Project Management 3

node

depicts an activity, and the arrow shows dependency and project flow - The project manager should guarantee continuity by having the same people who defined the WBS develop the network activities

Risks of Not Having a Contingency Plan

Decisions made under pressure can be potentially dangerous and costly

Risk Profiles

- A list of questions that address previous risk encountered in similar projects - Technical requirements, Design, testing, development, schedule, budget, quality, management, work environment, staffing, customer, contractors - Addresses the unknown-known risks - Tailored to the type of project in questions - Generated and maintained by personnel in the projects office - Updated and refined during the post-project audit - Historical data can be a useful source of information in the absence of a lack of a risk profile - The goal is to leave no stone unturned

Contingency Plan

- An alternative plan that will be used if a possible foreseen risk event actually occurs - A plan of actions that will reduce or mitigate the negative impact (consequences) of a risk event

Opportunity Management

- An opportunity is an event that can have a positive impact on project objectives - exploit opportunity whenever possible - Exploit - Seeking to eliminate the uncertainty associated with an opportunity to ensure that it definitely happens - Share - Allocating some or all of the ownership of an opportunity to another party who is better able to capture the opportunity for the benefit of the project - Enhance - Taking action to increase the probability and/or the positive impact of an opportunity - Accept - Being willing to take advantage of an opportunity if it occurs, but not taking any explicit action to pursue it

Step 1: Risk Identification

- Generate a list of possible risks through brainstorming - Use risk breakdown structure (RBS) to identify risks - In conjunction with work breakdown structure (WBS) - Poor estimates, adverse weather, shipping delays - Macro risks first, then specific events - Focus at the beginning with risks which could affect whole project - Potential budget cuts - New product releases by competitors - Input from customers, sponsors, subcontractors, vendors, and other stakeholders should be solicited

Hammock Activity

- Has a duration that is determined after the network plan is drawn. - Useful in tracking costs of resources used for a particular segment of a project - Is used to aggregate sections of the project to reduce the size of a project network by grouping activities for simplification

Backward Pass—Latest Times

- How late can the activity start? (late start—LS) - How late can the activity finish? (late finish—LF) - Which activities represent the critical path? - How long can the activity be delayed? (slack or float—SL) - Set the late finish (LF) for the last project activity to the early finish (EF) of the last project activity - Subtract activity times along each path starting with the project end activity (LF - Duration = LS). - Carry the late start (LS) to the next preceding activity where it becomes its late finish (LF) unless... - The next succeeding activity is a burst activity, in which case the smallest late start (LS) number of all its immediate successor activities is selected.

Forward Pass—Earliest Times

- How soon can the activity start? (early start—ES) - How soon can the activity finish? (early finish—EF) - How soon can the project finish? (expected time—TE) - Begin with the project start time, which is usually time zero - Add activity times along each path in the network (ES + Duration = EF). - Carry the early finish (EF) to the next activity where it becomes its early start (ES) unless... - The next succeeding activity is a merge activity, in which case the largest early finish (EF) number of all its immediate predecessor activities is selected.

Goal of Change Management System

- Identify proposed changes - List expected effects of changes on schedule and budget - Review, evaluate, and approve or disapprove of changes - Negotiate and resolve conflicts of change, condition, and cost - Communicate changes to parties affected - Assign responsibility for implementing change - Adjust master schedule and budget - Track all changes that are to be implemented

Contingency Fund Estimates

- Important that contingency allowances be independent of the original time and cost estimates - This helps to prevent time and budget game playing

Laplace Criterion

- In the absence of any knowledge about the probabilities of occurrence of any particular outcome, one approach is to assume that all possible outcomes are equally likely - If there are n possible outcomes, then assign a probability of 1/n to each possible outcome - Compute the expected outcome of each course of action by summing the probability adjusted payoffs - The maximum expected value is considered an optimal choice

Benefits of a Change Control System

- Inconsequential changes are discouraged by the formal process. - Costs of changes are maintained in a log. - Allocation and use of budget and management reserve funds are tracked. - Responsibility for implementation is clarified. - Effect of changes is visible to all parties involved. - Implementation of change is monitored - Scope changes quickly reflected in baseline and performance measures

External Source of Risk

- Inflation - Market acceptance - Exchange rates - Government regulations - Often referred to as "threats" rather than risks per se. - Extremely important, and must be addressed. - Generally excluded from a discussion of risks - We will return to these when discussing decisions under uncertainty

The critical Path

- Is the longest path through the activity network. - It indicates the shortest expected time in which the entire project can be completed. - It is the path(s) which has (have) the least slack. - Important because it impacts completion time. - It is where you put your best people. - It is where you pay extra extension when doing risk assessment. - It is where you won't look when other managers asking to 'borrow' people or equipment. - It is where you focus when you don't have time to monitor all activities.

Maximax Criterion

- Known as the criterion of optimism - Used when the decision maker is optimistic about the future - Maximax implies the maximization of the maximum paryoff - The optimistic decision maker locates the maximum payoff for each possible course of action - The maximum of these payoff is identified and the corresponding course of action is selected

Maxmin Criterion

- Known as the criterion of pessimism - Used when the decision maker is pessimistic about the future - Maximin implies the maximization of a minimum payoff - The pessimistic decision maker locates the minimum payoff for each possible course of action - The maximum of these minimum payoffs is identified and the corresponding course of action is selected. Decision options are typically evaluated using a "payoff" matrix

Common Start and Common End

- Multiple starts (ends) should be tied together to form a common project start (end) - Use a pseudo or dummy activity as the common start node and the common end node

Network Logic Errors

- Network plans look much like program flow-charts - However, the project network is not a decision tree - No if-then statements allowed - It is a plan which we assume will materialize - Though plans never materialize as expected in every detail - On occasion, certain aspects of the project will need to be repeated - There are no loops in a project network - If an activity is repeated, it should get a new name and identification number - Then placed into the network in the correct sequence - Leaving gaps in activity numbering can ease this process

Basic Rules to following in developing project network

- Networks typically flow from left to right. - An activity cannot begin until all preceding connected activities are complete. - Each activity must have a unique identification code (a number or a letter). - An activity identification code must be greater than that of any predecessor activities. - Arrows indicate precedence and flow and can cross over each other - Conditional statements such as "if test successful build proto, if failure redesign" are not permitted - Looping (an attempt by the planner to return to an earlier activity) is not allowed

Step 2: Risk Assessment

- Not all the risks identified in Step 1 deserve attention - Scenario analysis easiest and most common technique for analyzing risk - Team assesses significance of risk in terms of - Probability of the event (0.1, ..., 0.9 or "very unlikely" to "almost certainly" - Potential impact - Using numeric weights such as 1-10 or "low," "moderate," "high," and "very high"

Cost Risk

- Projects of long duration or of international nature need some contingency for price changes - Be wary of using a lump sum approach for dealing with inflation - pricing risks should be evaluated item by item

Decisions under Conditions of Uncertainly

- Risk vs uncertainty - Definition of five decision strategies - Using payoff matrices to calculate best option (5x) In life, it is not always possible to control the outcomes or consequences of an action - When the probabilities of certain outcomes can be estimated, the choice of a best action, based on these probabilities, is termed decision making under risk. - When the probabilities of certain outcomes are not known, we refer to the situation "decision making under uncertainty." A formal decision process allows the decision maker to evaluate alternative strategies prior to making any decision

Funding Risk

- Severe budget cuts or lack of adequate funding typically results in scale-back of the scope of the project - "All-or-nothing projects" are ripe targets for cancellation under budget cut-backs - Pet-projects of a new CEO often replace pet-projects of previous CEO

Free Slack

- The amount of time an activity can be delayed without delaying any immediately following (successor) activity. More specifically, how long an activity can exceed its early finish time without affecting early start times of any successor(s). - Calculated as the difference between the ES (successor) and EF [ES (successor) - EF = FS] - Only predecessors of a merge activity can have free slack.

Network Sensitivity

- The likelihood the original critical path(s) will change once the project is initiated

Hurwicz Criterion

- The maximax and maximin criteria assume the desistion maker is either optimistic or pessimistic - More realistically, can take into account the degree of optimism or pessimism of the decision maker - If a (a constant between 0 and 1) is degree of optimism - Where 1 is a complete optimist - Then (1-a) is the degree of pessimism - The maximax and maximin payoffs for each action can then be weighted and a sum calculated - The maximum payoff is once again selected

Lags

- The minimum amount of time a dependent activity must be delayed to begin or end. - Lags can be used to constrain finish-to-start, start-to-start, finish-to-finish, start-to-finish, or combination relationships.

Technological Risks

- The most challenging of risks - Backup strategies in place if chosen technology fails - Preferred approach is early mitigation - Utilization of CAD programs to identify and resolve problems early - Identification of high-risk technical areas and early model building and design experiments to resolve risks - Decision to rework approach or shut-down project

Schedule Risk

- Using the best people for high-risk tasks can relieve or lessen the chance of some risk events occurring - Effective use of start-to-start lags relationships in scheduling can reduce risk

Program Evaluation & Review Technique (PERT)

- almost identical to the critical path method (CPM) technique except it explicitly considers risk - Assumes each activity duration has a range that statistically follows a beta distribution. - Uses three time estimates for each activity: optimistic, pessimistic, and an average to represent activity durations

Selecting a course of action

A variety of decision criteria have been developed to assist in the selection of an optimal course of action under conditions of uncertainty.

Laddering

Activities are broken into segments so the following activity can begin sooner and not delay the work.

Parallel Activities

Activities that can occur independently and, if desired, concurrently

Risk Management

An attempt to recognize and manage potential and the various "unforeseen" risks that may occur when the project is implemented - What can go wrong (risk event) - as many as possible - How to minimize the risk event's impact (consequences) - What can be done before an event occurs (anticipation) - What to do when an event occurs (contingency plans and contingency funds) - should be a proactive rather than reactive approach - Risk management is a preventative process - Reduces surprises and negative consequences - Provides better control of the project - Improves chances of completing the project on time and on budget

Work package

Any component which consumes time (working or waiting)

Managing Risk

Avoiding Risk Transferring risk Accepting Risk

Essential Rise Controls Tools

Change management System - Establishing a change management system to deal with events that require formal changes in the scope, budget or schedule of the project

Avoiding Risk

Changing the project plan to eliminate the risk or condition - Adopting proven technology instead of experimental technology - Selecting suppliers based on geo-political conditions

Risk Reponse Matrix

Conditions for activating the contingency plan should be decided and clearly documented - Plan should include a cost estimate and identify the source of funding - All contingency plans should be communicated to team members so that surprise and resistance are minimized.

Contingency Fund

Funds to cover project risk - Both identified and unknown - Size of funds reflects overall uncertainty in the project. Generally divided into two categories - Budget reserves - Management reserves

Regret Criterion

Goal is to minimize the maximum regret - Focuses on the regret that the decision maker might have from selecting a course of action - Defined as the difference between the best payoff we could have realized, and the realized payoff

risk register

Includes descriptions, category, and probability of occurring, impact, responses, contingency plans, owners, and current status

Critical Path

Longest path through the activity network that allows for the completion of all project-related activities - The Critical Path marks the shortest expected time in which the entire project can be completed. - Delays on the critical path will delay completion of the entire project.

Accepting Risk

Making a conscious decision to accept the risk - An earthquake or flood with slim chance - Minor risks that can be absorbed (cost overrun)

Step 3: Risk Response Development

Mitigating Risk - Reducing the likelihood an adverse event will occur - Identifying root causes and taking action - Reducing the impact of an adverse event - Arrange second sources for components

Project Network

Network is a flow chart that graphically depicts the logical sequences, interdependencies, and start and finish times of the project activities - In the WBS development, we viewed these as independent events -Did not include dependencies, sequences, time - Project Networks -Provide the basis for scheduling labor and equipment. -Enhance communication among project participants. -Provide a refined estimate of the project's duration. -Provide additional basis for budgeting cash flow. -Highlight activities that are "critical" and should not be delayed.

Change Control Moanagement

Numerous sources of change requests - Customer, owner, PM, Team members, occurrence of a risk event Fall into three main categories - Scope changes in the form of design or additions - Customer requests for a new feature or a redesign - Implementation of contingency plans - When risk events occur - Improvement changes suggested by project team members A change management system involves: - Reporting, controlling and recording changes to project - This process is approved by stakeholders at start of project as part of project communication plan

Step 4: Risk Response Control

PMs need to monitor risk, just like project progress. - Over half of contingencies which occur are not anticipated - Readiness of the response is critical in effective PM Essential that PMs - Recognize that others may not be forthright in acknowledging new risks - Establish an environment in which participants feel comfortable raising concerns and admitting mistakes - Periodically update risk profiles - Ensure certain risks are not falling through responsibility cracks

Transferring Risk

Paying a premium to pass the risk to another party - Fixed price contracts - Warranty, insurance (usually impractical), bonds - Build-Own-Operate-Transfer (BOOT) relationships

Variable lead time

Portion of processing lead time which is dependent of order quantity

4 different types of lead times

Preprocessing Lead Time Processing Lead Time Fixed lead time Variable lead time

Failure Mode and Effect Analysis

Risk Event, Likelihood, Impact, Detection Difficulty, When Risk Value = Likelihood x Impact x Detection

Unknown-unknowns

Risks beyond the imagination

Known-unknowns

Risks for which we have some understanding of the probability of occurrence PERT process was developed for these types of risks

Common Methods for Handling Risk

Technological Risk Schedule Risk Cost Risk Funding Risk

Fixed lead time

The fixed lead time is a portion of processing lead time which is not dependent on order quantity

Beta Distribution

The probability density function (pdf) of the beta distribution - For 0 ≤ x ≤ 1 - And shape parameters α, β > 0 Is a power function of the variable x and its reflection (1 − x): f(x,α,β) = C*xα-1 *(1-x)β-1

Preprocessing Lead Time

The time required to create a work order (discrete job) from the time you learn of the requirement. It is also known as "planning time" or simply "paperwork".

Processing Lead Time

The time required to make/manufacture the item.

Time Buffers

Used to compensate for unplanned delays in the project schedule Similar to contingency funds, are dependent on inherent uncertainty of the project Time buffers are added to: - Activities with severe risks. - Merge activities that are prone to delays due to one or more preceding activities being late. - Noncritical activities to reduce the likelihood that they will create another critical path. - Activities that require scarce resources to ensure that the resources are available when needed 10% total time buffers is not unusual

Determining Total Slack

Total Slack (or Total Float) - Tells us the amount of time an activity can be delayed without delaying the project. - Indicates how long an activity can exceed its early finish time without affecting the project end time. - Calculated as the difference between the LS and ES (LS - ES = TS) or between LF and EF (LF - EF = TS).

Risk

Uncertain or chance events that planning cannot overcome or control Risks have a cause, and if they occur, they have a consequence - Cost, schedule, or quality of the project - Either a positive or negative effect on the project - Flu virus sweeps through your workforce - Customer changes scope of work - We are generally concerned with risks which cause problems, resulting in increased costs, time, reduction of quality

Activity and Project Duration Calculation

We apply the Central Limit Theorem Distribution of a large number of random observations will have a normal distribution Assumes a large number of activities in the project te = (a +4m + b)/ 6

Unknown-knowns

What is known to occur (perhaps often) but is not yet in your experience domain

Known-knowns

What we are taught you, and what you have learned

PERT Definition

a = optimistic activity time - Less than 1 in 100 chance the activity will finish in less than this time b = pessimistic activity time - Less than 1 in 100 chance the activity will require more than this time to complete m = most likely activity time - Mode of the distribution - What we previously referred to as "aggressive completion time" The project duration distribution is represented by the sum of the weighted averages of the activities on the critical path Assumptions: No matter the duration of the project's activities, the critical path doesn't change

Path

a sequence of connected, dependent activities

Burst Activity

an activity that has more than one activity immediately following it - More than one dependency arrow flowing from it

Merge Activity

an activity that has two or more preceding activities on which it depends (more than one dependency arrow flowing into it)

Activity

an element of the project that requires time (either work or wait) but may not require resources

sensitive

if it has multiple critical paths and noncritical activities have little slack

insensitive

if it has only one critical path and noncritical activities enjoy significant slack

Types of Risk

known-knowns unknown-knowns known-unknowns unknowns-unknowns

Activity on Node (AON)

networks are built using nodes (boxes) and arrows (lines).