ET 6300 Exam 2

How can a cost-duration graph be used by the project manager? Explain.

A cost-duration graph is useful to the project manager for comparing alternatives. Any alternative that moves the project duration away from the optimum cost-duration point will increase costs. Additionally, incentives and penalties can be evaluated against the total, low cost point.

What is a hammock activity and when is it used?

A hammock activity is a special purpose activity that exists over a segment of the life of the project. A hammock activity typically uses resources and is handled as an overhead cost—e.g., inspection. Hammock activities are used to identify overhead resources or costs tied directly to the project. The hammock duration is determined by the beginning of the first of a string of activities and the ending of the last activity in the string. Hammock activities are also used to aggregate sections of projects to avoid project detail—e.g., covering a whole subnetwork within a project. This approach gives top management an overview of the project by avoiding detail.

Define a white elephant in project management. Provide a real-life example.

A white elephant is a burdensome possession in which the owner cannot easily dispose of and whose cost (particularly upkeep) is out of proportion with its usefulness. Examples include dormant Olympic and World Cup stadiums, the Concorde, or little used vacation homes.

What kinds of projects should avoid using concurrent engineering?

Any project in which the scope is poorly defined or likely to change. Also, high risk projects especially those involved in developing breakthrough technology. Finally, one should avoid using concurrent engineering if the culture of the organization does not support the degree of coordination to make it work

On what kind of projects would the critical path be irrelevant?

CP is irrelevant on projects where the scope is ill-defined or subject to change and/or there is uncertainty as to how to complete the project. These projects have to many unknowns for traditional network scheduling and our best done by using Agile PM.

Reducing the project duration increases the risk of being late. Explain.

Compressing the project duration means slack (float) on noncritical activities will be reduced. When slack of noncritical activities is reduced, the chance of new critical paths occurring increases; hence, the risk of the project becoming late increases. In addition, compressing will have the following other impacts on managing the project: • Reduces flexibility by using slack • Can increase number of critical activities • Can increase interdependencies of paths • Makes resource scheduling tighter (critical) • May increase costs

Calculate the direct total direct cost of labor for a project team member using the following data: Hourly rate: $50/hr Hours needed: 100 Overhead rate: 30%

Direct Cost of Labor: 100 × $50 = $5,000

Calculate the direct cost of labor for a project team member using the following data: Hourly rate: $50/hr Hours needed: 120 Overhead rate: 40%

Direct Cost of Labor: 120 × $50 = $6,000 Note: Overhead costs are not included in direct cost of labor. They are included in Total Direct costs. So, if the question asked what the "Total" direct costs would be then the answer would be: $6,000 + ($6,000 × .40) = $8,400

Why is it difficult to estimate mega project (e.g., airport, stadium, etc.) costs and benefits?

First, the time horizon of 2-5 years to complete large, complex projects makes it difficult to accurately forecast costs and user needs. Second, the sheer complexity of these kinds of projects make it difficult to accurately estimate all of the costs. Third, the severity of the risks involved are significant. When things go wrong, they go wrong is a big way. While such conditions would suggest a very conservative estimate, the opposite occurs. Either blind enthusiasm or calculated deception is used to promote an exaggerated case for the project.

Why is it important to identify the critical path before starting a project?

In addition to providing an estimate of project duration, the CP provides a basis for assigning personnel, determining whether you can share personnel, as well as how project manager should monitor progress. Only critical activities will shorten the duration of a project.

What are five common reasons for crashing a project?

Reasons given could include: • Imposed deadline in which disfavor will be earned by not meeting superior's deadline • Time to market competitive advantage • Realize benefits from incentive contracts • To make up for lost time and avoid contract penalties • Save extensive overhead costs • Free up resources to work on other projects • Exceed customer expectations.

What are the advantages and disadvantages of reducing project scope to accelerate a project? What can be done to reduce the disadvantages?

Reducing the scope of the project can lead to big savings both in time and costs. It typically means the elimination of certain tasks. At the same time scaling down the scope may reduce the value of the project such that it is no longer worthwhile or fails to meet critical success parameters. The key is reassessing the project requirements to determine which are essential and which are optional. This requires the active involvement of all key stakeholders. More intense re-examination of requirements may actually improve the value of the project by getting it done more quickly and for a lower cost.

How does resource scheduling reduce flexibility in managing projects?

Resource scheduling systems usually reduce flexibility because when resources are considered, computer routines use slack to get an "efficient" schedule. When slack is used up, flexibility is lost and the risk of delaying the project increases. If the resource conflict occurs on the critical path, the project is delayed.

How does resource scheduling tie to project priority?

Resource scheduling ties to project priority because resources are limited. Remember, the priority system ranks projects, which then determines which project each resource should work on first.

Why bother creating a WBS? Why not go straight to a project network and forget the WBS?

The WBS is designed to provide different information for decision making. For example, this database provides information for the following types of decisions: a. Link deliverables, organization units, and customer b. Provide for control c. Isolate problems to source d. Track schedule and cost variance. Network does not. e. Assign responsibility and budgets f. Focus attention on deliverables g. Provide information for different levels in the organization

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

The major type of costs are direct, direct overhead, and general and administrative costs. Direct costs are controllable by the project manager. Direct overhead and general and administrative costs are only controllable in the sense that if the resource or project is finished early or late the costs will continue for the duration of the project.

How are WBS and project networks linked?

The network uses the time estimates found in the work packages of the WBS to develop the network. Remember, the time estimates, budgets, and resources required for a work package in the WBS are set in time frames, but without dates. The dates are computed after the network is developed.

Explain the risks associated with leveling resources, compressing or crashing projects, and imposed durations or "catch-up" as the project is being implemented.

The risks associated with leveling, crashing, and "catch-up" are similar to those noted in question two. Flexibility is decreased and risk of delay is increased. For example, slack is used up and may cause other bottlenecks later in a sequence of activities. Having time buffers at merge points before the project begins could help avoid some of the need to crash activities. Decoupling critical activities can help to cut time if decoupling is possible and resources can be shifted; however, the risk is typically reduced only slightly.

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 are typically used in the project conceptual phase, and depend on surrogate measures such as weight, square feet, ratios. Top-down methods do not consider individual activity issues and problems. Top-down estimates are good for rough estimates and can help select and prioritize projects. Bottom-up time and cost estimates are usually tied directly to the WBS and a work package. These estimates are made by people familiar with the task, which helps to gain buy-in on the validity of the estimate. Use of several people should improve the accuracy of the estimate. Bottom-up estimates should be preferred if time to estimate is available, estimating cost is reasonable, and accuracy is important.

Why are accurate estimates critical to effective project management?

Without accurate time and cost estimates project control is ineffective. Inaccurate estimates can make the difference between profit and loss. • Time and cost estimates are major inputs to project planning. • Project control is completely dependent on accuracy of estimates. • Estimates are needed to support good decisions. • Estimates are used to determine project duration and cost. • Estimates are used to develop cash flow needs. • Estimates are used to develop time-phased budgets and establish the project baseline. • Absence of estimates results in inaccuracies which result in time and cost under/overruns. • The activity of estimating reduces error.

The Munsters have been saving money in order to buy a house. They figure that given current interest rates they could afford a $400,000 home. Before looking at houses on the market they decide to explore the possibility of building a new home. The Munsters figure they could buy a suitable lot for $70,000-$75,000. At a minimum they want to build a 2,300 square-foot house. The cost for a house of the quality they desire is $160 per square foot. Given this information should the Munsters pursue the option of building a new house?

Estimated lowest total cost of building: $70,000 + (2,300 × $160) = $438,000. The Munsters should not consider building a new house under the current conditions.

Estimate what the cost of the house would be if the Publinksys use their talents to do some of the work themselves.

Estimated savings of Xander's plumbing work and Mrs. Publinsky interior decorating: Plumbing roughed in 6% × $435,000 = $26,100 Plumbing fixtures installed 4% × $435,000 = $17,400 Interior decorating Exterior painting 4% × $435,000 5% × $435,000 = = $17,400 $21,750 Total saving = $82,650 Estimated total cost for the completed house using their talents is $352,350* ($435,00 - $82,650). *This estimate should be adjusted for materials purchased to complete tasks performed by the Publinskys.

Mrs. Publinsky and her husband, Xander, are planning their dream house. The lot for the house sits high on a hill with a beautiful view of the White Mountains. The plans show the size of the house to be 2,900 square feet. The average price for a lot and house similar to this one has been $150 per square foot. Fortunately, Xander is a retired plumber and feels he can save money by installing the plumbing himself. Mrs. Publinsky feels she can take care of the interior decorating. They both believe they can complete the exterior painting with the help of their two sons. What is the estimated cost for the Publinksys' house if they use contractors to complete all of the house?

Estimated total cost for the house is $435,000 (2,900 sq. ft. × $150 per sq. foot).

What is the difference between free slack and total slack?

Free slack usually occurs at the end of an activity chain—before a merge activity. It is the amount of time the activity can be delayed without affecting the early start of the activity immediately following it. Since free slack can be delayed without delaying following activities, it gives some resource flexibility to the project manager. Total slack is the amount of time an activity can be delayed before it becomes critical. Use of total slack prevents its use on a following activity.

Identify four indirect costs you might find on a moderately complex project. Why are these costs classified as indirect?

Indirect (overhead) costs are costs that cannot be attributed to a specific activity or work package. Examples of indirect costs are supervision, consultants, debt interest charges, machinery common to several activities, accounting and information processing, public relations, penalties or incentives for early or late completion. In practice, it is amazing how many project compression decisions are made without serious consideration of indirect costs.

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

Organizational culture can influence project estimates depending on the importance the organization places on estimating. Use of top-down versus bottom-up estimating can influence estimates. How padding is handled strongly influences estimates. How organization politics is tolerated can severely influence estimates.

Why is it critical to develop a time-phased baseline?

Other systems do not measure how much work is accomplished for the money spent! Hence, without time-phasing cost to match your project schedule, it is impossible to have reliable information for control purposes.

How can outsourcing project work alleviate the three most common problems associated with multiproject resource scheduling?

Outsourcing can be used to reduce project slippage, improve utilization of critical resources, and avoid resource bottlenecks. For example, project delays can be avoided by contracting key activities when resources are not available internally. Likewise, hiring consultants to help on an IT project, for example, allows critical IT people to work on specific problems, while the outsiders work on standard programs. Not only does the project get done on time, but the company avoids hiring extra IT personnel to meet a short-term need.

Why is scheduling overtime a popular choice for getting projects back on schedule? What are the potential problems of relying on this option?

Scheduling overtime is popular because it often involves salary workers and no direct costs are added to the project. Even if it involves additional costs, such as hourly workers, you avoid Brooks's law and minimize additional coordination and training costs. The disadvantages are the additional time and half costs associated with hourly overtime and stress and fatigue that come with working long hours which can lead to accidents, inferior performance, and turnover.

Present six reasons scheduling resources is an important task.

Several reasons for scheduling resources are to: 1. Check if existing resources are adequate and available. 2. Decide which resources have priority. 3. Assess the impact if another project is added to the pool. 4. Determine where the real critical path is. Are there unforeseen dependencies? 5. See what happens to the risk of being late if slack is used up developing a schedule. 6. Decide if outside contractors have to be used. 7. Decide if an imposed project duration is realistic. Students should not be limited to these reasons; there are many more reasons for scheduling resources.

Why is slack important to the project manager?

Slack is important to the project manager because it represents the degree of flexibility the project manager will have in rearranging work and resources. A project network with several near critical paths and hence, little slack, gives the project manager little flexibility in changing resources or rearranging work.

What are the disadvantages of concurrent engineering (fast tracking)?

The most significant disadvantage is increasing the chances and costs of rework. For example, towards the completion of the design phase a fatal flaw is discovered that requires a major change in the original design. Work that had already been started will have to be redone to correct the flaw. Concurrent engineering projects are more challenging to manage because they require high degree of coordination between different groups of specialists.

It is possible to shorten the critical path and save money. Explain how.

The only way to shorten the critical path and save money is to have indirect costs which are greater than the additional direct costs of shortening the critical path one unit of time. The difference is a savings.

Why are lags used in developing project networks?

Two major reasons: a. To closer represent real situations found in projects. b. To allow work to be accomplished in parallel when the finish-to-start relationship is too restrictive.

Below is a project WBS with cost apportioned by percent. If the total project cost is estimated to be $800,000, what are the estimated costs for the following deliverables? What weaknesses are inherent in this estimating approach?

a. It requires good, realistic historical data. b. If total cost estimate is off, all other costs will be off. c. Project must be very similar to past projects for sub-deliverables to be useful.

How does the WBS differ from the project network?

a. The WBS is hierarchical while the project network is sequential. b. The network provides a project schedule by identifying sequential dependencies and timing of project activities. The network sets all project work, resource needs, and budgets into a sequential time frame; the WBS does not provide this information. c. The WBS is used to identify each project deliverable and the organization unit responsible for its accomplishment within budget and within a time duration. d. The WBS provides a framework for tracking costs to deliverables and organization units responsible.