empathy (kindness & understanding),

Team-building skills motivate, promote team spirit
• Set examples, provide vision, delegate, positive,

Leadership skills energetic
Technology skills • Experience, project knowledge
238
Suggested Skills for Project Managers
Soft Skills: Ability Hard Skills:

to work effectively Product knowledge
and communicate and knowing how
with different to use various
types of people project
management tools
and techniques
Success
239
Task Time Predecessor
Name (Days) (Dependencies)
Calculating Critical Path A

B
C
12
3
14
–
–
–
D 4 A, B
E 17 B
Task Time Predecessor F 3 C
Name (Days) (Dependencies) G 6 D

H 2 D
A 12 – I 5 E, F
J 1 F
B 3 –
C 14 –
D 4 A, B
E 17 B
F 3 C
G 6 D
H 2 D
I 5 E, F
J 1 F
Proje 240
Task Time Predecessor
Task Time Name (Days) (Dependencies)
A 12 –
Early Early
Start Finish B 3 –
Late Late
Slack=0
FINISH is Critical
= START + TIME –1
Path C 14 –
Start Finish G 6 D 4 A, B
Slack= 17 22 E 17 B
20 25 F 3 C
A 12 D 4
Slack=3 G 6 D
1 12 13 16 H 2 D
4 15 16 19 I 5 E, F
H 2
Slack=3 Slack=3 J 1 F
17 18
24 25
B 3 E 17
Slack=7
START 1 3 4 20 END
0 1 3 4 20 25
I 5
Slack=0 Slack=0
21 25
21 25
C 14 F 3 Slack=0
1 14 15 17
4 17 18 20
J 1
Slack=3 Slack=3
18 18
25 25
Slack=7
Proje 241
Shortening Schedules
• Shorten the duration of critical tasks by adding resources or

changing their scope
Crashing Fast tracking
• Obtaining the • Changing network

greatest amount of logic by doing
schedule activities in parallel
compression for the • i.e. overlapping
least amount of activities
additional cost
• e.g., Add resources
242
Schedule Baseline
• Version of project schedule that is accepted and

approved
• Used for comparison
• Planned vs. actual start and finish dates
Planned Actual Variance

Start Date Oct. 23 Oct. 24 1 day
Finish Date Nov. 13 Nov. 29 12 days
Duration 16 days 27 days 11 days
243

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What is a project?

• “A temporary endeavour undertaken to create a unique product,

• Projects are progressively elaborated

2 Understanding Project Management

3 Understanding Project Management

• Operations – units that perform activities that produce the same

4 Understanding Project Management

Competence Ability to Delegate Tasks

Good Communicator Cool Under Pressure

Empathy Team-Building Skills

Enthusiasm Problem-Solving Skills

ProjectSmart.co.uk, “Top 10 Qualities of a Project Manager,

5 Understanding Project Management

6 Understanding Project Management

Standardize the how,

Check your plan with the

7 Understanding Project Management

Monitoring & Controlling

Initiating Planning Executing Closing

8 Understanding Project Management

Development Phase Testing Phase

Monitoring & Controlling Monitoring & Controlling

Initiating Planning Executing Closing Initiating Planning Executing Closing

9 Understanding Project Management

Monitoring & Controlling

Initiating Planning Executing Closing

Monitoring & Controlling

Initiating Planning Executing Closing

10 Understanding Project Management

• Persons or organizations involved in the project or whose

11 Understanding Project Management

12 Understanding Project Management

13 Understanding Project Management

• Many different project management methodologies:

14 Understanding Project Management

• Pen and paper!

15 Understanding Project Management

• A project starts with an idea

16 Understanding Project Management

• A project charter is a document that formally authorizes a project

• The approved project charter formally initiates the project

17 Understanding Project Management

• Inputs to the project charter include:

18 Understanding Project Management

• Defines how the project is executed, monitored and controlled,

19 Understanding Project Management

• What will be covered in the project?

20 Understanding Project Management

• What are the activities required to complete the project?

21 Understanding Project Management

• Making sure the project includes all the work required to

23 Project Scope Management

• Product Scope – the features and functions of the product,

• Project Scope – the work that needs to be performed to create

24 Project Scope Management

25 Project Scope Management

• Defining and documenting stakeholders’ needs to meet the

26 Project Scope Management

• Importance of Project Charter

27 Project Scope Management