Exam 1 MGT 325

The project manager

Typically perform the same functions as other managers. That is, they plan, schedule, motivate, and control. However, what makes them unique is that they manage temporary, nonrepetitive activities, to complete a fixed life project. Unlike functional managers, who take over existing operations, project managers create a project team and organization where none existed before. They must decide what and how things should be done instead of simply managing set processes. -Project managers are ultimately responsible for performance Project managers must work with a diverse troupe of characters to complete projects. They are typically the direct link to the customer and must manage the tension between customer expectations and what is feasible and reasonable.

What questions does a project objective answer? What would be an example of a good project objective?

What the project is, when the project should be finished, and how much it will cost

Project Structure and Organization

Which project structure is chosen to manage the project will influence time and cost estimates.

How WBS Helps the Project Manager

The WBS defines all the elements of the project in a hierarchical framework and establishes their relationships to the project end item(s).

Integrating the WBS with the Organization

The WBS is used to link the organizational units responsible for performing the work. In practice, the outcome of this process is the organization breakdown structure (OBS).

Two main reasons why project managers need to understand their organization's mission and strategy

The first reason is so they can make appropriate decisions and adjustments. For example, how a project manager would respond to a suggestion to modify the design of a product to enhance performance will vary depending upon whether his company strives to be a product leader through innovation or to achieve operational excellence through low cost solutions. The second reason project managers need to understand their organization's strategy is so they can be effective project advocates. Project managers have to be able to demonstrate to senior management how their project contributes to their firm's mission

Project objective

The first step of project scope definition is to define the overall objective to meet your customer's need(s). The project objective answers the questions of what, when, and how much.

Planning stage

The level of effort increases, and plans are developed to determine what the project will entail, when it will be scheduled, whom it will benefit, what quality level should be maintained, and what the budget will be.

The project life cycle

The life cycle recognizes that projects have a limited life span and that there are predictable changes in level of effort and focus over the life of the project. The project life cycle typically passes sequentially through four stages: defining, planning, executing, and delivering.

Limits and exclusions

The limits of scope should be defined. Failure to do so can lead to false expectations and to expending resources and time on the wrong problem. Examples include: data will be collected by the client, not the contractor; a house will be built, but no landscaping or security devices added; software will be installed, but no training given.

Major characteristics of a project

- Has an established objective. - Has a defined life span with a beginning and an end. - Requires cross-organizational participation. - Accomplishes non-routine tasks - Has specific time, cost, and performance requirements.

Managing a project includes:

- Identifying requirements -Addressing the needs of stakeholders - Balancing the competing project constraints of: Scope Quality Schedule Budget Resources Risk

A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in the next five years. It will cost $50,000 to implement the project. If the required rate of return is 20 percent, conduct a discounted cash flow calculation to determine the NPV

-50000+15000/1.20^1+25000/1.20^2+30000/1.20^3+20000/1.20^4+15000/1.20^5 =12895.45

Why Project Managers Need to Understand Strategy

-Changes in the organization's mission and strategy: --Project managers must respond to changes with appropriate decisions about future projects and adjustments to current projects. --Project managers who understand their organization's strategy can become effective advocates of projects aligned with the firm's mission.

List the top down approaches for estimating project times and costs

1) Consensus Methods - uses pooled experiences of top middle managers (Delphi method) 2) Ratio Methods - uses the ratio of past actual costs for similar work to estimate the cost for a potential project; macro method of forecasting cost doesn't provide a sound basis for project cost control since it does not recognize difference among projects 3) Apportion Method - estimates made based on previous projects history 4) Function point methods for Software and System Projects - using weighted macro variables called "function points" or major parameters such as number of inputs, number of outputs, number of inquiries, number of data files, and number of interfaces 5) Learning Curves - Each time the output quantity doubles, the unit labor hours are reduced at a constant rate.

What are the major types of costs? Which costs are controllable by the project manager?

1) Direct Costs - Includes labor, materials, equipment, other - chargeable to specific work ie. equipment 2) Direct Project O/H costs - tied to project deliverables & work packages i.e. salary of project manager, temporary rental space for project team 3) General & Administrative O/H Costs - costs that are not directly linked to the overall project - advertising, accounting, and senior management above project level Direct costs are controllable by the project manager :)

Factors Influencing the Quality of Estimates

1) Planning Horizon - estimates of current events are more accurate than events that will be occurring further in the future 2) Project Duration 3) People - accuracy of estimates depends on the skills of the people making the estimates 4) Project Structure & Organization - matrix may help reduce costs by efficiently sharing personnel across projects - dedicated project teams have more focus 5) Padding Estimates - you estimate based on the type of person you are conversing with - people add a little padding to their estimates to ensure that they are not late* 6) Organization Culture - organizations vary in the importance they attach to estimates; some don't believe estimates help, others believe it is the bedrock 7) Other (non project) factors - things such as holidays, machine down time, vacations, legal limits etc

List the bottom-up approaches for estimating project times and costs

1) Template methods (use of a prepared form to develop project networks, costs and time estimates) 2) Parametric procedures applied to specific tasks 3) Range estimates for the WBS work packages - use when work packages have uncertainty associated with time or cost to complete 4) Phase estimating - is used when an unusual amount of uncertainty surrounds a project and it is impractical to estimate times and costs for the entire project.

To review, each work package in the WBS

1. Defines work (what). 2. Identifies time to complete a work package (how long). 3. Identifies a time-phased budget to complete a work package (cost). 4. Identifies resources needed to complete a work package (how much). 5. Identifies a single person responsible for units of work (who). 6. Identifies monitoring points for measuring progress (how well)

Types of Costs

1. Direct costs a. Labor b. Materials c. Equipment d. Other 2. Direct project overhead costs 3. General and administrative (G&A) overhead costs

Employing a Project Scope Checklist

1. Project objective 2. Deliverables 3. Milestones 4. Technical requirements 5. Limits and exclusions 6. Reviews with customer

Hierarchical Breakdown of the WBS What are the six elements of a typical scope statement?

1. project 2. deliverable 3. sub-deliverable 4. lowest sub-deliverable 5. cost account 6. work package.

By dividing the total cumulative hours (7,136) by the units, the average unit labor hours can be obtained:

7,136 labor hours/16 units = 446 average labor hours per unit

Executing stage

A major portion of the project work takes place—both physical and mental. The physical product is produced (a bridge, a report, a software program).

Milestones

A milestone is a significant event in a project that occurs at a point in time. The milestone schedule shows only major segments of work; it represents first, rough-cut estimates of time, cost, and resources for the project.

Program defined

A program is a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.

Question 1 - define a project. what are the five characteristics that help differentiate projects from other functions carried out in the daily operations of the organization?

A project is a complex, no routine, off-time effort limited by time, budget, resources, and performance specifications designed to meet customer needs. The five characteristics are • A defined life span with a beginning and an end • Involvement of several departments • Doing something unique • Time, cost , and performance requirements • To serve customers needs

Discuss the pros and cons of the checklist versus the weighted factor method of selecting projects.

Checklist: - have flexibility - can be used across different divisions and locations - doesn't answer relative importance or value of a project - doesn't let you compare with other projects Weighted - allows comparison and ranking of potential projects - open system - allows self evaluation - power and politics are exposed

Closing stage

Closing includes three activities: delivering the project product to the customer, redeploying project resources, and post-project review. Delivery of the project might include customer training and transferring documents. Redeployment usually involves releasing project equipment/materials to other projects and finding new assignments for team members.

Three views of cost

Committed Actual cost Scheduled budget

Reviews with customer

Completion of the scope checklist ends with a review with your customer—internal or external. The main concern here is the understanding and agreement of expectations. Is the customer getting what he or she desires in deliverables? Does the project definition identify key accomplishments, budgets, timing, and performance requirements?

What is a project?

Definition: A complex, non-routine, one-time effort limited by time, budget, resources, and performance specifications designed to meet customer needs. A project is a temporary endeavor undertaken to create a unique product, service, or result.

Organization Breakdown Structure (OBS)

Depicts how the firm has organized to discharge work responsibility. The purposes of the OBS are to provide a framework to summarize organization unit work performance, identify organization units responsible for work packages, and tie the organizational unit to cost control accounts. A structure used to assign responsibility for work packages.

A Portfolio Management System

Design of a project portfolio system should include classification of a project, selection criteria depending upon classification, sources of proposals, evaluating proposals, and managing the portfolio of projects.

Direct project overhead costs

Direct overhead rates more closely pinpoint which resources of the organization are being used in the project. Direct project overhead costs can be tied to project deliverables or work packages

Why should an organization not rely only on ROI to select projects?

Even though financials help evaluate a projects return, pure financial models fail to include projects where financial return is impossible to measure companies need to be disciplined in saying no to potentially profitable projects outside of the realm of their core mission maintaining core competencies need to be considered it is best to use a multiple screening criteria to evaluate projects

Project NPV = Io + F/(1+k)^t

I0 = Initial investment (since it is an outflow, the number will be negative) Ft = Net cash inflow for period t k = Required rate of return

Financial Criteria

Financial Models, For most managers financial criteria are the preferred method to evaluate projects. These models are appropriate when there is a high level of confidence associated with estimates of future cash flows. Two models and examples are demonstrated here—payback and net present value (NPV).

Padding estimates

For example, if you are asked how long it takes you to drive to the airport, you might give an average time of 30 minutes, assuming a 50/50 chance of getting there in 30 minutes.

Classification of the Project

Many organizations find they have three different kinds of projects in their portfolio: compliance and emergency (must do), operational, and strategic projects. - Compliance projects are typically those needed to meet regulatory conditions required to operate in a region; hence, they are called "must do" projects - Operational projects are those that are needed to support current operations. - Strategic projects are those that directly support the organization's long-run mission. They frequently are directed toward increasing revenue or market share.

Technical requirements

More frequently than not, a product or service will have technical requirements to ensure proper performance.

Other factors

Non-project factors can impact time and cost estimates. For example, equipment down-time can alter time estimates. National holidays, vacations, and legal limits can influence project estimates. Project priority can influence resource assignment and impact time and cost.

Creating the Work Breakdown Structure

Once the scope and deliverables have been identified, the work of the project can be successively subdivided into smaller and smaller work elements. The WBS is a map of the project. Use of WBS helps to assure project managers that all products and work elements are identified, to integrate the project with the current organization, and to establish a basis for control. Basically, the WBS is an outline of the project with different levels of detail. Creating a WBS from scratch can be a daunting task. Project managers should take advantage of relevant examples from previous projects to begin the process. A hierarchical decomposition of the total scope of work to be carried out by the project team to accomplish the project objectives and create the required deliverables.

Establishing Project Priorities

One technique found in practice that is useful for this purpose is completing a priority matrix for the project to identify which criterion is constrained, which should be enhanced, and which can be accepted: Constrain -The original parameter is fixed. The project must meet the completion date, specifications and scope of the project, or budget. Enhance - Given the scope of the project, which criterion should be optimized? In the case of time and cost, this usually means taking advantage of opportunities to either reduce costs or shorten the schedule. Conversely, with regard to performance, enhancing means adding value to the project. Accept - For which criterion is it tolerable not to meet the original parameters? When trade-offs have to be made, is it permissible for the schedule to slip, to reduce the scope and performance of the project, or to go over budget?

How does the culture of an organization influence the quality of estimates?

Organizations vary in the importance, some say it isn't possible to estimate the future, where other organizations say its the bedrock

Payback formula & Rate of return

Payback period (yrs) = Estimated Project Cost/Annual Savings Rate of return = Annual saving/Estimated Project costs

What is Project Management?

Project management is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.

Primary difference between Program vs. Project

Scale and Life-span

Defining the Project Scope

Sets the stage for developing a project plan. Project scope is a definition of the end result or mission of your project—a product or service for your client/customer. The primary purpose is to define as clearly as possible the deliverable(s) for the end user and to focus project plans. As fundamental and essential as scope definition appears, it is frequently overlooked by project leaders of well-managed, large corporations. - is a document that will be published and used by the project owner and project participants for planning and measuring project success

Two Multi-Criteria Selection Models

Since no single criterion can reflect strategic significance, portfolio management requires multi-criteria screening models. Two models, the checklist and multi-weighted scoring models, are described next.

Defining stage

Specifications of the project are defined; project objectives are established; teams are formed; major responsibilities are assigned.

The portfolio of projects is typically represented by compliance, strategic, and operations projects. What impact can this classification have on project selection?

Strategic = support org in long run; increase rev & MS Compliance = meet regulatory conditions to operate; must do Operational = improve efficiency & delivery It can impact project selection because all these of these classifications have a specific value, and if a compliance classified project is pushed behind a strategic compliance it may be detrimental for the company

You manage a hotel resort located on the South Beach on the Island of Kauai in Hawaii. You are shifting the focus of your resort from a traditional fun-in the-sun destination to eco-tourism. (Eco-tourism focuses on environmental awareness and education.) How would you classify the following projects in terms of compliance, strategic, and operational? a. Convert the pool heating system from electrical to solar power. b. Build a 4-mile nature hiking trail. c. Renovate the horse barn. d. Replace the golf shop that accidentally burned down after being struck by lightning. e. Launch a new promotional campaign with Hawaii Airlines. f. Convert 12 adjacent acres into a wildlife preserve. g. Update all the bathrooms in condos that are 10 years old or older. h. Change hotel brochures to reflect eco-tourism image. i. Test and revise disaster response plan. j. Introduce wireless Internet service in café and lounge areas

Strategy: b, d , e, g, i Operational: c Compliance: a, f, h Not all are easy to classify, some fall under the same category.

Checklist Models

The most frequently used method in selecting projects has been the checklist. This approach basically uses a list of questions to review potential projects and to determine their acceptance or rejection. - A justification of checklist models is that they allow great flexibility in selecting among many different types of projects and are easily used across different divisions and locations.

Deliverable

The next step is to define major deliverables—the expected outputs over the life of the project. Milestones should be natural, important control points in the project. Milestones should be easy for all project participants to recognize.

People

The people factor can also introduce errors in estimating times and cost. For example, accuracy of estimates depends on the skills of the people making the estimates

Organizational structure

The prevailing belief in some organizations is that detailed estimating takes too much time and is not worth the effort or that it's impossible to predict the future.

Planning Horizon

The quality of the estimate depends on the planning horizon; estimates of current events are close to 100 percent accurate but are reduced for more distant events.

General and administrative (G&A) overhead costs

These represent organization costs that are not directly linked to a specific project. These costs are carried for the duration of the project. Examples include organization costs across all products and projects such as advertising, accounting, and senior management above the project level.

Why are accurate estimates critical to effective project management?

They are needed to: - Support good decisions - Schedule work - determine how long the project should take and how much it will cost - determine whether the project is worth doing- Develop cash flow needs - Determine how well the project is progress - develop time phased budgets and establish the project baseline NOTE: If estimates are inaccurate, it will lead to false expectations & customer dissatisfaction Estimating becomes a tradeoff between balancing the benefits of better accuracy vs the costs for securing increased accuracy cost, time, and budget estimates are the life line of control in a project :)

Planning duration

Time to implement new technology has a habit of expanding in an increasing, nonlinear fashion. Sometimes poorly written scope specifications for new technology result in errors in estimating times and costs. Long-duration projects increase the uncertainty in estimates.

What does it mean if the priorities of a project include: Time-constrain, Scope accept, and Cost-enhance?

Time-Constrain: means that the project must be finished at the specified date; Scope-Accept: reduce scope & performance of the project can be tolerated Cost-Enhance: costs should be optimized, and opportunities should reduce costs

What are the differences between bottom-up and top-down estimating approaches? Under what conditions would you prefer one over the other?

Top down estimates (macro) - usually done by senior management - often derive estimates from an analogy, group consensus, or mathematical relationships - Top down estimates are sometimes inaccurate; they don't know about all the details of the project but give a rough estimate to help select and prioritize projects Bottom up estimates (micro) - typically done by the people doing the work - estimates are made from elements of the work breakdown structure - estimates establish low cost & efficient methods - prefer bottom up if time to estimate is available, estimating cost is reasonable

Using the "complexity weighting" scheme

Total function point count / n * m n = Function points that equate one person m = people on the project - If the project must be complete in six months, how many people will be needed for the project? Then use ''m'' as months

Nonfinancial Criteria

a firm may support projects that do not have high profit margins for other strategic reasons including: - To capture larger market share - To make it difficult for competitors to enter the market - To develop an enabler product, which by its introduction will increase sales in more profitable products - To develop core technology that will be used in next-generation products - To reduce dependency on unreliable suppliers - To prevent government intervention and regulation

In small groups, identify real life examples of a project that would fit each of the following priority scenarios: a. Time-constrain, Scope-enhance, Cost-accept b. Time-accept, Scope-constrain, Cost-accept c. Time-constrain, Scope-accept, Cost-enhance

a. Special events - concerts Tournaments Defense projects b. Drugs manufacturing Public infrastructure projects c. Economical car manufacturing Private construction projects Commercial vehicle production

Direct costs

can be influenced by the project manager, project team, and individuals implementing the work package. These costs represent real cash outflows and must be paid as the project progresses; therefore, direct costs are usually separated from overhead costs. Lower-level project rollups frequently include only direct costs.

Developing a decision priority matrix for a project before the project begins

is a useful exercise. It provides a forum for clearly establishing priorities with customers and top management so as to create shared expectations and avoid misunderstandings. The priority information is essential to the planning process, where adjustments can be made in the scope, schedule, and budget allocation.

What kinds of information are included in a work package?

it defines what work, how long, cost, how many resources needed, who is responsible, and how well it is doing based on performance