498 Exam #1

economic efficiency

"wrong but useful model" 1. social surplus=consumer surplus+producer surplus 2. choose policies that maximize social surplus 3. pareto optimal: cant make anyone better off without making someone worse off 4. markets will always produce a pareto optimal market (this is unless market failure exists)

construction industry: heavy engineering construction

(20-25%) dams, tunnels, bridges, highways, airports, urban transit, ports, pipelines, water treatment plants, communication networks

construction industry: building construsion

(35-40%) schools, universities, hospitals, commercial office, warehouses, theaters govnt buldings, malls, rec centers

constructrion industry: industrial construction

(5-10%) pertroleum refineries , petrochemical plants, synthetic fuel plants, nuclear power plants, heavy manufacturing plants

project management context

-a discipline to manage customer expectations to achieve outcomes, process of using resources, balance theory and experimental practice, journey or learning and unlearning

current state of project outcomes

1. 122m wasted for every 1billion invested 2. 62% net original goals/business intent 3. 53% completed within original budget 4. 49% completed on time 5. 45% experienced scope creep 6. 32% failed projects budgets lost 7. 16% demand failure

pressures by intensity

1. adhering to project timeline 2. trying to stay on budget 3. meeting financial obligations 4. ensuring financial success of company 5. keeping your job 6. wanting to make boss look good 7. advancing your career 8. committing safety violations 9. ignoring wrongdoings 10. violating law

budget process

1. administrator meeting 2. evaluation of requests to allowed budget 3. adjustment of departmental requests to meet budget

Project management importance

1. career will involve projects 2. success is better if you can contribute to project 3. can learn from project successes 4. value is enhanced as employee

construction industry facts

1. construction industry has a total spending of $1,153,175 million dollar 2. GDP from construction has increased to 761 USD billion of first quarter of 2016, to 2. has accounted for 4% of gross domestic product in US 3. employs more than 4% of the US labor force 4. 12.3% construction workers in 2013 represented by unions 5. construction productivity decrease, private non-farm business increaseate

analysis methodology

1. define alternatives 2. determine a common study period 3. develop estimate of cashflows 4. draw cashflow diagram 5. specify discount rate 6. crunch numbers 7. conduct sensitivity analysis 8. make recommendation

successful project manager

1. develop collaboration among project participants 2. integrate planning with learning 3. prevent major disruptions 4. maintain forward momentum

government failures

1. direct democracy(paradox voting,preference intensity bundling) 2. representative govnt(mobilized interests, geographic constituencies, electoral cycles, posturing public attention) 3. bureaucratic supply(agency loss, difficulty valuing output, limited competition, civil service cosntraints, bureau failures) 4. decentralized government(diffuse authority, fiscal externalities

what do costs and journalism share in common

1. facts and data- both very dependent on information from many sources 2. context- both are based on historical inventory done by others 3. usefulness- both useful to know where you are, but not always useful defining where you are going 4. credibility- how many projects completed at or below initial predicted cost?

Fitting project to criteria

1. fit to goals 2. market too small? no competence? partner available? 3. technology fit, breakthrough, marketing effort

Project ranking using weighted criteria and scoring

1. forces decision makers to explicitly define criteria and weights 2. helps to expose sacred cows 3. very difficult to assign meaningful weights (buyin will only be as deep as the ownership of the process of selecting weights and scoring them

policy analysis attributes

1. gather organize and communicate infor 2. put social problems in perspective 3. technical skills 4. political and organizational behavior 5.ethical framework

Project portfolio process

1. identify projects that meet strategic needs 2. prioritize potential projects (balance short medium and long returnrs, fit projects to current and planned capacity) 3. reduce projects from getting in via the backdoor

four stages of denial (risk)

1. it wont happen 2. if it happens it wont happen to me 3. if it happens, and happens to me, it wont be that bad 4. if it happen to me and its bad, there is nothing I could do to stop it anyway

project failure root causes

1. lack of shared understanding and commitment 2. inability to adapt to project whitewater 3. wastes built into accepted project delivery practices 4. ineffective communication and alignment among stakeholders

project structure - work packages structure

1. list task breakdown in progressively finer levels "what" 2. construct a responsibility matrix "WHO" 3. schedule milestones "WHEN" 4. identify problems

capital improvement plan

1. long term planning= long term strategic plan 2. must be actionable 3. things that will impact people who are not yet born and what will never know

tax levy

1. max tax levy is a previous years levy plus net new construction valuation 2. max tax levy can be exceeded if approved by referendum 3. county operational udget must balance the levy 4. capital debt repayment is levy exempt

problems with budgets

1. new unfunded mandates 2. unanticipated increase in cost of supplies/materials 3. "stuff" happens

public policy attributes

1. policy is made in response to issue or problem 2. policy might take form of law, regulation, or set of laws 3. policy is made on behalf of public 4. policy is oriented towards goal or desired state 5. policy made by govnts 6. policy making is part of ongoing process that doesn't have clear beginning or end

project planning

1. project formulation and selection 2. project planning (overview, workbreakdown structure, organization plan, risk management, subcontracting and bidding) 3. project scheduling (time and schedule, project budget, resource allocation, equipment and material purchases) 4. monitoring and control (Cost control metrics, change orders, milestone reports)

Larson and Gobeli study

1. project structure significantly related to project success 2. new development projects that used traditional functional organization had lowest success of controlling cost, meeting schedule, achieving technical performance 3. projects using functional or functional matrix had lower success rate 4. projects using project matrix or project team were more successful in meeting schedule than balanced matrix 5. project matrix better to control cost 6. most successful used balanced matrix, project team or project matrix

examples of capital improvements

1. projects with require engineering expertise are involved 2. clearview nursing home 3. gold star memorial trail 4. bike path

market failures

1. public goods, externalities, natural monopolies, information asymmetries possibilities exist to improve efficiency through collective action

goals other than efficiency

1. social welfare beyond pareto efficiency 2. distribution 3. GDP (consumption growth) 4g

issues in implementation

1. some factors affecting success and failure: logic, incentives for implementation, assembly, availability of fixers 2. thinking strategically (forward and backward mapping, uncertainty and error correction, responding to heterogeneity)

Importance of project evaluation

1. success begins by making sure one is doing the right thing 2. effectively focus management projects

limitations of competitive framework

1. thin markets 2. preference problems 3 uncertainty problems 4 intertemporal problems 5. adjustment costs 6. macroeconomic dynamics

construction industry: residential

30-35% single family, multiunit tonhouses, high rise apartments, condos

statistics on ethical practice

39% manager failed to keep promises 37% manager did not give credit 24% manager violated employee privacy 23% manager blamed others to cover up mistakes

Net present value example

Ft=net cash flow in period t=0,1,2,etc F0=initial cash investment r=minimum acceptable rate of return NPV=sum(t=0-->n) Ft/(1+r)^t

Module 1

Module 1

Project overview statement

POS- problem/opportunity, objectives, success criteria, assumptions, risks, obstacles

Project management definition

The application of knowledge, skills, tools, and techniques to project activities to meet project requirements

net present value

What is the current value of all project cash flows, adjusted for the time value of money? *incorporates time value of money *condenses all investments and revenues to single point in time *selection of interest rate used in analysis is critical

accuracy

a cost can be accurate but not precise (accuracy is subjective, depends on how much is known)

precision

a cost can be precise but inaccurate, no more precise than the least precise line item

project organization: project matrix

a manager is assigned to oversee the project and is responsible for the completion of the project

project organization: project team

a manager is put in charge of a core group of personnel form several functional areas who are assigned to the project on a full-time basis

Project type: living order

adaptable, creative, flexible, build connection between living and geometric, shared project value, multidimensional communication, value-added activities, agility

Profitability index

also called saving to investment ratio PV of revenues/PV of costs Cost=benefit ratio that incorporates time value of money must be >1 for benefits to exceed costs

Project stakeholder

anyone that is impacted by the project- customer, partner, public, project team, related parties, etc.

consequences of cost innacuracy

artificialities (scope, quality) shifting (contingencies, other accounts) CLM critical limiting move

Project background assumptions

assume project is aligned with corporate strategic plan and resource allocation, assume if you cant describe scope then you don't know what youre doing, assumptions about what we know and don't know are key, engineers usually focus on what they know not what they don't, scope growth is an indicator of poor project definition and stakeholder participation

pressures and decision-making

authority, peers, role, time

all public policy must

be for the public good (health, safety, welfare) and be fiscally responsible

what do clients or customers want

beginning: accuracy along way: precision at end: appropriate value with no surprises Challenge: continuously making accurate predictions with incomplete info while ensuring the best value for all money spent

ethics

behavior desired by society which is above natural law

the law of effects

behavior that is rewarded tends to be repeated, behavior not rewarded tends not to be repeated.

Cautions

budgeting is not equal to estimating cost is not directly related to budgeting or estimating, it is ultimately determined by price terms are often mixed up and cause cost overruns don't be more precise than justified, be honest about accuracy

policy analysis

client-oriented advice relevant to public decisions and informed by social values =how an individual should go about producing a structured analysis that assesses problems presented by clients and systematically compared alteratives for solving them

bread and butter projects

continued evolution of current products and services(low NPV, high feasibility)

project lifecycle

cycle (making stage)--> (operating stage, changing stage, using stage)--> (retirement/reuse stage)

philosophical perspective

defining the nature of our moral duty, the good life: self interest and desire theory, natural law, consequentialism, religious, utilitarian

Example rate of return

find a value of r such that NPV is equal to 0 F0+(F1/1+r)+(F2/(1+r)^2)=0

target value cost model

framework that includes estimates and budgets -stays same through project but evolved budgeting to estimating as more is learned -used to set expectations and for communication throughout the project -transform cost management activity form CLM to continuous learning process

public policy

govnt policies that affect the whole population (what govnt does or does not do about a problem that comes before them for consideration and possible action (most decisions internal, funding is important, more projects than funds)

Payback

how long does it take to recover initial investment? *emphasizes early cash flows *simple payback ignores time value of money *ignores cash streams after payback period

estimating

is a backward looking action verb that implies couting

price

is a noun that is almost always determined by the market

cost

is a noun that the customer cares most about

budgeting

is looking forward action verb that implies projecting

Statistics about accuracy of project cost planning

less than 50% of projects are completed at or below initial cost

Project structure - two level WBS (WHAT)

level 1= charity auction level 2= 1.1 event planning, 1.2 item procurement, 1.3 marketing, 1.4 corporate sponsorship

project structure - three level WBS (WHAT)

level 1= charity auction level2= same as above level 3=1.1.1 hire auctioneer, 1.1.2 rent space 1.1.3 arrange décor 1.2.1 silent auction items 1.2.2 live auction items 1.3.1 indv ticket sales 1.3.2 advertising

Project structure WBS planning WHO

managerial responsibilities assigned, cross impact matrix (who works on what), relation with functional depts., project administration, role of consultants, communication procedures

purpose of project analysis or evaluation

models should inform decisions not make them -know where uncertainties lie -know how uncertainties affect conclusions -know what models cannot or do not consider

cognitive blindness

not aware that you're doing something you told yourself you wouldnt

safety in construction industry

number of fatal work injuries was highest in 2014, fatal injury rate for workers in private construction industry was 9.5 per 100,000 FTE fatal four= responsible for 57% of construction worker deaths in 2012

construction sector: parties involved

owner with a need: person or entity, capital supplied by lenders A/E: all design firms, civil, architect, mechanical, electrical contractor:: responsible to the owner, responsible for subcontractor and suppliers service providers: legal services, insurance, finance

Economic evaluation criteria

payback -simple -discounted discounted cash flow -NPV -NFV -NAV Internal rate of return profitability index savings-investment ratio

project organization: balanced matrix

person is assigned to oversee the project and interacts on equal basis with functional managers

project organization: function matrix

person is designated to oversee the project across different functional areas

values

personal beliefs, attitudes, desires

Project type: geometric order

predetermined, linear, predictable, establish clear path and timeline, specified results, status reports, measure schedule and costs, monitor critical path

project planning 6P rule

prior planning prevents poor project performance

payback example

project costs 100000 and is expected to save 20,000 per year payback period=100000/20000=5year

project organization: functional

project is divided and assigned to appropriate functional entities with the coordination of the project being carried out by functional and high-level managers

worker classification on construction project

project manager->superintendent-> project engineer-> foreman-> journeyman-> apprentice

choosing a organizational form

project type: large capital investment, tech type: in depth=functional project type: integration of funct areas, tech type: reasonably complex=matrix project type: many similar projects, tech type: routine or highly unique=pure project

good project management practices

purpose, proactivity, pervasive, people, planning, positive leadership, problems, persistence

traditional organization of construction business

reference saved picture in 498 folder called capture

Pearls project

revolutionary commercial advances using proven technical advances (high NPV, high feasibility)

white elephant projects

showed promise at one time, no longer viable (low NPV, low feasibility)

oyster projects

tehnical breakthrough with high commercial payoff(high NPV, low feasibility of success)

Project

temporary endeavor undertaken to create a unique product, service, or results

value

the regard that something is held to deserve, the importance, worth or usefulness of something

moral stretching

the right behaviors result from the constant training of your character

project structure - work packages definition

the work packages (tasks or activities) must be, manageable, independent, integratable, measureable

project metrics and outcomes

time, money, suitability for purpose, intangibles (aesthetics, team dynamics, etc)

infrastructure spending

utilities is most, then schools, then highways, then drinking water and wasterwayer then aviation then mass transit

bottom line

very difficult to accurately and precisely predict the cost of a project at its outset

Internal rate of return

what average rate of return do we need to receive on this investment over its life? *incorporates time value of money *calculates the discount rate needed to make present value of inflows equal to present value of outflow *could be multiple IRR for same project *assumes IRR are reinvested *does not require preselection of required ROR