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IT Project Management: Third Edition Student Manual IT Project Management: Third Edition
VP and GM of Courseware: Michael Springer Series Product Managers: Caryl Bahner-Guhin, Charles G. Blum, and Adam A. Wilcox Series Designer: Adam A. Wilcox
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Contents
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Introduction Topic A: About the manual Topic B: Setting your expectations Topic C: Reviewing the course Project management: context and processes Topic A: Introduction to project management Topic B: The project management profession Topic C: The project management context Topic D: An organizational view Unit summary: Project management: context and processes Integration management Topic A: Project integration management Topic B: Plan execution and change control Unit summary: Integration management Scope management Topic A: Project initiation Topic B: Scope planning and scope statement Topic C: Scope verification and scope change control Unit summary: Scope management Time management Topic A: Schedules and activities Topic B: Schedule development Topic C: Controlling changes to the project schedule Unit summary: Time management Cost management Topic A: Components and principles of cost management Topic B: Resource planning Topic C: Cost estimating Topic D: Cost budgeting Topic E: Cost control Unit summary: Cost management Quality management Topic A: Quality planning Topic B: Quality assurance Topic C: Quality control Unit summary: Quality management Human resource management Topic A: Organizational fundamentals Topic B: Staff acquisition Topic C: Team development Topic D: Using software to assist in human resource management Unit summary: Human resource management Communications management Topic A: Communications planning Topic B: Performance reporting Unit summary: Communications management Risk management
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Topic A: Risk management planning Topic B: Risk identification Topic C: Qualitative risk analysis Topic D: Quantitative risk analysis Topic E: Risk response planning Topic F: Risk monitoring and control Unit summary: Risk management
Procurement management Topic A: Procurement planning and solicitation Topic B: Source selection and contract management Unit summary: Procurement management Initiating, planning, and executing projects Topic A: Initiation Topic B: Planning Topic C: Execution Unit summary: Initiating, planning, and executing projects Controlling and closing projects Topic A: Control Topic B: Closure Unit summary: Controlling and closing projects Suggested readings Topic A: Suggested readings Course summary Topic A: Course summary Topic B: Continued learning after class Glossary Index
the course.
C Re-key this course after class.
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Manual components
The manuals contain these major components: Table of contents Introduction Units Appendices (optional) Course summary Quick reference (optional) Glossary (optional) Index Each element is described below. Table of contents The table of contents acts as a learning roadmap. Introduction The introduction contains information about our training philosophy and our manual components, features, and conventions. It contains objective and setup information for the specific course. Units Units are the largest structural component of the course content. A unit begins with a title page that lists objectives for each major subdivision, or topic, within the unit. Within each topic, conceptual and explanatory information alternates with activities, which can be hands-on, question-and-answer, or a combination of both. Units conclude with a summary comprising one paragraph for each topic, and an independent practice activity or review questions section to help you reinforce the concepts and skills that youve learned. The conceptual information takes the form of text paragraphs, exhibits, lists, and tables. The activities are structured in one or two columns. In two-column activities, the left column tells you what to do, while the right column provides explanations, descriptions, and graphics. Appendices An appendix is similar to a unit in that it contains objectives and conceptual explanations. However, an appendix does not include activities, a summary, an independent practice activity, or review questions. Course summary This section provides a text summary of the entire course. It is useful for providing closure at the end of the course. The course summary also indicates the next course in this series, if there is one, and lists additional resources you might find useful.
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Quick reference In computer software courses, the quick reference is an at-a-glance job aid summarizing some of the more common features of the software. Glossary The glossary provides definitions for all of the key terms used in this course. Index The index at the end of this manual makes it easy for you to find information about a particular software component, feature, or concept.
Manual conventions
Weve tried to keep the number of elements and the types of formatting to a minimum in the manuals. We think this aids in clarity and makes the manuals more classically elegant looking. But there are some conventions and icons you should know about.
Convention
Italic text Bold text
Description
In conceptual text, indicates a new term or feature. In unit summaries, indicates a key term or concept. In an independent practice activity, indicates an explicit item that you select, choose, or type. Indicates code or syntax. In the hands-on activities, any code thats too long to fit on a single line is divided into segments by one or more continuation characters (?). This code should be entered as a continuous string of text. In the left column of hands-on activities, bold sans-serif text indicates an explicit item that you select, choose, or type. Indicate a key on the keyboard you must press.
Activities
The activities are the most important parts of our manuals. Depending on the subject matter, an activity can have a one-column or two-column format. Two-column format In a typical two-column activity, the Heres how column gives short instructions to you about what to do. The Heres why column provides explanations, graphics, and clarifications. Heres a sample: Do it! A-1: Creating a commission formula
Heres how
1 Open Sales
Heres why
This is an oversimplified sales compensation worksheet. It shows sales totals, commissions, and incentives for five sales reps. The commission rate formulas use the name C_Rate instead of a value for the commission rate.
For these activities, we have provided a collection of data files designed to help you learn each skill in a real-world business context. As you work through the activities, you will modify and update
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these files. Of course, you might make a mistake and, therefore, want to re-key the activity starting from scratch. To make it easy to start over, you will rename each data file at the end of the first activity in which the file is modified. Our convention for renaming files is to add the word My to the beginning of the file name. In the above activity, for example, a file called Sales is being used for the first time. At the end of this activity, you would save the file as My sales, thus leaving the Sales file unchanged. If you make a mistake, you can start over using the original Sales file. In some activities, however, it may not be practical to rename the data file. If you want to retry one of these activities, ask your instructor for a fresh copy of the original data file. One-column format The one-column format is typically used for question-and-answer activities. Heres a sample: Do it! A-2: Examining the elements of organizational structure
Course objectives
These overall course objectives will give you an idea about what to expect from the course. It is also possible that they will help you see that this course is not the right one for you. If you think you either lack the prerequisite knowledge or already know most of the subject matter to be covered, you should let your instructor know that you think you are misplaced in the class. After completing this course, you will know how to: Identify the elements of a project and project management framework, discuss project management as a profession, discuss and apply a systems approach to project management and project phases, and identify how organizational structures influence projects. Identify and discuss the processes involved in developing a project plan and discuss plan execution and change control. Identify the key elements of project scope management and tools for strategic planning and project selection during project initiation, identify the key elements of scope planning and a scope statement, and discuss scope verification and change control as they relate to project scope management. Define schedules and activities, identify activity sequencing, and discuss activity duration estimation, discuss schedule development with the help of Gantt charts, PERT, critical path analysis, and critical chain scheduling, and identify how to control changes to a project schedule and use software to manage time.
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Identify the components and principles of cost management, discuss the elements of resource planning, discuss cost estimation and identify the techniques used for it, discuss cost budgeting and identify the techniques used it, and discuss cost control using EVA. Explain the processes of project quality management and describe quality planning, discuss quality assurance and its importance, and discuss quality control and identify the tools and techniques to implement it. Define the elements of organizational planning, discuss staff acquisition and explain how to negotiate successfully, discuss the development of successful teams and how to motivate them, and use software to assist in human resource management. Identify the key aspects of project communications planning and evaluate and measure the performance of a project. Discuss and classify project risks, identify risks and explain the use of risk identification tools, define and discuss qualitative risk analysis, discuss the steps involved in quantitative risk analysis, discuss risk response planning, and describe how to monitor and control risks. Describe procurement planning, identify the tools and techniques used for procurement planning, and describe solicitation planning and perform source selection, identify types of contracts, and describe contract administration and close-out. Discuss the early stages of the Northwest Airlines ResNet project in terms of project initiation, discuss planning a project and its application to the ResNet project, and discuss project execution and procurement of necessary resources. Discuss the ResNet project in terms of project control and describe project closure and explain the lessons learned from the ResNet project.
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framework.
B Discuss project management as a profession. C Discuss and apply a systems approach to project
Project
Before we discuss project management, it is important that we first understand the meaning of the term project. A project is a temporary endeavor undertaken to accomplish a unique purpose. Projects normally involve several human resources from various areas performing interrelated activities. The projects main sponsor is often interested in the effective use of resources to complete the project in an efficient and timely manner. The attributes described in the following table help to further define a project.
Project attribute
Unique purpose Temporary Require resources from various areas
Description
Every project has a well-defined objectivea unique product, service, or result. A project has a definite beginning and end. Resources include people, hardware, software, or other assets. Many projects are executed across departmental or organizational boundaries to achieve their unique purposes. For
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an IT collaboration project, human resources from technology, marketing, sales, distribution, and other areas of the company need to work together to ensure successful completion of the project. The project might also hire external consultants product vendors and consulting companiesto provide input.
Most projects involve many interested parties, and a key sponsor. The project sponsor usually provides the direction and funding for the project. For example, if a project was initiated to provide direct product sales via the Internet, the head of sales might be the project sponsor. If a company needs to undertake several projects related to Internet technologies, then it might form a program. A program is a group of projects managed in a coordinated way. A program director provides leadership for these projects, and the sponsors might belong to several different business areas. Because every project is unique, it is sometimes difficult to clearly define the projects objectives, the duration of the project, or the cost. This uncertainty is one of the main reasons why project management is challenging, especially when projects involve new technologies.
Uncertainty
Project managers A project manager is the key to a projects success. Project managers work with the project sponsors, the project team, and others involved in a project to ensure successful completion of the project. Project constraints Every project is constrained in different ways by its scope, time goals, and cost goals. These limitations are, sometimes, referred to in project management as the triple constraint. To create a successful project, scope, time, and cost must all be taken into consideration, and the project manager must balance these three constraints. To balance these, a project manager must consider the following issues: Scope. What is the project goal? Which unique product or service does the customer or sponsor expect from the project? Time. How long will it take to complete the project? What is the projects schedule? Cost. What is the cost involved in completing the project? Each areascope, time, and costhas a target at the beginning of a project. For example, an IT collaboration project might have an initial scope of producing a 50-page report and a 1-hour presentation on 30 different potential IT projects. The project scope might be further defined by providing a description of each potential project, an analysis of what other companies have implemented for similar projects, a time and cost estimate, and assessments of the risk and potential payoff as high, medium, or low. The initial time estimate for this project might be 1 month, and the cost estimate might be $50,000. These expectations provide targets for the scope, time, and cost dimensions of the project. Managing the triple constraint involves making trade-offs between scope, time, and cost goals. Because of the uncertain nature of projects and competition for resources, its rare that the scope, time, and cost plans will remain constant as originally predicted. The projects sponsor, team members, or other interested parties might differ in their views of the project as it progresses. For instance, suppose the CEO has learned about the project and wants the project team to come up with at least 40 potential projects instead of 30. Should the project team try to accomplish this increase in scope without changing the cost and schedule goals? To make important decisions about scope, time, and cost goals, the project manager must negotiate with the project team and sponsor. Although the triple constraint describes how the basic elements of a projectscope, time, and cost are interrelated, other elements can also play significant roles. Quality is often a key factor in projects
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as is customer or sponsor satisfaction. Some refer to the quadruple constraint of project management, including quality along with scope, time, and cost. Others believe that quality considerations, including customer satisfaction, must be inherent in setting a projects scope, time, and cost goals. How can you avoid the problems that occur when you meet scope, time, and cost goals, but do not ensure quality or meet customer requirements? The answer is good project management. Do it! A-1: Discussing projects
2 How is working on a project different from what most people do in their dayto-day jobs?
3 Give three examples each of activities that are projects and not projects.
4 Explain in your own words what the term triple constraint means.
5 Give an example of the triple constraint on a real project with which you are familiar.
Managing projects
Explanation Project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet project requirements.1 Project managers strive to meet specific scope, time, cost, and quality goals of projects, and facilitate the entire process to meet the needs and expectations of the people involved or affected by the projects activities. Exhibit 1-1 provides a framework in which to understand project management. Key elements of this framework include the project stakeholders, project management knowledge areas, and project management tools and techniques. Exhibit 1-1: Project management framework Stakeholders are the people involved or affected by project activities and include the
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project sponsor, project team, support staff, customers, users, suppliers, and even opponents of the project. Peoples needs and expectations are important throughout the execution of a project. Successful project managers work on developing good relationships with project stakeholders to ensure that the stakeholders needs and expectations are understood and met. Knowledge areas describe the key competencies project managers must develop. The center of Exhibit 1-1 shows the nine knowledge areas of project management. These knowledge areas lead to specific project objectives: Scope management involves defining and managing the work required to successfully complete the project. Time management includes estimating how long it will take to complete the work, developing an acceptable project schedule, and ensuring timely completion of the project. Cost management consists of preparing and managing the projects budget. Quality management ensures that the project will meet the stated or implied needs for which it was undertaken. Human resource management refers to making effective use of the resources hired for the project. Communications management involves generating, collecting, disseminating, and storing project information. Risk management includes identifying, analyzing, and responding to risks related to the project. Procurement management involves acquiring or procuring from outside the performing organization the goods and services needed for the project. Project integration management, the ninth knowledge area, ensures that all project elements are properly coordinated so that project goals are achieved. This function affects and is affected by the other knowledge areas and includes making tradeoffs between competing or conflicting objectives. Project managers must have knowledge and skills in the nine areas. Despite the advantages that project management offers, it might not guarantee success on all projects. Rather, its a very broad, often complex discipline. What works on one project might not work on another; therefore, its essential for project managers to continue to develop their knowledge and skills. The unique nature of projects and the challenges involved in managing them helps project managers hone their management skills. Project management tools and techniques assist project managers and their teams in carrying out scope, time, cost, and quality management. Additional tools help project managers and teams carry out human resource, communications, risk, procurement, and integration management. For example, some popular time management tools and techniques include Gantt charts, network diagrams (sometimes referred to as PERT charts), and critical path analysis. Project management software is a tool that can facilitate management processes in all knowledge areas. How project management relates to other disciplines Much of the knowledge required to manage projects is unique to project management. However, to work effectively with specific industry groups and technologies, project managers must also gain knowledge and experience in general management and understand the projects application areas. For example, project managers must understand general management areas, such as organizational behavior, financial analysis, and planning techniques. If a project involves sales force automation, the project manager needs to understand the sales process, sales automation software, and mobile computing. Exhibit 1-2 shows the relationships between project management, general management, and application areas. Exhibit 1-2: Project management and other disciplines
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Although being a project manager requires knowledge and experience in general management areas, the role of a project manager differs from the role of a corporate manager or an executive. What distinguishes project management from general or operations management is the nature of the projects. Because projects are unique and temporary, project managers must focus on integrating all the various activities required to complete the project successfully on time and within budget. In contrast, most tasks performed by a general manager or an operations manager are repetitive and ongoing day-to-day activities of an organization and do not require skills to balance scope, time, and cost factors. General managers or operations managers also focus on a particular discipline or functional area. For example, a manager of an accounting department focuses on the discipline of accounting. If a project manager needs to manage an IT project for the accounting department, then he or she requires understanding of accounting as well as IT. However, the project managers main job would be to manage the project, not to perform accounting or IT functions. Project management also requires knowledge of the particular industry or domain of the project. For example, this course focuses on IT projectsprojects that involve computer hardware, computer software, and telecommunications technology. For a person with little or no knowledge in IT, it might be a challenge to manage a large IT project. Such a project manager might face problems while working with other managers and suppliers as well as with team members who have sound technical expertise in the required IT domains. New project managers will need to balance their time between acquiring IT knowledge and learning to become better project managers. History of project management It might be argued that the building of the Egyptian pyramids or the Great Wall of China can be considered examples of project management. However, most believe that the modern concept of project management began with the Manhattan Project, which the U.S. military led to develop the atomic bomb. In fact, the military was the key industry behind the development of several project management techniques. In 1917, Henry Gantt developed the famous Gantt chart as a tool for scheduling work in job shops. Managers drew charts by hand to show tasks to be performed against a calendar timeline. This tool provided a standard format for planning and reviewing the work required for the completion of early military projects. Todays project managers still use the Gantt chart as the primary tool to communicate project schedule information but, with the aid of computers, they no longer need to draw charts manually. Exhibit 1-3 displays a Gantt chart for a building construction project. This version of the chart was created with Microsoft Project, the most widely used project management software on the market. Note that a Gantt chart illustrates, in a calendar format, the tasks that need to be done and the time, or duration, needed to perform these tasks. A Gantt chart can also display the actual time taken to complete tasks, which helps project managers measure performance.
Exhibit 1-3: Sample Gantt chart in Microsoft Project Another type of graphical project representation is a network diagram. Network diagrams display a project as a flowchart. These diagrams help managers model the relationships among project tasks, which allow them to create realistic schedules. Network diagrams were first used in 1958 for the Navy Polaris missile and submarine project. Exhibit 1-4 displays a network diagram created using Microsoft Project. Note that the diagram includes arrows that show the related tasks and the sequence in which tasks must be performed. The concept of determining relationships among tasks is key to improving project scheduling. This concept allows you to find and monitor the critical paththe series of tasks that dictates the completion date for the project. Exhibit 1-4: Sample Network Diagram
By the 1970s, the military had begun to use software to manage large projects. Early project
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management software products were very expensive and ran on mainframe computers. For example, Artemis was an early project management software product that helped managers analyze complex schedules for designing aircraft. A full-time person was often required to run the complicated software and expensive pen plotters were used to draw network diagrams and Gantt charts. As computer hardware developed, and software became user-friendly, project management software became less expensive, easier to use, and more popular. Today, many different industries use project management software on all types and sizes of projects. New software makes basic tools, such as Gantt charts and network diagrams, inexpensive, easy to create, and available for update. In the latter part of the 20th century, people in every industry began to investigate and apply different aspects of project management to their projects. The sophistication and effectiveness with which project management tools are being applied and used today is influencing the way companies conduct business, use resources, and respond to market requirements. The job title project manager can describe the role leading the construction of a new sports arena, planning a fund-raiser for a charitable organization, or managing the development of an electronic commerce application. All these examples illustrate one key point: no matter what industry, you need to understand and resolve problems if you are to be a project manager. A project managers real challenge is to understand the concepts of project management and determine the tools and techniques to be applied on specific projects. Do it! A-2: Discussing project management
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experience and vast technical knowledge. Although this might be true for project managers required to handle large, complex, and expensive projects, many IT projects are led by not-so-experienced project managers. There is a demand for efficient and competent project managers. The Project Management Institute (PMI), an international professional society for project managers, continues its fast-paced growth. At the beginning of 2001, the organization included over 70,000 members worldwide. Presently, there are in excess of 100,000 PMI members, with many others joining PMI to pursue the PMP certification Membership. Statistics from PMI indicate that the Computers/Software/DP and IT industries are the top two industry areas among PMI members, with about 15,000 and 12,000 members, respectively, in each industry category. 3 In the 1990s, many companies began developing project offices to enhance project management expertise in their organizations and create a formal career path for project managers. Many colleges, universities, and firms now offer courses related to various aspects of project management. The problems in managing projects, the publicity about project management, and the belief that it is a key role that maximally impacts projects are all contributing to the growth of this field. In 2004, with the threat of offshore outsourcing of jobs, good project management is critical. In the ComputerWorld article Its ITs Turn, the author suggests that while outsourcing is likely to continue, were now able to identify which projects do and dont make sense to outsource. 4 This, combined with a transition in company focus from simple cost-cutting to revenue growth, will keep many critical projects in-house. Project management certification Professional certification is an important factor in recognizing and ensuring quality in a profession. PMI provides certification as a Project Management Professional (PMP) to individuals who document sufficient project experience, follow the PMI code of ethics, and demonstrate knowledge about project management by scoring high in a comprehensive examination. Foote Partners LLC, an IT workforce research company, assesses the skills and pay of more than 35,000 IT professionals in over 1,800 North American and European companies. In a 2003 survey, the company found that the PMP certification provides the best bonuses for IT professionals, averaging 15% of base pay. The number of aspirants earning certification in project management continues to be on the rise. In 1993, there were only about 1,000 certified project management professionals, whereas, by the end of 2000, the number had grown to approximately 28,000. In Jan 2004, the number was 73,263 PMPcertified professionals throughout the world. As IT projects become more complex and global in nature, the need for people with demonstrated knowledge and skills in project management will continue to grow. Just as passing the CPA exam is a standard for accountants, passing the PMP exam is becoming a standard for project managers. Some companies are requiring that all project managers be PMP certified. Project management certification is also enabling professionals in the field to share a common base of knowledge. For example, any PMP can list, describe, and use the nine project management knowledge areas. Sharing a common base of knowledge is important because it helps advance the theory and practice of project management. International Data Corporation conducted a study in 1995 (on behalf of Drake Prometric, the IBM Corporation, Lotus Development Corporation, and Microsoft) to learn whether a companys IT support function was more productive when the staff included a high percentage of professionally certified employees. Certification was defined as including technical expertise in products, such as NT or Lotus Notes, or broader certification in areas such as data processing or project management. The study found that companies supporting certification tended to operate in more complex IT environments and were more efficient than companies not supporting certification. Code of ethics Professional ethics constitute an important element of all professions. PMI developed a project management professional code of ethics that all project managers must sign in order to become certified project management professionals. PMI states that it is vital for all PMPs to conduct their work in an ethical manner. Doing so helps the profession earn the confidence of the customers,
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employers, employees, and project team members. The following list is excerpted from the code of ethics for the project management profession. As professionals in the field of project management, PMI members pledge to uphold and abide by the following: I will maintain high standards of integrity and professional conduct. I will accept responsibility for my actions. I will continually seek to enhance my professional capabilities. I will practice with fairness and honesty. I will encourage others in the profession to act in an ethical and professional manner.5 Do it! B-1: Discussing project management careers and certification
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single users. Most of these tools allow users to create Gantt charts, a task they cannot perform by using current productivity software. For example, Milestones Simplicity by KIDASA Software, Inc. has a Schedule Setup Wizard interface that describes simple steps to produce a Gantt chart. For $49 per user, this tool also includes a large assortment of symbols, flexible formatting, an outlining utility, and an Internet Publishing Wizard.7 Another product, called Hows it going? was written in Microsoft Access 97 by LogicAbility. For $145 per individual user, this tool includes an online guide and templates for many project management deliverables; reports for project tracking, status reporting, and budgeting; time reporting and resource management features; and scheduling features for creating Gantt charts and performing critical path analysis. 8 Midrange tools. A step up from low-end tools, midrange tools are designed to handle large and multiple projects and multiple users. All these tools can create Gantt charts and network diagrams and can assist in critical path analysis, resource allocation, project tracking, and status reporting. Prices range from about $200 to $500 per user. Several of these tools require additional server software for using workgroup features. Microsoft Project is still the most popular project management software. Microsoft Project Server 2003, a companion product, facilitates collaboration and communication of project information over a corporate intranet. Also, Microsoft Office InfoPath allows you to initiate projects in Project Server 2003. Other companies that sell midrange project management tools include Artemis, PlanView, Primavera, RightWare Inc, Providence Systems, and Welcom. High-end tools. Another category of project management software includes high-end tools, sometimes referred to as enterprise project management software. These tools provide robust capabilities to handle very large projects, dispersed workgroups, and enterprise functions that summarize and combine individual project information to provide an enterprise view of all projects. These products are licensed on a per-user basis. One example, the Advanced Management Solutions (AMS) product AMS REALTIME interfaces with midrange tools, such as Microsoft Project and Primavera Project Planner. It also offers a complete suite of application programming interfaces (APIs) to enable integration with other business information systems. 9 Several companies that provide midrange tools, including Microsoft, are also starting to offer enterprise versions of their software. Do it! B-2: Discussing project management software
2 On what basis are project management tools divided into various categories? What are these categories of tools?
3 Make a list of the tools that you use in your organization for project management.
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A systems approach
Organizations cannot run projects in isolation. Therefore, projects must operate within a broad organizational environment, and project managers need to consider projects within this broad organizational context. To handle complex situations effectively, project managers need to take a holistic view of a project and understand how it impacts the larger organization. Taking this type of holistic view is called systems thinking. The term systems approach emerged in the 1950s to describe a holistic and analytical approach to solving complex problems that includes using a systems philosophy, systems analysis, and systems management. A systems philosophy is an overall model for thinking about things as systems. Systems are sets of interacting components working within an environment to fulfill a purpose. For example, the human body is a system composed of many subsystems, such as the brain, the skeletal system, the circulatory system, and the digestive system. Systems analysis is a problem-solving approach that requires defining the scope of the system to be studied, dividing it into components, and identifying and evaluating its problems, opportunities, constraints, and needs. The analyst then examines alternative solutions for improving the current situation, identifies an optimum (or at least satisfactory) solution or action plan, and examines the plan against the entire system. Systems management addresses the business, technological, and organizational issues associated with making a change to a system. Using a systems approach is critical to successful project management. Senior managers and project managers must identify key business, technological, and organizational issues related to each project so that they can identify and satisfy key stakeholders and take actions in the best interest of the organization. Many IT professionals become enamored with the technology and day-to-day problem solving approach while working on information systems. They tend to ignore important business issues, such as does it make financial sense to adopt this new technology or should the software be developed inhouse or purchased off-the-shelf? Using a more holistic approach helps project managers integrate business and organizational issues into their planning. It also helps them look at projects as a series of interrelated phases. By adopting this approach, you can do a better job of ensuring project success. Do it! C-1: Discussing systems approach
2 In what way(s) is a systems approach to project management beneficial? Who does it benefit?
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The spiral model was developed based on experience with various refinements of the waterfall model as applied to large government software projects. It recognizes that most software is developed using an iterative or spiral approach rather than a linear approach. The incremental release model provides for progressive development of operational software, with each release providing added capabilities. The RAD model, used to produce systems quickly without compromising quality, includes four phasesrequirements planning, user design, construction, and cutover. RAD tools are available to facilitate rapid prototyping and code generation. The prototyping model is used to develop software prototypes to clarify user requirements for operational software. These models are examples of product life cycles, and most introductory management information systems texts describe each of them in detail. The type of software and complexity of the information system being developed determines the model in use. Exhibit 1-6 shows Boehms famous spiral model of software development. 10 The spiral model illustrates how complex the process of developing an information system can be.
Exhibit 1-6: Spiral model of software development It is important not to confuse the project life cycle with the product life cycle. The project life cycle applies to all projects, regardless of the products being created. On the other hand, product life cycle models vary considerably based on the nature of the product being developed. Most large IT products are developed as a series of projects. For example, the systems planning phase for a new information system can include a project to hire an external consulting firm to help identify and evaluate potential strategies for developing a particular business application, such as a new order processing system or a general ledger system. It can also include a project to develop, administer, and evaluate a survey of users opinions on the current information systems used for performing a business function in the organization. The systems analysis phase might include a project to create process models for specific business functions in the organization. It can also include a project to create data models of existing databases, related to the business function and application, in the company. The implementation phase might include a project to hire contract programmers to code a part of the system. The support phase might include a project to develop and run several training sessions for users of the new application. All these examples show that large IT projects are usually composed of several small projects. When developing information systems, project management is a cross-life cycle activity that is performed in all the product phases of developing information systems. Because project management needs to occur during all phases of the systems development life cycle, it is critical for IT professionals to understand and practice good project management skills. Just as a project has a life cycle, so too does a product. IT projects help produce products, such as new software, hardware, networks, research reports, and training material on new systems. Understanding the product life cycle is just as important to good project management as understanding the phases of the project life cycle. The importance of project phases and management reviews Given the complexity and importance of many IT projects and their resulting products, it is important that project managers spend time reviewing the progress of these projects. A project should successfully pass through each project phase before continuing to the next. A management review should occur after each phase to evaluate progress, probable success, and continued compatibility with organizational goals. These management reviews, called phase exits or kill points, are essential for running projects as planned and determining if they should be continued, redirected, or terminated. Recall that projects are just one part of the entire system of an organization. Changes in other parts of the organization might affect projects, and that might in turn, affect other departments of the organization. By breaking projects into phases, senior managers can make sure that the projects are compatible with the goals of the company.
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2 What is the difference between a project life cycle and a product life cycle?
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managers must identify, analyze, and manage the changes. Closing processes include formalizing acceptance of the phase or project and bringing it to an end. Administrative activities are involved, such as archiving project files, documenting knowledge acquired, and receiving formal acceptance of work delivered as part of the phase or project. Exhibit 1-7 shows the project management process groups and their inter-relationships in terms of typical level of activity, time frame, and overlap. Notice that the process groups are not discrete, onetime events. They occur at varying levels of intensity throughout each phase of a project. The level of activity and time and the length of each process group vary for every project. The executing processes require the maximum resources and the largest amount of time, followed by planning. The initiating and closing processes are the shortest and require the least amount of resources and time. However, every project is unique, so there can be exceptions. Exhibit 1-7: Overlap of process groups in a phase (source: PMBOK Guide, 2000, 31) Each of the five project management process groups is characterized by the completion of specific tasks. During initiating processes for a new project, the organization recognizes that a new project exists. This is accomplished by completing a stakeholder analysis, requirements document, and feasibility study. These reports outline a projects potential supporters and opponents, its definition, and its high-level goals, scope, deliverables, deadlines, and resources. The main outcome of the initiating process at the beginning phase is the creation of a project charter and the selection of a project manager. Key outcome of the planning process includes completion of a work breakdown structure, project schedule, and project budget. Planning is especially important for IT projects. If you have worked on a large IT project involving new technology, you would know the saying A dollar spent up front in planning is worth 100 dollars spent after the system is implemented. The executing process involves taking the actions necessary to ensure that the work described in the planning activities will be completed. The main outcome of this process is the delivery of the product of the project. For example, if an IT project involves providing new hardware, software, and training, the executing processes include leading the project team and other stakeholders to purchase the hardware, develop and test the software, and deliver and participate in training. This process group overlaps with all the other process groups and requires the maximum resources to be accomplished. Controlling is the process of measuring progress towards the project objectives, monitoring deviation from the plan, and taking corrective action to match progress with the plan. The outcome of controlling is a completed project that successfully delivers the agreed upon project scope within time, cost, and quality constraints. If changes need to be made to project objectives or plans, controlling processes ensure that they help meet stakeholder needs and expectations. Controlling processes overlap all the other process groups because changes can be made at any time. During the closing processes, the project team works to gain acceptance of the end product and bring the phase or project to an end. Key outcomes include formal acceptance of the work and creation of closing documents, such as a project audit and a lessons-learned report. You can map the main activities of each project management process group, which apply to an entire project or a phase of a project, into the nine project management knowledge areas. The following table provides a big picture of the relationships among the 39 project management activities, the time in which they are completed, and their corresponding knowledge areas. The activities listed in the table are the main processes for each knowledge area listed in the PMBOK Guide 2000. Notice that the majority of project management activities occur as part of the planning process group. To succeed at performing unique and new activities, project teams do adequate planning.
Planning
Project plan development Scope planning
Executing
Project plan execution Scope verification
Controlling
Overall change control Scope change
Closing
Scope
Initiation
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control
Time
Schedule control
Cost
Cost control
Quality control
Planning
Communications planning Risk identification
Executing
Information distribution
Controlling
Performance reporting Risk response control
Closing
Administrative closure
Risk
Risk quantification Risk response development Procurement planning Solicitation planning Contract administration
Procurement
Solicitation
Contract closeout
Source selection
2 On which processes should the most team members spend the maximum time?
3 How do the project management process groups differ from the processes with which most IT professionals are familiar? How are they similar? How are they related?
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Organizational structure
Discussions in organizations also focus on the organizational structure. There are three
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general classifications of organizational structure: functional, project , and matrix . Exhibit 1-8 displays these three structures. A functional organization is a hierarchical structure in which functional managers or vice presidents in specialties, such as engineering, manufacturing, IT, and human resources (HR), report to the chief executive officer (CEO). Their teams have specialized skills in their respective disciplines. For example, most colleges and universities have strong functional organizations. The faculty in the Business department teaches only business courses; the faculty in the History department teaches only history; the faculty in the Art department teaches only art, and so on. A project organization also has a hierarchical structure, but instead of functional managers or vice presidents reporting to the CEO, project managers do so. Their teams have a range of skills required to complete their particular projects. Many large defense organizations use project structures. For example, major aircraft corporations usually have vice presidents in charge of each aircraft the corporation produces. Many consulting firms also follow a project organizational structure and hire resources to work on specific projects. A matrix organization represents the middle ground between functional and project structures. Personnel often report to both a functional manager and one or more project managers. For example, IT personnel at 3M (and many other companies) often split their time between two or more projects, but they report to their manager in the IT department. Project managers in matrix organizations have teams from various functional areas working on their projects, as shown in Exhibit 1-8. Matrix structures can be strong, weak, or balanced, based on the amount of control exercised by the project managers. Exhibit 1-8: Functional, project, and matrix organizational structures
3 Which type of organizational structure can be strong, weak, or balanced based on the amount of control exercised by the project managers?
Project characteristics
Organization type
Little or none
Weak matrix
Project managers authority Percent of performing organizations personnel assigned full-time to project work Project managers role Common title for project managers role Project management administrative staff
Limited
Virtually none
025%
Part-time
Part-time
Full-time
Full-time
Full-time
Even though project managers are designated the maximum authority in a project organization structure, this type of organization is often inefficient for a company. Because resources are assigned full-time to the project, they might not always be fully utilized. Project organizations might also miss out on economies of scale available by pooling of requests for materials with other projects. Disadvantages such as these illustrate the benefit of using a systems approach to managing projects. When project managers use a systems approach, they are better able to make decisions that address the needs of the organization. Stakeholder management Recall that project stakeholders are involved in or affected by project activities. Stakeholders can be internal or external to the organization and might be directly involved in the project or affected by it. Internal project stakeholders include the project sponsor, project team, support staff, and internal customers. Other internal stakeholders include senior management, other functional managers, and other project managers. Given that organizations have limited resources, projects affect senior management, other functional managers, and other project managers because they use some of the organizations limited resources. Therefore, while additional internal stakeholders might not be directly involved in the project, they remain the projects stakeholders because the project affects them in some way. External project stakeholders include the projects customers (if they are external to the organization), competitors, suppliers, and other external groups who might be involved in or affected by the project, such as government officials or concerned citizens. Because the purpose of project management is to meet project requirements and the requirements of stakeholders, it is critical that project managers spend adequate time identifying, understanding, and managing relationships with all project stakeholders. Using the four organizational frames to think about project stakeholders can help to meet their expectations. Senior management commitment A crucial factor in helping project managers successfully lead projects is the level of commitment and support they receive from senior management. In fact, without commitment from senior management, many projects might fail. As described earlier, projects are part of the larger organizational environment, and many factors that might affect a project are out of a project managers control. Several studies cite executive support as one of the key factors associated with project success for virtually all projects.
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Senior management commitment is crucial to project managers for the following reasons: Project managers need adequate resources. The best way to support a project is to provide it the required money, people, resources, and visibility. If project managers have the commitment from senior management, they will also have adequate resources to bring their projects to completion. Project managers often require approval for unique project needs in a timely manner. For example, on large IT projects, senior management must understand that unexpected problems might result from the nature of the products being produced or the skills of the team members working on the project team. The project might need additional hardware and software halfway through for proper testing, or the project manager might need to offer special pay and benefits to attract and retain key project personnel. With senior management commitment, project managers can meet these specific needs in a timely manner. Project managers must have cooperation from other employees of the organization. Most IT projects cut across functional areas; therefore, senior management must help project managers handle the political issues that often arise in these types of situations. If certain functional managers do not respond to project managers requests for necessary information, senior management must step in to encourage functional managers to cooperate. Project managers many times need guidance on leadership issues. Many IT project managers might have held technical positions but might be inexperienced as managers. Senior managers should take the time to pass on advice about how to be good leaders. They should encourage new project managers to develop leadership skills and allocate the time and funds to allow them to do so. Project managers for IT projects work best in an environment in which senior management values IT. Working in an organization that values good project management and sets standards for its use also helps project managers succeed. The need for organizational commitment to IT Another factor affecting senior management commitment to IT projects is an organizations commitment to IT, in general. It is very difficult for an IT project to be successful if an organization does not value IT. Many companies realized that IT is integral to their business and created a vice president or equivalent level position for the head of IT, often called the Chief Information Officer (CIO). Some companies designate employees from non-IT areas to work on large projects full-time to increase involvement from end users of the systems. Some CEOs even take a strong leadership role in promoting the use of IT in their organizations. The Gartner Group, Inc., a well-respected IT consulting firm, awarded Bostons State Street Bank and Trust Companys CEO, Marshall Carter, the 1998 Excellence in Technology Award. Carter provided the vision and leadership for his organization to successfully implement new IT that expanded the banks business. The bank had to gather, coordinate, and analyze large amounts of data from around the world to provide new asset management services to its customers. It took the bank six years to transform State Street into a company that provides its customers state-of-the-art tools and services. The banks revenues, profits, and earnings per share more than doubled during Carters first five years. A key to his success was his vision that technology is an integral part of the business and not simply a means of automating old banking services. Carter used a highly personal style to motivate his employees, and he often attended project review meetings to support his managers on IT projects. 12 The need for organizational standards Another problem in most organizations is a lack of standards or guidelines for performing project management tasks. These standards or guidelines might be simple outlines or examples of project plans and guidelines that a project manager can use to provide status information to senior managers. This standardized information might be of use to many new IT project managers who are new in their
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role. Some organizations invest heavily in project management by creating a project management office or center of excellence. A project management office or center of excellence is an organizational entity created to assist project managers in achieving project goals. Rachel Hollstadt, founder and CEO of a project management consulting firm, suggests that organizations consider adding a new position, a Chief Project Officer (CPO), to elevate the importance of project management. Some organizations develop career paths for project managers, while others require that all project managers obtain PMP certification. All these examples of setting standards demonstrate an organizations commitment to project management. Do it! D-2: Understanding the influence of an organizational structure on
1 How does a project managers authority vary in a project organization and a functional organization?
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Exhibit 1-9: IT project management methodology at Blue Cross Blue Shield The Blue Cross Blue Shield team realized that some processes in the PMBOK Guide would have to be dropped or de-emphasized to fit their organizations needs. For example, in contrast to some industries, the overriding financial investment in software development was made in salaries, not in materials. In addition, at Blue Cross Blue Shield, negotiations with contracting firms were not made in the IT area. Therefore, most procurement functions were used by other processes, such as Scope Planning and Definition and Resource Planning. Additional processes were also added. For example, to keep track of the large amount of documentation necessary for an IT project, the team decided to develop a process for maintaining and updating a project workbook that will serve as an information resource for team members and a printed record of project activities. Project Book Records was, therefore, added as a separate process under Information Distribution. Another new process, Issue Control, was added because of its importance to IT projects. Problems occur in IT projects, in part because of the inherent complexity of information systems and the rapidly changing technology. The team also decided to combine the PMBOK Guides processes of Activity Sequencing, Activity Definition, Activity Duration Estimating, and Schedule Development into one process that was to be called Work Plan Development. In addition, to enhance usability and simplify the overall process, the team combined the PMBOK Integrated Change Control, Scope Change Control, Schedule Control, and Cost Control processes into a process called Project Change Control. Blue Cross Blue Shield wanted its IT project management methodology to work with any of the SDLC models. This forced team members involved in software development phases to separate plans
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for product creation from the efforts to manage development activities. Understanding the difference between the SDLC and the methodology of IT project management lead to a paradigm shift for some team members who were performing the dual role of developer and project manager. Today, Blue Cross Blue Shields IT project management methodology is the basis for its training programs and is used to develop and implement its IT projects. The project management process groupsinitiating, planning, executing, controlling, and closing provide a useful framework for understanding project management. They apply to most projects (IT and non-IT) most of the time, and along with the project management knowledge areas, they help project managers take into account the big picture of managing a project in their organizations. Do it! D-4: Developing a project management methodology
Exercises
1 Why is an IT project management methodology needed?
3 Analyze the Blue Cross Blue Shield of Michigan example of IT project management methodology. Have you ever developed a methodology of the same kind in your organization?
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2 Apply the information on the four frames of organizations to an IT project with which you are familiar. If you cannot think of a good IT project, use your personal experience in deciding where to attend college to apply this framework. Describe, in not more than two pages, key issues related to the structural, human resources, political, and symbolic frames. Which frame seemed to be the most important and why? For example, did you decide where to attend college primarily because of the curriculum and structure of the program? Did you follow your friends? Did your parents influence your decision? Did you like the culture of the campus?
Answers might vary.
Endnotes
# 1 Reference Project Management Institute (PMI) Standards Committee. A Guide to the Project Management Body of Knowledge (PMBOK Guide) (2000). The PMBOK Guide is a key document in the project management profession and is ANSI approved. Excerpts are available free of charge from PMIs Web site, www.pmi.org. Hoffman, Thomas. IT Departments Face a Lack of Project Management Know-how, ComputerWorld Web site (www.computerworld.com) (August 11, 2003). Project Management Institute (PMI). PMI Web site (www.pmi.org) (2001). Hayes, Frank. Its ITs Turn, ComputerWorld Web site (www.computerworld.com) (December 22, 2003). Project Management Institute (PMI). Member Code of Ethics (www.pmi.org/prod/groups/public/documents/info/ap_memethstandards.pdf) (revised November 2003). ALLPM.com. PM Products (www.allpm.com). Web Site of KIDASA Software (www.kidasa.com). Hows it going? From LogicAbility (www.hows-it-going.com). Advanced Management Solutions (www.amsrealtime.com). Boehm, Barry. A Spiral Model of Software Development and Enhancement, IEEE Computer (May 1988) 5, 6172. PMI Standards Committee. A Guide to the Project Management Body of Knowledge (PMBOK Guide) , PMI, 2000, 19. Melymuka, Kathleen. Old Bank, New Ideas, ComputerWorld (February 15, 1999). Munroe, William. Developing and Implementing an IT Project Management Process, ISSIGreview (First Quarter 2001). This article can also be found online (www.course.com/downloads/mis/schwalbe/ITPMProcess.pdf).
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a project plan.
B Discuss plan execution and change control.
An integrating force
To achieve project integration management, you perform management of the project scope, time, cost, quality, human resources, communication, risks, and procurement. Project integration management depends on activities from all the other eight knowledge areas. It also requires commitment throughout the projects life cycle from senior managers sponsoring the project. Exhibit 2-2 provides a framework for understanding how project integration management provides the guidelines in managing a project. Recall that projects pass through the basic phases of concept, development, implementation, and close-out. These phases are represented on the x-axis of this exhibit, and the y-axis represents the eight other project management knowledge areas. The project integration management knowledge area is represented as an arrow that becomes increasingly focused as the project progresses through its life cycle. Project integration management combines all the elements for the successful completion of the project. By ensuring good project planning, execution, and change control, project managers and their teams can meet or exceed needs and expectations of
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the projects stakeholders. Many consider integration management to be the key to overall project success. A project manager using project integration management must be responsible for: Coordinating with the teams Defining the plans Resolving conflicts among project goals or team members Making final decisions Communicating key project information to senior managers Enabling the work required to complete a project Exhibit 2-2: Framework for project integration management
Integration management includes interface management, which involves identifying and managing the points of interaction between various elements of a project. The number of interfaces can increase exponentially as the number of people involved in a project increases. Therefore, an important task of a project manager is to establish and maintain good communication relationships across organizational interfaces. The project manager must communicate well with all project stakeholders, including customers, the project team, senior managers, other project managers, and the project opponents. Project integration management involves integrating the other knowledge areas within a project as well as integrating areas outside a project. Integrating across knowledge areas and across the organization requires a good project plan. Therefore, the first process of integration management is developing a good project plan. Do it! A-1: Discussing project integration management
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Just as projects are unique, so are project plans. A small project involving a few team members working together over a couple of months might use a project plan consisting of a two-page description of the project along with a work breakdown structure and a Gantt chart. A large project involving 100 team members working on a project that will run over three years might use a detailed project plan. It is important to tailor project plans to fit the needs of specific projects. The plans should guide the work so that the detail of a project plan meets the needs of the project. There are, however, elements common to most project plans. These elements include an introduction or overview of the project, a description of how the project is organized, the management and technical processes used on the project, and sections describing the work to be done, the schedule, and the budget. Common project plan elements The introduction or overview of the project should at least include the following information: The project name. Every project must be assigned a unique name to help identify it and avoid confusion with other related projects. A brief description of the project and the need it addresses. This description clearly outlines the rationale and goals of the project. It should be written in simple terms, avoiding technical jargon, and it must include a rough time and cost estimate. The sponsors name. Every project needs a sponsor. You must include the sponsors name, title, and contact information in the project introduction. The names of the project manager and key team members. The project manager is always the contact for providing all project-related information. However, depending on the size and nature of the project, you can include the names of key team members. Project deliverables. This section briefly describes the products to be created as part of the project. Software packages, hardware components, technical reports, and training material are examples of deliverables. A list of important reference materials. Many projects have a history that is pertinent to the project. Listing important documents or results of meetings held in the past help project stakeholders understand the projects history. This section also refers to the plans for other knowledge areas. For example, the overall project plan refers to and summarizes important parts of scope, schedule, cost, quality, staffing, communications, risk, and procurement management plans. A list of definitions and acronyms, if applicable. Many projects, especially information technology (IT) projects, involve terminology unique to a particular industry or technology. Providing a list of definitions and acronyms helps ensure consistency in their use across the project. Project organization The description of how a project is organized includes the following information: Organizational charts. In addition to an organizational chart for the company sponsoring the project and for the companys customer (if it is an external customer), you include a project organizational chart to show the lines of authority, responsibilities, and communication for the project. Project responsibilities. This section of the project plan describes the major project functions and activities and identifies the individuals responsible. A responsibility assignment chart often displays this information. Other organizational or process-related information. Depending on the nature of the project, you can document the major processes followed during the life cycle of that project. For example, if a project involves launching a major software upgrade, you can create a diagram or timeline of the major steps involved in this process.
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Management and technical processes The section of the project plan describing management and technical processes includes the following information: Management objectives. It is important for team members to understand senior managers views, priorities, assumptions, or constraints regarding the project. Project controls. This section describes how to monitor the progress and changes in the project. This information answers the questions: Will monthly status reviews and quarterly progress reviews be held? Will specific forms or charts be used to monitor progress? Will the project use earned value analysis to assess and track performance? What is the process for change control? What level of management is required to approve different types of changes? (Change control is discussed later in this unit.) Risk management. This section briefly addresses how to identify, manage, and control risks. It refers to the risk management plan if the project requires one. Project staffing. This section describes the number and types of personnel required for the project. It also refers to the staffing management plan, if the project requires one. Technical processes. This section describes the specific methodologies a project might use and how information is to be documented. For example, many IT projects follow specific software development methodologies or use particular Computer Aided Software Engineering (CASE) tools. Many companies or customers also use specific formats for technical documentation. It is important to describe these technical processes in the project plan. Work to be done The section of the overall project plan describing the work to be done refers to the scope management plan and summarizes the following: Major work packages . Project work is organized into several work packages by using a work breakdown structure (WBS). To describe the work in detail, you might need to create a statement of work (SOW). This section briefly summarizes the main work packages for the project and refers to the appropriate sections of the scope management plan. Key deliverables. This section lists and describes the key products developed as part of the project. It also describes the stakeholders expectations regarding the quality of the deliverables. Other work-related information. This section highlights key information related to the work to be performed as part of the project. For example, it might list specific hardware or software to be used or define the specifications to which the team must conform. It documents major assumptions made in defining the project work. Schedule The project schedule information section includes the following: Summary schedule. It is a one-page summary of the overall project schedule. Depending on the projects size and complexity, the summary schedule might list only key deliverables and their planned completion dates. For other projects, it might include a Gantt chart with details of all the work and associated dates for the entire project. Detailed schedule. This section provides detailed information about the project schedule. It refers to the schedule management plan and discusses dependencies among project activities that can affect the schedule. For example, a detailed schedule might explain that a major part of the work can start only after funding by an external agency. You can use a project network diagram or a PERT chart to show these dependencies. Other schedule-related information. Many assumptions are made while preparing project schedules. This section documents major assumptions and highlights other important information related to the project schedule. Budget The budget section of the overall project plan includes the following:
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Summary budget. The summary budget includes the total estimate of the overall projects budget. It can also include the budget estimate for each month or year categorized into specific budget categories. It is important to provide an explanation of what this data means. For example, is the total budget estimate a firm number that cannot change, or is it a rough estimate based on projected costs over the next three years? Detailed budget. This section summarizes the cost management plan and includes detailed budget information. For example, it defines the fixed and recurring cost estimates for the project each year. It also includes information about the projected financial benefits of the project, the skills and competencies of the human resources required for the project, and the basis for calculating the labor costs. Other budget related information. This section documents major assumptions and highlights other important information related to financial aspects of the project. Do it! A-2: Developing a plan
Exercises
1 What is a project plan, and why is it essential?
3 Keeping in mind your current project, create a project plan including all the essential elements.
5 What are the tools and techniques that aid in project plan development?
6 Describe the contents of a plan for a project to develop a Web-based information system that provides transfer credit information for all colleges and universities in the world.
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creating a plan for DOD software development projects. IEEE Standard 1058.1 describes the contents of a Software Project Management Plan (SPMP). The following table provides the format for the IEEE Standard SPMP. Note that this format includes five main sectionsintroduction, project organization, managerial process, technical process, and work packages, schedule, and budget. Companies working on software development projects for the DOD must follow this standard. Most private organizations do not follow rigorous documentation standards; however, they usually follow guidelines for developing project plans. It is a good practice in an organization to follow standards or guidelines for developing project plans because it facilitates the development and execution of the plans. The organization can work more efficiently if all project plans follow a similar format.
Section topics
Project overview, project deliverables, evolution of the SPMP, reference material, and definitions and acronyms. Process model, organizational structure, organizational boundaries and interfaces, and project responsibilities. Management objectives and priorities; assumptions, dependencies, and constraints; risk management; monitoring and controlling staffing plan. Methods, tools, and techniques; software documentation; and project support functions. Work packages, dependencies, resource requirements, budget and resource allocation, and schedule.
Because the goal of project management is to meet or exceed the stakeholders needs and expectations for the project, it is important to include stakeholder analysis as part of project planning. A stakeholder analysis documents information, such as key stakeholders names and organizations, their roles on the project, unique facts about each stakeholder, their level of interest in the project, their influence on the project, and suggestions for managing relationships with each stakeholder. A stakeholder analysis often includes sensitive information; therefore, it should not be part of the overall project plan available to all stakeholders. In many cases, only project managers and other key team members should be allowed access to the stakeholder analysis. Do it! A-3: Discussing project plan guidelines
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Explanation
Project plan execution involves performing the work described in the project plan. The majority of project time and resources are spent during execution. Therefore, developing and following a well-designed plan facilitates managing these valuable and finite elements. Project integration management involves project planning and execution as intertwined and inseparable activities. The main objective of creating project plans is to guide project execution. A good plan helps develop good products and documents what comprises good products. Knowledge gained from work during the initial phases of a project must be included in updates to the project plans. A common sense approach to improving the coordination between project plan development and execution is to follow this simple rule: First you plan the work, then you work the plan. All project personnel need to experience and develop both planning and executing skills. In IT projects, programmers writing detailed specifications and then creating the code based on their own specifications are observed to be better at writing specifications. Similarly, most systems analysts begin their careers as programmers so they understand the types of analysis and documentation needed to write quality code. Although project managers develop the overall project plan, they must invite inputs from team members developing plans in each knowledge area. Project managers must lead by example to demonstrate the importance of creating good plans and then follow them in project execution. Project managers who follow their own plans carefully usually have team members who abide by the project plan. Executing a project plan well requires many skills; some essential ones include leadership, communication, and political skills. For example, organizational procedures can help or hinder project plan execution. If an organization provides guidelines for creating overall project plans and plans for each project management knowledge area, and everyone in the organization follows these, it is easier to create the plans. Similarly, if the organization uses the project plans as the basis for performing and monitoring progress during execution, the culture promotes the relationship between good planning and execution. Project managers must lead their specific projects to interpret these planning and execution guidelines. Project managers must also communicate well with the project team and other project stakeholders to create and execute project plans. Project managers might sometimes find it necessary to break organizational rules to produce project results in a timely manner. When project managers break the rules, they must have sound reasons to do so and must communicate the same to all involved in the project. For example, if a particular project requires use of nonstandard software, the project manager must provide appropriate reasons to convince concerned stakeholders of the need to break the rules on using only standard software. Breaking organizational rules requires excellent leadership and communication skills. Product skills and knowledge are also critical to successful project execution. Project managers and their team members must have the required expertise to work on a project. If they do not, it is the project managers job to help the team acquire the necessary skills, arrange alternate resources for the project, or alert senior managers to the problem. Organizations must choose carefully their IT projects and ensure they have adequate resources for the same. It is also important for IT project managers to have product knowledge so they can help plan and lead projects that take advantage of new technologies.
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information. These meetings serve as an excellent means to motivate team members to contribute to the project. These meetings also help project stakeholders know about the exact status of the project. Project management software. Software specifically designed for project management can help create and execute the project plan. For example, project managers or team members can create Gantt charts for project plans by using software, such as Microsoft Project 2003. These Gantt charts can include hyperlinks to other planning documents. For example, a project plan might include a deliverable for creating software test plans. This item on the Gantt chart can include a hyperlink to a Microsoft Word file for that software test plan. If a project team member updates the Word file containing the test plan, the hyperlink feature on the Gantt chart automatically links to the updated file. When a baseline plan is set for the project, project team members can enter information about the start and end of each project activity, the time spent on completing each activity, and other information. The project manager can then use project management software to compare the baseline and actual information by viewing reports on project progressrunning a report to show the planned versus the actual tasks completed and project costs. Although these tools and techniques can aid in project execution, project managers must remember that positive leadership is the key to successful project management. Project managers can focus on providing leadership for the project by delegating the detailed work involved in using these tools to other team members. Do it! B-1: Discussing plan execution
Exercises
1 Which are the essential skills needed for plan execution?
2 Which one of the following is a tool used for plan execution? A Status review meetings B Project plan execution C Project integration
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documentation of lessons learned during the project. Exhibit 2-3 provides a schematic representation of the integrated change control process. Exhibit 2-3: Integrated change control process The project plan provides the baseline for identifying and controlling project changes. For example, the project plan includes a section describing the work to be performed as part of a project. This section of the plan describes the key deliverables, products, and quality requirements for the project. The schedule section lists the planned dates for completing key deliverables, and the budget section provides the planned cost for the deliverables. The project team must focus on delivering the work as planned. If changes are made during project execution, the project plans must be revised. Performance reports provide status information on project execution. The main purpose of these reports is to alert the project manager and team of potential problems related to the project. They must decide if corrective actions are needed, the best course of action, and the best time to take this action. For example, suppose one of the key deliverables in a project plan is installation of a new Web server for the project. If one of the project team members reports problems coordinating the purchase and installation of this Web server, the project manager should assess the impact of the problems on the output of the project. If a late installation will cause problems in other areas of the project, the project manager should take necessary actions to help the team member resolve the problem. If the situation is inevitable, the project manager should alert the other team members who will also be impacted by the changes in the schedule. The project manager should also look at the overall progress of the project. If the project manager identifies a recurring trend of missing deadlines, he or she should alert key stakeholders and negotiate a later completion date for the project. Change requests are common and occur in different forms. They can be oral or written, formal or informal. For example, the team member responsible for installing a Web server seeks the project managers approval for the purchase of a server with a faster processor than planned, but at the same cost. Because this change is positive and has no negative effects on the project, the project manager might verbally approve the same. Nevertheless, it is important to document this change to avoid any problems in the future. The team member should update the section of the scope management plan with the new specifications for the server. Remember that many change requests can have a major impact on a project. For example, customers changing their minds about the number of Web servers they want as part of a project will definitely impact the projects scope and cost. Such a change might also affect the projects schedule. More significant changes must be written, and a formal review process must be arranged to analyze and decide on implementing these changes. In addition to updating project plans and taking corrective actions, documenting lessons learned is an important output of the overall change control process. The project manager and team should share the knowledge they acquired while working on the project. There should be some documentation of these lessons learned in change control and discussing them at an open meeting is also an effective way to share this information. Change control on IT projects A widely held view of IT project management from the 1950s to the 1980s was that the project team should strive to achieve the results within the planned time and budget. However, it was observed that project teams could rarely meet project goals set originally at the start of the projects, especially when the projects involved new technologies. Stakeholders rarely agreed on the scope of the project or the end product. In addition, time and cost estimates created early in a project were rarely accurate. Today, most project managers and senior managers realize that project management is a process of constant communication and negotiation about project objectives and stakeholder expectations. This view assumes that changes can be made throughout the project life cycle and recognizes that changes are often beneficial to projects. For example, if a project team member discovers a new hardware or software technology that can help meet the customers requirement for less time and money, the project team and key stakeholders can make changes to the project.
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All projects undergo changes, and managing them is a key issue in project management, especially for IT projects. Many IT projects involve the use of hardware and software that is updated frequently. For example, in a project, the initial plan for the Web server specifications might have to be revised because of the availability of a much-improved version at the same cost. This example illustrates a positive change. In contrast, if the manufacturer of the server specified in the project plan goes out of business, it results in a negative change. IT project managers must build some flexibility into their project plans and execution to accommodate such changes. Customers for IT projects must allow for meeting project objectives in different ways. Even if project managers, teams, and customers are flexible, it is important that projects use a formal change control system. To plan for managing changes, a project must use a good change control system. Change control system A change control system is a formal, documented process that describes when and how to change project documents. It also describes the personnel authorized to make changes, the necessary documentation, and the automated or manual tracking systems the project will use. A change control system often includes a change control board (CCB), configuration management, and a process for communicating changes. A CCB is a formal group that approves or rejects project changes. A CCB primarily provides guidelines for preparing change requests, evaluating change requests, and managing the implementation of approved changes. An organization can assign key stakeholders for the entire organization on this board, and a few members could rotate based on the unique needs of each project. Creating a formal board and a process for managing change results in better-integrated change control. Configuration management is another important technique for integrated change control. Configuration management ensures that the descriptions of the projects products are correct and complete. Configuration management focuses on the management of technology by identifying and controlling the functional and physical design characteristics of products and their support documentation. Members of the project team, often called configuration management specialists, are designated to perform configuration management for large projects. These specialists key job is to identify and document the functional and physical characteristics of the projects products, control any changes to such characteristics, record and report the changes, and audit the products to verify that they conform to requirements. Another factor in change control is communication. Project managers should use written and oral performance reports to help identify and manage project changes. In addition to formal reports, some project managers hold stand-up meetings every morning or once a week, depending on the nature of the project. The goal of a stand-up meeting is to quickly communicate what is most important on the project. Standing keeps meetings short and forces all attendees to focus on the most important matters related to the project. Why is good communication critical to success? An important aspect of project change is to ensure all team members are aware of the latest project information. The project manager integrates all project changes to ensure the project executes as planned. The project manager and the team must develop a system for notifying everyone affected by a change in a timely manner. E-mail and the World Wide Web make it easier to disseminate the latest information. Using special project management software also helps project managers track and communicate project changes. As described earlier, project management is a process of constant communication and negotiation. Project managers must plan for changes and use appropriate tools and techniques, such as a change control board, configuration management, and effective communication. It is helpful to define procedures for making timely decisions on minor changes, use performance reports to help identify and manage changes, and use software to assist in planning, updating, and controlling projects. The following list describes suggestions for managing integrated change control. View project management as a process of constant communication and negotiation. Plan for change. Establish a formal change control system, including a CCB.
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Use good configuration management. Define procedures for making timely decisions on minor changes. Use performance reports to help identify and manage change. Use project management and other software to help manage and communicate changes. Project managers must also be strong leaders to steer their projects to successful completion. Project managers must delegate part of their work to team members and focus on providing overall leadership for the project. Remember, to lead the teams and the organization to success, project managers must focus on the big picture and perform project integration management well. Do it! B-2: Discussing change control
5 How do the features of project plan execution function in relation to change control?
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B Implementing the budget C Controlling project risks D Coordinating work packages 2 Project integration management involves integrating the other knowledge areas within a project as well as integrating areas outside a project. True or False?
True
3 List information that might be included in a stakeholder analysis document. Is this information available to all stakeholders as part of the overall project plan?
Answers might vary, but can include: stakeholders names and organizations, their roles on the project, unique facts about each stakeholder, their level of interest in the project, their influence on the project, and suggestions for managing relationships with each stakeholder. Due to the sensitive nature of this information, it is not available to all stakeholders. In many cases, only project managers and other key team members should be allowed access to the stakeholder analysis document.
and tools for strategic planning and project selection during project initiation.
B Identify the key elements of scope planning and a scope
statement.
C Discuss scope verification and change control as they
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and the associated procedures. Project scope management includes the processes involved in defining and controlling what is or is not included in a project. It ensures that the project team and stakeholders share the same understanding of the products or services to be developed as part of the project and the processes used to produce them. The main processes involved in project scope management include: Initiation. This involves committing the organization to begin a project or continue to its next phase. Initiation processes define a project charter , which is a key document for formally defining a project and providing its broad overview. Scope planning. This involves creating documents, defining the basis for future project decisions, including the criteria for determining if a project or a phase is completed successfully. During the scope planning process the project team creates a scope statement and a scope management plan. Scope definition. This involves subdividing the major project deliverables into smaller, more manageable components. The project team creates a Work Breakdown Structure (WBS) during this process. Scope verification . This involves formalizing the acceptance of the project scope. Key project stakeholders, such as its customer and sponsor, formally accept the project deliverables during this process. Scope change control. This involves handling changes to project scope. Scope changes, corrective action, and lessons learned are part of the output of this process.
Strategic planning
Managers and sales professionals take into consideration the big picture or strategic plan of the organization to identify types of projects will provide the maximum value to the organization. Therefore, the project initiation process involves identifying potential projects, using realistic methods to select the projects to work on, and then formalizing their initiation by issuing the project charter. Identifying potential projects The first step in scope management is to decide the type of projects that the organization must take on. Exhibit 3-1 shows a four-stage planning process for selecting information technology (IT) projects. Note the hierarchical structure of this model and the results of each stage. Starting at the top of the hierarchy, the first step in IT planning is to develop an IT strategic plan based on the organizations overall strategic plan. Strategic planning involves determining longterm objectives by analyzing an organizations strengths and weaknesses, studying opportunities and threats in the business environment, predicting future trends, and projecting the need for new products and services. The SWOT analysis analyzing Strengths, Weaknesses, Opportunities, and Threatsis used to aid strategic planning. For organizations in the IT sector, it might be important to get managers from outside the IT field to assist in the IT strategic planning process because they can help IT personnel understand organizational strategies and identify the business areas that support them. Exhibit 3-1: IT planning process After you have identified business areas to focus on, the next step in the IT planning process is to perform a business area analysis. This analysis documents the business processes that are central to achieving strategic goals and aid in discovering the processes that best apply to IT. The next step is to start defining potential IT projects, their scope, benefits, and constraints. The last step in the IT planning process is to select the projects and assign resources to them. Information systems can be and often are central to business strategy. Michael Porter, who developed
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the concept of the strategic value of competitive advantage, has written several books and articles on strategic planning and competition. He and many other experts emphasized the importance of using IT to support strategic plans and provide competitive advantage. Many information systems are classified as being strategic information systems because they directly support key business strategies. For example, information systems can help an organization to be a low-cost producer. Wal-Marts inventory control system is a classic example of such a system. Information systems can support a strategy of providing specialized products or services that set a company apart from others in the industry. Consider, for example, Federal Expresss introduction of online package tracking systems. Information systems can also support a strategy of selling in a particular market or occupying a specific project niche. Owens-Corning developed a strategic information system that boosted the sales of its home-insulation products by providing its customers with a system for evaluating the energy efficiency of building designs. Even though many IT projects might not produce strategic information systems or receive great publicity, it is critical that the IT project planning process start by analyzing the organizations overall strategy. Organizations must develop a strategy for using IT to define how it will support the organizations objectives. This strategy must be aligned with the organizations plans. Most organizations face a large number of problems and opportunities for improvement. Therefore, an organizations strategic plan must guide the project selection process. Research shows that supporting explicit business objectives is the primary reason that firms cite for investing in IT projects. Other main reasons include supporting implicit business objectives and providing financial incentives, such as a good internal rate of return (IRR) or net present value (NPV). These financial criteria are discussed later in this unit. The following table summarizes the main reasons why firms invest in IT projects and shows that most IT projects score well on a weighted scoring model.
Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
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Exercises
1 Imagine a situation in which you work as a project manager of the McCormick project, and the project is unsuccessful. Resources are unavailable, the project exceeds its time frame, and the goals are not met. In your opinion, which component was incorrect in this situation? A Integration B Time management C Project scope D Contracts and procurement What can you do to avoid such situations in the future?
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this need. Another example is that of a project for developing strong IT infrastructure, providing all employees, customers, and suppliers with the hardware and software they need to access information. As projects progress, the organization must reevaluate the need, funding, and will for each project to decide if it should be continued, redefined, or terminated. Categorizing IT projects Another method of selecting projects is based on various categorizations. One type of categorization assesses whether projects provide a response to a problem, an opportunity, or a directive: Problems are undesirable situations that prevent an organization from achieving its goals. Problems might be current or anticipated. For example, users of an information system might face problems logging on to the system or accessing information because the system has reached its capacity. To solve this problem, the company can initiate a project to enhance the current system by adding more access lines or upgrading the processor, memory, and storage space that are part of the hardware. Opportunities are circumstances that help an organization to improve. For example, a company might believe that it can enhance sales by selling products directly to customers over the Internet. The company can initiate a project to enable direct product sales from its Web site. Directives are new requirements imposed by management, government, or an external body. For example, an organization might want all its vendors to use a form of electronic data interchange (EDI) for all business transactions. The organization initiates a project to implement this form of EDI. Organizations select projects for many reasons. Projects that address problems or directives are approved and funded readily because organizations must carry out these categories of projects to prevent any negative impact on their business. Most problems and directives must be resolved quickly, but managers must also take a holistic view and seek opportunities for improving the organization by carrying out IT projects. Another categorization for IT projects is according to the time required to complete them or the end date of the project. For example, some projects must strictly be completed within a specific time line, after which they lose their viability. Some projects can be completed quicklywithin a few weeks, days, or even minutes. Many organizations have a help desk function that handles small projects with a short life span. While many IT projects can be completed quickly, it is important to prioritize them. A third categorization for project selection is according to its overall priority. Many organizations assign the high, medium, or low priority to IT projects. The high-priority projects must always be completed first, even if a low or medium priority project can be finished in less time. Usually, more potential IT projects are available than an organization can undertake at any point in time, so it is important to work on the most crucial ones first. Net present value analysis, return on investment, and payback analysis Financial considerations are an important concern in the project selection process. The three primary methods for determining the projected financial value of projects are net present value (NPV) analysis, return on investment (ROI), and payback analysis. NPV analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflow (income) and outflow (payments, negative values). Only projects with a positive NPV should be considered if financial value is a key criterion for project selection. This is because a positive NPV means the return from a project exceeds the cost of capital the return available by investing the capital elsewhere. Projects with high NPVs are preferred to projects with low NPVs, if all other parameters are constant. Exhibit 3-2 illustrates this concept for two different projects. Exhibit 3-2: Examples of NPV
Note that the sum of the cash flow, $5,000, is the same for both projects. The NPV differs because it accounts for the time value of money. Money earned today is worth more if the same amount is
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earned in the future. Project 1 had a negative cash flow of $5,000 in the first year, but Project 2 had a negative cash flow of only $1,000 in the first year. Although both projects had the same total cash flow without discounting, the financial value of the cash flow cannot be compared. NPV analysis, therefore, is a method that involves comparing cash flows for projects running into several years. To determine NPV: 1 Determine the cash inflow and outflow for the project. Exhibit 3-2 shows an example. Notice that the sources of cash inflow are listed as projected benefits and the sources of cash outflow are listed as projected costs for the project. The cash flow each year is calculated by subtracting the cost from the benefits for each year. 2 Determine the discount rate. A discount rate is the minimum acceptable rate of return on an investment. It is also called the required rate of return, hurdle rate, or opportunity cost of capital. Most companies use a discount rate based on the return that the organization expects to receive for an investment from other sources of comparable risk. In Exhibit 3-2, the discount rate used is 10 percent per year. 3 Calculate NPV. There are several ways to do so. Most types of spreadsheet software use a built-in function to calculate NPV. For example, Exhibit 3-2 shows the formula that Microsoft Excel uses: =npv(discount rate, range of cash flows), where the discount rate is in cell B3 and the range of cash flows for Project 1 are in cells B8 through F8. The formulas result yields an NPV of $2,316 for Project 1 and $3,201 for Project 2. Because both projects have positive NPVs, they are both good candidates for selection. However, since Project 2 has a higher NPV than Project 1, an organization would prefer Project 2 over Project 1. The mathematical formula for calculating NPV is:
NPV = ?t=1n A/(1+r) t
where t equals the year of the cash flows, A is the amount of cash flow each year, and r is the discount rate. A simpler way to use this formula is to first determine the annual discount rate and then apply it to the cost and benefits for each year. Calculate NPV by determining the total discounted benefits and adding the discounted cost, assuming the cost is entered as a negative number. Exhibit 3-3 and Exhibit 3-4 illustrate this method of calculating NPV. Recall that the discount rate in this example is 10 percent or 0.10. You can calculate a discount factora multiplier for each year based on the discount rate and yearfor each year as follows:
Year Year Year Year Year 1: 2: 3: 4: 5: discount discount discount discount discount factor factor factor factor factor = = = = = 1/(1+0.10) 1 1/(1+0.10) 2 1/(1+0.10) 3 1/(1+0.10) 4 1/(1+.010) 5 = = = = = .91 .83 .75 .68 .62
You can then calculate the discounted cost each year by multiplying the discount factor by the cost for each year. You calculate the discounted benefits in the same way. To calculate NPV, add the discounted benefits and the discounted cost, entering cost as a negative number. Notice that the NPV for Project 1 is 2,316 and that for Project 2 is 3,201 in Exhibit 3-3, and Exhibit 3-4, respectively. Return on investment Another important financial consideration is return on investment (ROI). ROI is calculated by dividing the income by investment. For example, if you invest $100 today and the next year, it is worth $110, your ROI is $110/100 or 0.10 or 10 %. It is best to consider discounted income and investment for multi-year projects when calculating ROI. You calculate the ROI for Project 1 as follows:
ROI = (total discounted benefits - total discounted costs)/total discounted costs ROI = (9,747 7,427) / 7,427 = 31%
A high ROI value is best for an organization. Because the ROI for Project 2 is 42 percent, an organization will prefer this project over Project 1. Many organizations have a required rate of return for projects. The required rate of return is the minimum acceptable rate of return on an investment, and it is based on the return that the organization expects to receive by investing in other sources of comparable risk. Payback analysis
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Payback analysis is another important financial tool that organizations use when selecting projects. Payback period is the amount of time it will take to recoup, in the form of net cash inflows, the net dollars invested in a project. In other words, payback analysis determines how much time will lapse before accrued benefits exceed accrued and continuing costs. Payback occurs when the cumulative discounted benefits and costs are greater than zero. Exhibit 3-3 and Exhibit 3-4 show how to calculate the payback period, NPV, and ROI. For Project 1, payback occurs in year 5 (see Exhibit 3-3), and for Project 2, it occurs in year 3 (see Exhibit 3-4). Project 2, therefore, has a better payback period because the period is shorter. Many organizations follow specific recommendations for the length of an investments payback period. They might require all IT projects to be planned for a payback period of less than three or even two years, regardless of the estimated NPV or ROI. To aid in project selection, it is important for project managers to understand their organizations financial expectations from projects. It is also important for senior managers to understand the limitations of financial estimates, particularly for IT projects. For example, it is difficult to develop good estimates of projected costs and benefits for IT projects. Exhibit 3-3: NPV, ROI, and payback analysis for Project 1
Exhibit 3-4: NPV, ROI, and payback analysis for Project 2 Weighted scoring model A weighted scoring model is a tool that provides a systematic process for selecting projects based on several criteria. These criteria can include factors, such as the organizational needs; the problems, opportunities, or directives for the organization; the amount of time it will take to complete the project; and the projects overall priority and the projected financial performance. The first step in creating a weighted scoring model is to identify the criteria important for the project selection process. This is a critical activity that is performed by holding facilitated brainstorming sessions or using groupware to exchange ideas. Some possible criteria for IT projects include: Support for key business objectives A strong internal sponsor Strong customer support A realistic level of technology Ability to be implemented in one year or less A positive NPV Low risk in meeting scope, time, and cost goals After you define the criteria, you need to assign a weight to each criterion. These weights indicate how important each criterion is. You can assign weights based on percentages. The total of these weights must be 100 percent. You then assign numerical scores to each criterion (for example, 0 to 100) for each project. The scores indicate to what extent each project meets each criterion. At this point, you can use a spreadsheet application to create a matrix of projects, criteria, weights, and scores. Do it! A-2: Selecting projects
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3 In your experience, which project selection tools have been the most helpful in assessing a projects potential? Why?
Project charters
Explanation After senior managers decide the projects to undertake, it is important to inform all concerned teams in the organization about these projects. Managers need to create and distribute documentation to start the work. This documentation can be in many different forms, but the most common form is a project charter. A project charter is a document that formally recognizes a project and provides direction on the projects objectives and management. Instead of charters, some organizations initiate projects using a simple letter of agreement, while others use formal contracts. Key project stakeholders should sign the project charter to acknowledge agreement on the need and intent of the project. A project charter is a key output of the initiation process. Exhibit 3-5 provides a sample project charter. Notice that the key parts of this project charter are: The projects title and date of authorization The project managers name and contact information A brief scope statement for the project A summary of the planned approach for managing the project A roles and responsibilities matrix A sign-off section for signatures of key project stakeholders A comments section in which stakeholders can provide important comments related to the project Exhibit 3-5: Sample project charter The sample charter shown in Exhibit 3-5 fits on one page. A project charter can be as simple as a one-page form or a memo from a senior manager, briefly describing the project and listing the responsibilities and authority of the new project manager and stakeholders. Charters can also be long, however, depending on the nature of the project. For example, a contract might serve as a project charter. Project charters need to be authored by the concerned authority with the proper knowledge and
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experience to write and sign project charters. Senior managers might verbally approve a project, but it is important to create a formal charter to clarify roles and expectations. It might be assumed that senior managers must write the charter, but that need not be the case. A simple project charter helps define clear requirements and expectations to all involved in the project. If project stakeholders are unavailable, project managers can refer to the project charter to get a better understanding of the project. After formally recognizing the existence of a project, the next step in project scope management is detailed scope planning. Do it! A-3: Discussing project charters
Exercises
1 What is a project charter?
2 Discuss the sample project charter shown in Exhibit 3-5. Use the sample charter to prepare a project charter for your current project.
3 You are working in the Internet division of your organization. You decide to upgrade from category 3 cables to category 5 cables, which is a large-scale project change. How should you modify the project charter? A Issue a new project charter B Update the current project charter C Update the product outline D Update the product description 4 A project charter includes several elements. From the items listed below, identify the element that doesnt belong to a project charter. A Scope of the project B Organizational structure C Description of the product D Benefit measurement methods
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service that the project will produce. The summary of project deliverables lists the deliverables. Deliverables in an IT upgrade project might include documentation, such as a project plan, a WBS, a detailed cost estimate, a communications management plan, and performance reports. Other deliverables include an updated inventory of all hardware and software, upgraded hardware and software, and status presentations. The final section of the scope management plan describes the quantifiable criteria that determine project success, such as cost, schedule, and quality measures. Scope statements also vary by type of project. Large, complex projects have long scope statements. Government projects often include a scope statement known as a Statement of Work (SOW). Some comprehensive SOWs might include detailed product specifications. As with many other project management documents, the scope statement should be tailored to meet the needs of the particular project. Do it! B-1: Discussing scope planning and scope statement
Exercises
1 What does scope involve?
3 Which of the following is an output of scope planning? A Descriptions of the products involved in the project B Project charter C Project constraints D Scope statement 4 The Winslow project was originally slated to create a teleconferencing system for the Winslow companys corporate office. Halfway through the project, the client wanted to add a videoconferencing system and update the companys voice mail service as well. What was the problem with this projects scope? A The scope was not analyzed. B Nothing was wrong with the project scope. C The scope was too narrow. D The scope was too broad. 5 When planning the scope of a project, you want to gain an in-depth understanding of the product to be produced. Which action will you take to achieve this? A Completing a product analysis. B Conducting a cost/benefit analysis. C Asking for expert recommendations. D Identifying alternatives.
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Exhibit 3-7: Sample intranet WBS organized by phase The work breakdown structures in Exhibit 3-6 and Exhibit 3-7 present information in a hierarchical form. The top level of a WBS is the 0 level and represents the entire project. (Note the labels on the left side of Exhibit 3-7.) The next level is level 1, which represents the major products or phases of the project. Level 2 includes the main subsets of level 1. For example, in Exhibit 3-7, the level 2 items under the level 1 item Concept include: evaluate current system, define requirements, define specific functionality, define risks and risk management approach, develop project plan, and brief Web development team. Under the level 2 item called Define Requirements are four level 3 items: define user requirements, define content requirements, define server requirements, and define server owner requirements. In Exhibit 3-7, the lowest level is level 3. The lowest level of the WBS represents work packages. A work package is a deliverable or a product at the lowest level of the WBS. As a rule, each work package in a WBS represents roughly 80 hours of effort. You can also define work packages in terms of accountability and reporting. If a project has a short time frame and requires weekly progress reports, a work package might represent 40 hours of work. On the other hand, if a project runs for a long time and requires quarterly progress reports, a work package might represent more than a 100 hours of work. The sample WBS shown here seems easy to construct and understand. However, it might be difficult to create a good WBS. To do so, you must understand both the project and its scope and incorporate the needs and knowledge of stakeholders. It is important to involve the entire project team and the customer in creating and reviewing the WBS. The team that will work on the project must be involved in creating its WBS. Arranging group meetings to develop a WBS helps all in the team understand the nature of the work and the procedures to be followed to complete the work. It also helps identify the links of coordination required between different work packages. Do it! B-2: Discussing project scope and WBS
Exercises
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3 A ______________ is the foundation for project planning. It helps identify the required deliverables for a project and provides a standard way to organize work. A Project charter B Work breakdown structure C Scope verification and control document D Project management scope plan 4 What is the benefit of using an outline WBS? A Its a practical way to list a large number of deliverables. B It provides a visual representation of all deliverables in a treelike structure. C It simplifies understanding the various parts of the project and their interrelationships. D It includes a basic summary of each deliverable for the project.
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The analogy approach Another approach for constructing a WBS is the analogy approach. In the analogy approach, you use a similar projects WBS as a starting point. McDonnell Aircraft Company provides an example of using an analogy approach when creating a WBS. McDonnell designs and manufactures several different types of fighter aircrafts. When creating a WBS for a new aircraft design, the company starts by using 74 predefined subsystems for building a fighter aircraft based on past experience. There is a level 1 WBS item for the airframe composed of level 2 items, such as a forward fuselage, center fuselage, aft fuselage, and wings. This generic product-oriented WBS provides a starting point for defining the scope of new aircraft projects and developing cost estimates for new aircraft designs. Some organizations maintain a repository of WBSs and other project documentation on file to assist the project teams. Viewing examples of other similar projects WBSs allows you to understand different ways to create a WBS. The top-down and bottom-up approaches Two other approaches for creating WBSs are the top-down and bottom-up approaches. Most project managers consider the top-down approach of WBS construction as conventional. To usethe topdown approach , start with the largest items of the project and break them into their subordinate items. This process involves progressively dividing the work into minute levels of detail. For example, Exhibit 3-7 shows how work was broken down to level 3 for part of the intranet project. After finishing the process, all resources are assigned at the work package level. The top-down approach is best suited to project managers who have vast experience and technical insight into several types of projects. In thebottom-up approach , team members first identify the maximum possible specific tasks related to the project. The team members then aggregate the specific tasks and organize them into summary activities or higher levels in the WBS. For example, a group of team members might be responsible for creating a WBS to create an intranet. These team members can directly focus on the tasks they need to perform to create an intranet. Next, they group the tasks into categories. Then, they group these categories into high-level categories. Project managers often use the bottom-up approach for projects that represent entirely new systems or approaches to performing a task or to help create buyin and synergy with a project team. Advice for creating a WBS Creating a good WBS can require several iterations. Often, it is best to use a combination of approaches to create a project WBS. There are some basic principles that apply to creating any good WBS: A unit of work must appear at only one instance in the WBS. The work content of a WBS item is the sum of the WBS items below it. A WBS item is the responsibility of only one individual, even though many team members might work on it. The WBS must be consistent with the way in which work will be performed; it should serve the project team first and serve other purposes only if required. Project team members should be involved in developing the WBS to ensure consistency and buy-in. Each WBS item must be documented to ensure accurate understanding of the scope of work included and excluded. The WBS must be a flexible tool used to accommodate inevitable changes while maintaining control of the work in the project. At the request of many of its members, the Project Management Institute recently developed a WBS Practice Standard to provide guidance for developing and applying the WBS to project management. Do it! B-3: Developing a WBS
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Exercises
1 What are the four approaches for constructing a WBS?
Which of these approaches will be best for a project manager developing an IT project for your organization?
2 In your organization, have you or your project manager conducted meetings with the project team to review the WBS?
If you attended/conducted a meeting for reviewing your projects WBS, how did the meeting impact the WBS?
3 The first step you should take to design and use a WBS includes: A Reviewing the relevant historical information B Listing the breakdown of deliverables C Comparing project progress to the WBS D Asking for expert recommendations about the WBS 4 Consider a project where you are helping a company construct a new office building. What is the first step you take to create a good WBS? A Identify data relevant to the WBS B Examine use of resources C Compare actual progress to scheduled progress D List the breakdown of the deliverables
Factor
Lack of user input
Rank
1
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Incomplete requirements and specifications Changing requirements and specifications Lack of executive support Technology incompetence Lack of resources Unrealistic expectations Unclear objectives Unrealistic time frames New technology
2 3 4 5 6 7 8 9 10
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techniques also help users play a key role in defining system requirements. Articulate all requirements, document them, and make them readily available. Several tools are used to automate this function. For example, a type of software, called a requirements management tool, helps record and maintain requirements, provides immediate access to the information, and assists in establishing necessary relationships between requirements and information created by other tools. Create a requirements management database for documenting and controlling requirements. Computer Aided Software Engineering (CASE) tools or other technologies can help maintain a repository for project data. Ensure adequate testing to verify that the projects products perform as expected. Conduct testing throughout the project life cycle. Use a process for reviewing requested changes in requirements from a systems perspective. For example, ensure that scope changes include associated cost and schedule changes. Ensure approval by appropriate stakeholders. Emphasize completion dates. For example, a project manager at Farmland Industries, Inc. in Kansas City, Missouri, kept a 15-month, $7 million integrated supply-chain project on track by setting the project deadline. In the project managers words, May 1 was the drop-dead date, and everything else was backed into it. Users would come to us and say they wanted something, and wed ask them what they wanted to give up to get it. Sticking to the date is how we managed scope creep. Project scope management is important, especially on IT projects. Organizations must first select important projects, plan how to perform the work of the project, break down the work into manageable segments, verify the scope with project stakeholders, and manage changes to project scope. Using the basic project management concepts and techniques discussed in this unit can help you successfully perform project scope management. Do it! C-1: Discussing scope verification and change control
Exercises
1 From the following statements, select the option that correctly states what happens during scope verification. A This process is used to make the WBS clear and easy to understand. B This process is used to gain the acceptance of the current project status and the final sign-off on the projects scope. C This process is used to provide a framework that you can use to identify projects for organizations, accounting systems, and funding sources. D This process is used to break down the summary deliverables into small, clearly defined deliverables. 2 List some factors that can lead to scope creep in IT projects.
3 Discuss the theory and practice behind using project charters, scope statements, and WBSs.
4 Rate the suggestions to increase user input on a scale from 1 to 5. Which suggestions seem most beneficial?
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5 Which types of projects will most benefit from your first choice in the list? From your last choice?
2 A project constraint is a factor that must be managed to finish a project successfully. True or false?
True
4 When writing a scope statement, list the information you want to include.
The scope statement includes a project justification, a brief description of the projects products, a summary of all project deliverables, and a statement of what determines project success.
6 After reviewing a projects scope statement, the project stakeholders are happy with what they read and decide to move on to the next phase. What is the next phase? A Begin the project management process B Create a statement of work C Rewrite the scope statement D Develop a detailed project plan
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Project time management involves all tasks and processes performed to ensure timely completion of a project. However, achieving this result can be challenging. The main processes involved in project time management include:
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Activity definition, which involves identifying the specific activities that the project team members and stakeholders must perform to develop project deliverables. An activity or a task is an element of work, listed on the WBS, which can be completed in an expected duration, at a specific cost, and by meeting specific resource requirements. Activity sequencing, which involves identifying and documenting the relationships between project activities. Activity duration estimating, which involves estimating the number of work periods required to complete each activity. Schedule development, which involves analyzing activity sequences, activity duration estimates, and resource requirements to create the project schedule. You can effectively manage your time by performing these processes and by using basic project management tools and techniques. Generally project managers are familiar with some form of scheduling, but many managers are not experienced in using most of the tools and techniques unique to project time management, such as Gantt charts, network diagrams, and critical path analysis. Do it! A-1: Discussing the components of time management
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schedule for the project, and finally, the projects cost. The order of these three items reflects the basic order of the first three processes in time management: activity definition (detailing the scope), activity sequencing (detailing the time), and activity duration estimations (detailing the cost). These three project time management processes are the basis for creating a project schedule. Activity definition results in a project team developing a detailed WBS and supporting explanations. The goal of this process is to ensure that members of the project team completely understand the work that is part of the project scope. The WBS is often examined further during this process as the project team members define, in detail, the activities required for performing and completing the work. As stated earlier, activities or tasks are elements of work performed during the course of a project and they are defined in terms of expected duration, costs, and resource requirements. Activity definition also provides supporting documents, important product information, and assumptions and constraints related to specific activities. The project team should review the revised WBS and supporting documents with project stakeholders before moving on to the next step in project time management. Do it! A-2: Defining a schedule and an activity
Activity sequencing
Explanation After defining project activities, the next step in project time management is activity sequencing. Activity sequencing involves reviewing the activities in the detailed WBS, detailed product descriptions, assumptions, and constraints to determine the relationships between activities. It also involves evaluating the reasons for dependencies and the different types of dependencies. Adependency or a relationship shows the sequencing of project activities or tasks. Determining these relationships or dependencies between activities has a significant impact on developing and managing a project schedule. There are three basic reasons for creating dependencies among project activities: Mandatory dependencies are inherent in the nature of the work being done on a project. They are sometimes referred to as hard logic. For example, you cannot test code until after the code is written. Discretionary dependencies are defined by the project team. For example, a project team might follow a good practice and not start detailed design of a new information system until the users sign off the analysis work. Discretionary dependencies are sometimes referred to as soft logic. They should be used with care because they might limit later scheduling options. External dependencies involve relationships between project and non-project activities. The installation of a new operating system and other software might depend on the delivery of new hardware from an external vendor. As with defining activities, it is important that project stakeholders work together to discuss and define the activity dependencies on their project. Some organizations define guidelines based on the activity dependencies of similar projects. Other organizations rely on the skills of the experts working on the project and their interactions with other employees. Some stakeholders like to write each activity letter or name on a Post-It note or some other moveable paper to determine dependencies or sequencing. Still others use project management software to establish relationships. Just as it is easier to write a research paper by first putting down the thoughts on paper before typing into a word
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processor, it is usually easier to manually perform activity sequencing before entering the information into project management software. Many organizations might not define activity dependencies and do not use them in project time management. You must define the sequence of activities to be able to use some of the most powerful schedule tools: network diagrams and critical path analysis. Project network diagrams Project network diagrams are preferred for showing activity sequencing. Aproject network diagram is a schematic display of the logical relationships among, or sequencing of, project activities. A sample network diagram for Project X, which uses the arrow diagramming method (ADM) or activity-on-arrow (AOA) approach, is shown in Exhibit 4-2. Exhibit 4-2: Sample activity-on-arrow (AOA) network diagram for Project X The format of this project network diagram uses the activity-on-arrow (AOA ) or arrow diagramming method (ADM )a networkdiagramming technique in which activities are represented by arrows and connected at points called nodes to illustrate the sequence of activities. A node is simply the start and end point of an activity. The first node signifies the start of a project, and the last node represents the end. Note the main elements in this network diagram. The letters A, B, C, D, E, F, G, H, I, and J represent activities required to complete the project. These activities are derived from the WBS and activity definition process described earlier. The arrows represent the activity sequencing or relationships between tasks. For example, Activity A must be performed before Activity D; Activity D must be completed before Activity H, and so on. Keep in mind that a network diagram represents activities that must be performed to complete a project. Every activity on the project network diagram must be completed for the project to finish. It is also important to note that not every item on a WBS needs to be included in a project network diagram, especially on large projects. Sometimes, it might be enough to include summary tasks on a project network diagram or split the project into several small network diagrams. Some tasks that the team is familiar with must be completed regardless of other activities, and these tasks might not be included in the network diagram. Assuming you have a list of project activities and their start and finish nodes, follow these steps to create an AOA network diagram: 1 Identify all the activities that start at node 1. Draw their finish nodes, and draw arrows from node 1 to each of the finish nodes. Insert the activity letter or the name of the associated arrow. If you are working with a duration estimate, specify the estimate next to the activity letter or name, as shown in Exhibit 4-2. For example, A = 1 means that the duration of Activity A is one day, one week, or other standard unit of time. Ensure you insert arrowheads on all arrows to signify the direction of the relationships. 2 Continue drawing the network diagram, working from left to right. Look for bursts and merges. Bursts occur when a node is followed by two or more activities. A merge occurs when two or more nodes precede a node. For example, in Exhibit 4-2, node 1 is a burst because it is followed by the nodes 2, 3, and 4. Node 5 is a merge preceded by nodes 2 and 3. 3 Continue drawing the project network diagram until all activities are included. 4 All arrowheads should face toward the right, and no arrows should cross the AOA network diagram. You might need to redraw the diagram to make it look presentable. Even though AOA or ADM network diagrams are easy to understand and create, a different method is more commonly used: the precedence diagramming method. The precedence diagramming method (PDM) is a network diagramming technique in which boxes represent activities. It is useful for visualizing specific types of time relationships. Exhibit 4-3 illustrates the types of dependencies that can occur among project activities. After you determine the reason for a dependency between activities (mandatory, discretionary, or external), you must determine the type of dependency. Note that the terms activity and task are used interchangeably, as are relationship and dependency. The four types of dependencies or relationships between activities
http://129.200.9.102:8080/elibrary/ebooks/business_ebooks/IT%20Project%20Management.htm[25-Apr-13 03:07:19 PM]
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are: Finish-to-start. A relationship where one activity must finish before its successor activity can start. For example, you cannot provide user training until the software or a new system is installed. Finish-to-start is the most common type of relationship or dependency. Start-to-start. A relationship where one activity must start when or before its successor activity can start. For example, if a company wants to set up a data center with 100 workstations, the successor activity of configuring applications on each of the desktops will start only if the activity of physical installation of the computers has begun. Finish-to-finish. A relationship where two activities can begin independently of each other, but the predecessor activity must finish before its successor activity can finish. For example, quality control efforts cannot finish before production is complete, although the two activities can be performed at the same time. Start-to-finish. A relationship where one activity must start before its successor activity can finish. This type of relationship is rarely used. Exhibit 4-3: Task dependency types
Exhibit 4-4 illustrates Project X using the PDM method. Notice that the activities (A, B, C, D, etc.) are listed inside boxes, which represent the nodes in this diagram. Arrows and arrowheads are again used to show the relationships between activities. This exhibit was created using Microsoft Project 2003, and the application automatically places additional information inside each node. Each task box includes the start and finish date, labeled Start and Finish; the task ID number, labeled ID; the tasks duration, labeled Dur; and the names of any resources assigned to the task, which is labeled Res. Some nodes appear in red with a thicker border and no shading. These nodes represent the critical path, which will be discussed later in this unit. Exhibit 4-4: Sample precedence diagramming method (PDM) network diagram for Project X PDM is used more often than AOA diagrams and offers a number of advantages over the AOA technique. First, most project management software uses the PDM method. Second, the PDM method avoids the need for using dummy activitiesactivities without the duration and resources occasionally required on AOA diagrams to show logical relationships between activities. Third, the PDM method shows different dependencies among tasks, but the AOA method uses only finish-tostart dependencies. Do it! A-3: Sequencing activities
Exercises
1 What is activity sequencing?
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Activity duration
Explanation After defining activities and determining their sequence, the next process in project time management is to estimate the duration of activities.Duration includes the amount of time worked on an activity plus the elapsed time. For example, even though it might take one week or five working days to perform an activity, the duration estimate might be two weeks to allow a developer working only half time on the activity and a developer who must wait a week to obtain the required information. As in defining activities and their sequences, it is important for the project stakeholders to discuss activity duration estimates. The developers who perform the work, in particular, should participate in defining the duration estimates because they will be able to provide realistic estimates regarding the productivity and performance. It also helps to review similar projects and seek the advice of experts in estimating activity durations. Several types of input are required for activity duration estimations. The detailed activity list and sequencing provides a basis for estimates. It is also important to review constraints and assumptions related to the estimates. Historical information related to the activities can also be helpful. One of the most important considerations in making duration estimates is the availability of resources, especially human resources, and the skills of the human resources. The output of activity duration estimations includes duration estimates for each activity, the basis of the estimates, and updates to the WBS. Updates to the WBS are made when project team members decide that specific activities should be examined further based on their duration estimates. Do it! A-4: Estimating activity duration
Exercises
1 What is activity duration?
3 Write about a project that you completed successfully. Recall some of the constraints and assumptions and how they impacted your duration estimates.
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Gantt charts
Gantt charts provide a standard format for displaying project schedule information by listing project activities and their corresponding start and finish dates in a calendar format. Henry Gantt developed the first Gantt chart during World War I to schedule work in job shops. Early versions simply listed project activities or tasks in one column to the left and calendar time units, such as months, to the right. The charts used horizontal bars under the calendar units to illustrate when activities should start and end. Nowadays, most project managers use project management software to create sophisticated versions of Gantt charts that allow easy updates of information. Exhibit 4-5 shows a simple Gantt chart for Project X. Exhibit 4-6 shows a more sophisticated Gantt chart based on a software launch project. The activities on the Gantt chart coincide with the activities on the WBS.
Exhibit 4-5: Gantt chart for project X Notice that the software launch projects Gantt chart contains several different symbols in addition to task bars (Exhibit 4-6). The black diamond symbol represents a milestone a significant event on a project with no duration. In Exhibit 4-6, Task 1, Marketing Plan distributed, is a milestone achieved on March 17. Tasks 3, 4, 8, 9, 14, 21, 23, 30, and 32 are also milestones. For very large projects, senior managers might want to see only the milestones on a Gantt chart. Project 2003 allows you to filter information displayed on a Gantt chart so you can easily show specific tasks, such as milestones. The thick black bars with arrows at the beginning and end represent summary tasks. For example, Activities 12 through 15Develop Creative Briefs, Develop Concepts, Creative Concepts, and Ad Developmentare all subtasks of the summary task called Advertising, Task 11. WBS activities are referred to as tasks and subtasks in most project management software. The light gray horizontal bars, such as those in Exhibit 4-6 for tasks 5, 6, 7, 10, 12, 13, 15, 18, 20, 22 and 31, represent the durations of their respective tasks. For example, the light gray bar for Subtask 5, Packaging, starts in mid-February and extends until early May. Arrows connecting these symbols show relationships or dependencies between tasks. Gantt charts often do not show dependencies, which is their major disadvantage. However, if dependencies have been established in Project 2003, they are automatically displayed on the Gantt chart.
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Exhibit 4-6: Gantt chart for software launch project Milestones are a particularly important part of schedules, and some project managers use the SMART criteria to help define them. The SMART criteria are guidelines suggesting that milestones should be specific, m easurable, a ssignable, realistic, and time-framed. For example, distributing a marketing plan is specific, measurable, and assignable if all team members are familiar with the following components: the marketing plan and the process to distribute it, the number of copies to be distributed and the recipients, and the representative responsible for the final delivery. Distributing the marketing plan is realistic and time-framed if it is an achievable event and scheduled at the appropriate time. You can use Gantt charts to evaluate progress on a project by showing the schedule information. Exhibit 4-7 shows a tracking Gantt charta Gantt chart that compares planned and actual project schedule information. The planned schedule dates for activities are called the baseline dates. The tracking Gantt chart includes columns (hidden in Exhibit 4-7) labeled Start and Finish to represent actual start and finish dates for each task as well as columns labeled Baseline Start and Baseline Finish to represent planned start and finish dates for each task. In this example, the project is completed, but several tasks missed their planned start and finish dates.
Exhibit 4-7: Sample tracking Gantt chart To serve as a progress evaluation tool, a tracking Gantt chart uses a few additional symbols: Notice that the Gantt chart in Exhibit 4-7 often shows two horizontal bars for tasks. The bottom horizontal bar represents the planned or baseline duration for each task. The bar above it represents the actual duration. If the two bars are the same length and start and end on the same date, then the schedule was the same as the planned schedule for the task. This scheduling occurred for subtask 1.1, where the task started and ended as planned on 3/4. If the bars do not start and end on the same date, then the actual schedule differed from the planned schedule. If the top horizontal bar is longer than the bottom one, the task took longer than planned, as you can see for subtask 1.2. If the top horizontal bar is shorter than the bottom one, the task took less time than planned. A striped horizontal bar, illustrated by Main Task 1, represents the planned duration for summary tasks. The black bar adjoining the striped bar shows progress for summary tasks. A white diamond on the tracking Gantt chart represents a slipped milestone. A slipped milestone means the milestone activity was completed later than originally planned. For example, the last task illustrates a slipped milestone because the final report and presentation were completed later than planned. Percentages to the right of the horizontal bars display the percentage of work completed for each task. For example, 100% means the task is completed, but 50% means the task is still in progress and is only half completed. In the columns to the left of the Gantt chart, you can display baseline and actual start and finish dates. A tracking Gantt chart is based on the percentage of work completed for project tasks or the actual start and finish dates. It allows the project manager to monitor schedule progress on separate tasks and on the entire project. For example, Exhibit 4-7 shows that this project is completed. It started on time, but it finished a little later than planned. The main advantage of using Gantt charts is that they provide a standard format for displaying planned and actual project schedule information. In addition, they are easy to create and understand. The main disadvantage of Gantt charts is that they generally do not show relationships or dependencies between tasks. If Gantt charts are created using project management software and tasks are linked, then the dependencies will be displayed, but not as clearly as they are displayed on project network diagrams. Do it! B-1: Discussing Gantt charts
Exercises
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2 Compare and discuss the Gantt charts shown in Exhibit 4-5 and Exhibit 4-6.
3 Are there any disadvantages to using a Gantt chart? If so, describe them.
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monitor performance of activities on each critical path to avoid late project completion. The critical path for a project can change as the project progresses. For example, suppose in a project, Activities A, B, C, D, E, F, and G start and finish as planned. Then, suppose Activity I runs into problems. If Activity I takes more than 4 days, it will cause path C-G-I-J to be longer than the other paths, assuming they progress as planned. This change will cause path C-G-I-J to become the new critical path. Using critical path analysis to make schedule tradeoffs It is important to know the critical path throughout the life of a project so you can make tradeoffs. If the project manager knows that one of the tasks on the critical path is running behind schedule, he or she needs to decide corrective action. Should the schedule be renegotiated with stakeholders? Should additional resources be allocated for other activities on the critical path to make up for the time? Alternatively, is it okay if the project is completed later than the planned end date? By monitoring the critical path, the project manager and the team can proactively manage the project schedule. A technique that can help project managers make schedule tradeoffs is determining the free slack and total slack for each project activity. Free slack or free float is the delay permissible for an activity, impacting the activities that follow subsequently. The early start date for an activity is the earliest possible time an activity can start based on the project network logic. Total slack or total float is time by which an activity can be delayed from its start without delaying the planned project finish date. You calculate free slack and total slack by performing a forward and backward pass through a network. A forward pass determines the early start and early finish dates for each activity. The early finish date for an activity is the earliest time when an activity can be completed based on the project network logic. The project start date is the same as the early start date for the first network activity. Early start plus the duration of the first activity brings you to the early finish date of the first activity. It is also equal to the early start date of each subsequent activity. When an activity is preceded by multiple activities, its early start date is the latest of the early finish dates of those activities. For example, task H in Exhibit 4-8 is immediately preceded by tasks D and E. The early start date for task H is the early finish date of task E because it occurs later than the early finish date of task D. A backward pass throughthe network diagram determines the late start and finish dates for each activity. The late start date for an activity is the latest possible time an activity might begin without delaying the project finish date. The late finish date for an activity is the latest possible time when an activity can be completed without delaying the project finish date. Though you can determine the early and late start dates of each activity manually, using project management software helps you complete the same task faster. The following table shows the free and total slack for all activities on the project network diagram for Project X. Determining the amount of float or slack allows project managers to know whether the schedule is flexible and the extent of flexibility. For example, at seven days, task F in this example has the most free and total slack. The most slack on any other activity is only two days. Understanding how to create and use slack information provides a basis for negotiating project schedules, if required.
Task
A B C D E F G H
Start
6/2 6/2 6/2 6/3 6/4 6/4 6/5 6/11
Finish
6/2 6/3 6/4 6/6 6/10 6/9 6/12 6/18
Late start
6/4 6/2 6/4 6/5 6/4 6/13 6/9 6/11
Late finish
6/4 6/3 6/6 6/10 6/10 6/18 6/16 6/18
Free slack
0d 0d 0d 2d 0d 7d 0d 0d
Total slack
2d 0d 2d 2d 0d 7d 2d 0d
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I J
6/13 6/19
6/16 6/23
6/17 6/19
6/18 6/23
2d 0d
2d 0d
Importance of updating critical path data In addition to determining the critical path at the beginning of a project, it is important to update the schedule with the factual data. After the project team completes activities, you should document the time taken to complete the activities and calculate the revised estimates for activities in progress or yet to be started. These revisions often cause a projects critical path to change, resulting in a new estimated completion date for the project. Proactive project managers and their teams can make informed decisions and keep stakeholders informed and involved in major project decisions. Do it! B-2: Discussing the critical path method
Exercises
1 What is critical path analysis? Why is it helpful?
2 What is crashing?
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Exhibit 4-10: Three tasks with multitasking Critical chain scheduling assumes that resources do not multitask. A developer cannot be assigned to two tasks, simultaneously, on the same project, when critical chain scheduling is in effect. Similarly, critical chain theory suggests that projects be prioritized so that developers working simultaneously on several projects can identify the tasks that are a priority. Preventing multitasking avoids resource conflicts and wasted setup time caused by shifting between the tasks. An essential concept to improving project finish dates with critical chain scheduling is to change the way managers calculate task estimates. Many managers include in an estimate a safety or a buffer, which is additional time required to complete a task, to account for various factors. These factors include the adverse impact of multitasking, distractions, interruptions, pressures, and Murphys Law, which states that if something can go wrong, it will. Critical chain scheduling removes buffers from each task and, instead, creates a project buffer, which is the time added before the projects due date. Critical chain scheduling also protects tasks on the critical path from being delayed by using feeding buffers, which is the additional time added before tasks on the critical path that are preceded by noncritical-path tasks. Exhibit 4-11 provides an example of a project network diagram constructed using critical chain scheduling. Note that the critical chain accounts for a limited resource, X, and the schedule includes
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the use of feeding buffers and a project buffer in the network diagram. The task estimates in critical chain scheduling should be less than traditional estimates because traditional estimates do not include the buffers. Task buffers should not be used so that the occurrence of Parkinsons law, which states that work expands to fill the time allowed, is reduced. The feeding buffers and project buffers help meet the project completion date. Exhibit 4-11: Example of critical chain scheduling2
Critical chain scheduling is a complicated yet powerful tool that involves critical path analysis, resource constraints, and changes in making task estimates in terms of buffers. Some project managers consider critical chain scheduling one of the most important new concepts in project management. Other managers, however, argue that this concept is the same as critical path analysis with resource leveling, a technique for resolving resource conflicts by delaying tasks. Several companies reported successes with critical chain scheduling: Lucent Technologys Outside Plant Fiber Optic Cable Business Unit used critical chain scheduling to reduce its product introduction interval by 50 percent, improve on-time delivery, and increase the organizations capacity to develop products. Synergis Technologies Group successfully implemented critical chain scheduling to manage more than 200 concurrent projects at 9 locations, making on-time delivery its top priority. The Antarctic Support Associates project team switched to critical chain scheduling to enable the Laurence M. Gould research vessel to pass sea-trial tests and be ready to embark on its voyage to Antarctica on schedule in January 1998, rather than four months late as had been anticipated.3 Do it! B-4: Discussing critical chain scheduling
Exercises
1 What are the important concepts related to critical chain scheduling?
2 ____________ occurs when a resource works on more than one task at a time.
3 How does critical chain scheduling protect tasks on the critical path from being delayed?
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The main advantage of PERT is that it attempts to address the risks associated with duration estimates. PERT has three disadvantages: it requires additional work because it requires several duration estimates; lacks several features that other probabilistic methods offer, and it is rarely used in practice. In fact, many managers confuse PERT with project network diagrams because the latter are often referred to as PERT charts. Do it! B-5: Discussing PERT
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Managing personnel
Explanation Good project managers realize that their main job is to lead the people involved in the project. Its their responsibility to coordinate between the project team and the other important project entities to create and update the project schedule. Good project managers realize that an important part of their job is to lead the human resources involved in the project. Delegating parts of a project schedule allows the project manager to focus and lead the entire project. Several leadership skills that help project managers control schedule changes include: Empowerment Incentives Discipline Negotiation It is important for a project manager to empower the project team to take responsibility for their activities. Engaging team members when creating a detailed schedule and providing timely status information empowers them to take responsibility for their actions. As a result, they feel more committed to the project. A project manager can also use financial or other incentives to encourage team members to meet schedule expectations. It might, sometimes, be effective to use coercive power or command to ensure team members respect and to meet deadlines. For example, one project manager started penalizing her team members twenty-five cents each time they delayed submitting the weekly time sheets for a project. She was amazed at how only a few of her team members were late in their submissions after the rule was implemented. Project managers must also use discipline to manage project schedules. Several project managers handling IT projects discovered that setting firm dates for key project milestones helps minimize schedule changes. It is easy for scope creep to impact IT projects. Insisting that important schedule dates be met and that proper planning and analysis be completed helps all in the team focus on completing the tasks important to the project. This discipline results in meeting project schedules. Project managers and their team members need to use good negotiation skills. Customers and management often pressure teams to shorten project duration. Some managers blame IT schedule overruns on poor estimation, but others state that the real problem is that software developers and other IT professionals might not be able to provide enough or convincing reasons in support of their estimates. It is important for the project manager and team members to provide sufficient relevant information in support of their estimates and learn to negotiate with stakeholders. Do it! C-2: Discussing people issues
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3 As a project manager, what leadership skills do you require to control schedule changes?
2 Which software do you use to manage time? What advantages have you noticed?
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Topic A In this topic, you learned that activity definition, sequencing, and duration estimating are all important processes in project time management. You learned that by determining task dependencies and then developing a project network diagram , activity sequencing is facilitated. Topic B In this topic, you learned the different tools and techniques project managers use to develop schedules. You also learned that Gantt charts, critical path method , and PERT are effective techniques in project schedule development. Topic C In this topic, you learned how to control changes to the project schedule. Finally, you learned about the various leadership skills and personnel-related issues considered while controlling changes.
2 Choose the component that is correctly paired with its definition. A Activity definition and sequencingidentifying project activities and their order of completion. B Assessing activity durationconsidering and managing factors to alter the original schedule. C Schedule development approximating the time needed to complete each project activity. D Schedule controlallotting activity time frames on a schedule based on resources and cost. 3 Two activities, C and D, are controlled by a finish-to-finish dependency. The lag time between Activity C and Activity D is four days. Choose the answer that explains what this means to your project. A Activity C must finish four days before Activity D can start. B Activity D must finish four days before Activity C can finish. C Activity C must finish four days before Activity D can finish. D Activity C must start four days before Activity D can finish. 4 Select the answer that correctly identifies the sequence of activity flow from a projects start to finish, and identifies the series of activities that must be completed on schedule for a project to finish on time. A Optimal sequence B Preferred activity order C Event cycle D Critical path 5 From the following options, select the benefit of using a Gantt chart. A It provides a standard format for displaying planned and actual schedule information. B It provides a schematic display of the logical relationships among project activities. C It illustrates activity dependencies, so that concurrent activities can be identified. D Its useful for visualizing specific types of time relationships. 6 Select the term that correctly describes activities such as crashing, fast tracking, assigning limited overtime, and implementing shortcuts. A Limited scope alteration B Duration compression C Activity crunching
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Endnotes
# 1 Reference Thamhain, H. J. and Wilemon, D. L., Conflict Management in Project Life Cycles, Sloan Management Review (Summer 1975). Goldratt, Eliyahu. Critical Chain , Great Barrington, MA, The North River Press, 1997, 218. Avraham Y. Goldratt Institute Web site, www.goldratt.com (January 2001).
2 3
management.
B Discuss the elements of resource planning. C Discuss cost estimation and identify the techniques used
for it.
D Discuss cost budgeting and identify the techniques used
for it.
E Discuss cost control using EVA.
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resources required to complete a project. The main outputs of the cost estimating process are cost estimates, supporting detail, and a cost management plan. Cost budgeting , which involves allocating a cost estimate to each work item to establish a baseline for measuring performance. The main output of the cost budgeting process is a cost baseline. Cost control, which involves controlling changes to the project budget. The main outputs of the cost control process are revised cost estimates, budget updates, corrective actions, estimates at completion, and lessons learned. To understand each process of project cost management, you must first understand the basic principles of cost management. Many of these principles are not unique to project management; however, project managers need to understand how these principles relate to their specific projects.
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Direct costs are those related to a project that can be traced back in a cost-effective way. You can attribute this cost directly to a certain project. For example, the salaries of the team working full-time on the project and hardware and software purchased specifically for the project are direct costs. Project managers should focus on direct costs because they can control them. Indirect costs are costs related to a project that cannot be traced back in a cost-effective way. For example, the cost of electricity and office supplies in a large building housing several employees working on many different projects are indirect costs. Indirect costs are allocated to projects, and project managers have little control over them. Sunk cost is the money spent in the past, before starting on a project. When deciding the projects to invest in or continue, you should not include sunk costs. Learning curve theory Learning curve theory states that when items are produced repetitively, the unit cost of the items decreases in a regular pattern over a period. Learning curve theory is used to estimate costs involved in projects for the production of large quantities of items. Reserves Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for any unforeseen situations. Contingency reserves are set aside for situations that may be partially planned for (sometimes called known unknowns) and that are included in the project cost baseline. Management reserves are set aside for unpredictable situations (sometimes called unknown unknowns). For example, if a project manager is unwell for two weeks or if an important supplier goes out of business, management reserve can be used to cover the costs. Do it! A-1: Discussing cost management
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Does the project require any unique task as stated in the projects scope statement that will impact the selection of resources? What is the organizations history in completing similar projects? What types of resources (team and material) were utilized in such projects in the past? Does the organization have the necessary human resources, equipment, and material that you can use for performing the work? Are any organizational policies likely to affect the availability of resources? A projects work breakdown structure (WBS), scope statement, historical information, resource information, and policies are important input to answering these questions. It is important to brainstorm and evaluate alternatives related to resources, especially on projects that engage human resources from multiple disciplines and companies. Because human resources are critical for most projects, it is advisable that ideas and information be gathered from different sources to help develop alternatives and address resource- and cost-related issues early in a project.
Resource assignment
There are three ways to assign resources to project activities. Assign resources at a constant rate. For example, if 10 days are allotted to complete a project and a developer needs 40 hours to complete the job, the developer will work four hours per day for 10 days to complete the project. The team members time is assigned at a constant rate. Assign resources as a total. Using the previous example and assuming that a workday is eight hours long, the developer will work continuously until the job is completed and will complete the job in 5 days. Assign resources based on availability. For example, when a team members schedule does not permit a dedicated engagement, you can assign that member work when he or she has time to complete it. For example, the developer may be assigned to work the first 2 days for 10 hours each and then work 5 hours per day for the next 4 days to complete the job. Understanding how resources are assigned to activities When determining the manner in which to assign resources to a project, it is important to understand how the project will bill for those resources. For example, if it takes 10 days to develop software and the developer needs 40 hours to complete the job, you must determine if the project will be billed for 10 complete working days or for 40 hours of work. The different ways that the project can be billed for the developers time can impact the project budget. Do it! B-1: Planning resources
Exercises
1 Why is it important for project managers and their teams to determine the physical resources and the quantity of these resources?
3 Select the way in which resources are being assigned in the following example: you assign 25 programmers to work on updating the software
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continuously until the activity is completed. A At a constant rate B Based on availability C Based on established number standards D As a total 4 Select the way in which resources are assigned in the following example: you assign 25 programmers to work on updating the software for 2 days each week for 6 months. A Based on established number standards B At a constant rate C As a total
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vendor over the next three months, a definitive estimate is required to aid in evaluating vendor proposals and in allocating funds for the purchase. Definitive estimates are made one year or less prior to project completion. The accuracy of this type of estimate ranges from 5 percent to +10 percent, which means that actual costs can be 5 percent less or 10 percent more than the definitive estimate. The following table summarizes the three basic types of cost estimates.
Type of estimate ROM When done Very early in the project life cycle, often 3-5 years before project completion. Early, 12 years before the project start. Later in the project, less than 1 year after the start of the project. Why done Provides estimate of cost for selection decisions. How accurate? 25% to +75%
Budgetary
Adds dollars in the budget plans. Provides details for purchases and estimates actual costs.
10% to +25%
Definitive
5% to +10%
Two additional output of the cost estimating process are supporting details and a cost management plan. It is important to include supporting details with all cost estimates. These details include the ground rules and assumptions used in creating the estimate, a description of the project (such as the scope statement and WBS) used as a basis for the estimate, and details of the cost estimation tools and techniques used to create the estimate. This supporting detail makes it easier to prepare an updated estimate or a similar estimate when required. A cost management plan is a document that describes how cost variances will be managed on a project. For example, if a definitive cost estimate provides the basis for evaluating vendor cost proposals for all or part of a project, the cost management plan describes how to respond to proposals that vary from the estimates. Some organizations assume that a cost proposal within 10 percent of the estimate is acceptable and negotiate only items more than 10 percent higher or 20 percent lower than the estimated costs. Do it! C-1: Discussing cost estimation
2 What are the various types of output of the cost management process?
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Explanation There are four basic tools and techniques you can use for cost estimating: Analogous estimating Bottom-up estimating Parametric modeling Computerized tools Analogous estimating Analogous estimating , also called top-down estimating , uses the actual cost of a previous, similar project as the basis for estimating the current projects cost. It is a form of expert judgment. This method costs less than the others, but it is also less accurate. Analogous estimates are most reliable when the previous projects are similar in fact and not just appearance. In addition, the groups preparing estimates must consist of experts to determine whether specific parts of the project will be more expensive or less expensive than analogous projects. However, if the project to be estimated involves a new programming language or working with a new type of hardware or network, the analogous approach can easily result in a low estimate. Bottom-up estimating Bottom-up estimating involves estimating each work item and adding them to obtain the project total. The size of the each work item and the experience of the estimators drive the accuracy of the estimates. If a detailed WBS is available for a project, the project manager can obtain cost estimates for each work package from the team member handling that package. All the estimates would then be added to create estimates for each higher-level WBS item and finally, for the entire project. Using small work items increases the estimates accuracy because the team assigned for the work develops the estimate instead of a third party that might be unfamiliar with the work. The drawback with bottom-up estimates is that they are usually time-intensive and therefore expensive to develop. Parametric modeling Parametric modeling uses project characteristics (parameters) in a mathematical model to estimate project costs. For example, a parametric model might provide an estimate of $50 per line of code for a software development project based on the programming language the project is using, the level of programmers expertise, and the size and complexity of the data involved. Parametric models are most reliable when the historical information used to create the model is accurate, the parameters are readily quantifiable, and the model is flexible in terms of the size of the project. For example, the engineers at the McDonnell Aircraft Company developed a parametric model for estimating aircraft cost based on a large historical database. The model included the following parameters: the type of aircraft (fighter aircraft, cargo aircraft, or passenger aircraft), the maximum attainable speed of the aircraft, the thrust-to-weight ratio of the engine, the estimated weights of various parts of the aircraft, the number of aircrafts produced, and the amount of time available to produce them. In contrast to this sophisticated model, some parametric models involve simple rules of thumb. In another example, a large office automation project might use a ballpark figure of $10,000 per workstation based on a history of similar office automation projects developed during the same time period. More complicated parametric models are computerized. Computerized tools Computerized tools , such as spreadsheets and project management software, can simplify working with different cost estimates and cost estimation tools. Computerized tools, when used properly, can also help improve the accuracy of estimates. In addition to spreadsheets and project management software, more sophisticated tools are available for estimating software project costs. Barry Boehm is well known in the field of software development and cost estimation. He developed the popular Constructive Cost Model (COCOMO ), a parametric model for estimating software development costs based on parameters, such as the lines of source code or function points. Function points are technology-independent assessments of the functions involved in developing a system. For example, the number of input and output, the number of files maintained, and the number of updates are examples of function points. COCOMO II is a new, computerized version of Boehms model that allows you to estimate the cost, effort, and schedule when planning a new software development activity. Boehm suggests that only algorithmic or parametric models do not suffer from the limits of
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human decision-making capability. As a consequence, Boehm and many other software experts favor using algorithmic models when estimating software project costs. Do it! C-2: Using tools and techniques for cost estimation
Exercises
1 Your company is building a 10,000 square foot office complex in a district where real estate costs $250 per square foot. If you estimate the cost by multiplying these figures, which type of estimating are you using?
2 Match the following list of cost-estimating techniques with their definitions given below: bottom-up estimating, parametric estimating, and top-down estimating. Requiring senior managers to examine historical data from similar projects to develop a cost estimate for the current project Developing a cost estimate for each work package in the WBS and then compiling the total cost estimate from this information Using historical data and other variables to calculate statistical relationships
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Exhibit 5-1 also includes explanations to support budget estimates. Staff from the IS&T department included nine programmer/analysts, two database analysts, and two infrastructure technicians. Their compensation is based on employee change notices (ECNs), which provide actual salary and benefit information for employees when they are hired or transferred within the company. Notice that the compensation costs are the main part of the budget estimate. For compensation costs to form the largest part of cost estimates is typical of many IT projects. Notice that the budget amount for compensation includes an allowance for raises and overload support or overtime pay. Other explanations include brief descriptions of the travel, depreciation, rents or leases, and other supplies and expenses for the project. It is important to document assumptions and explanations when preparing cost estimates and cost budgets. In addition to providing input for budgetary estimates, cost budgeting provides a cost baseline. A cost baseline is a time-phased budget that project managers use to measure and monitor cost performance. Estimating costs for each major project activity over time provides project managers and senior managers with a foundation for project cost control.
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Performance results The work results of a project are qualitative and include processes that personnel complete and the physical environment in which they work. It is important to keep these issues in mind when allocating budgets, because the money allocated can affect work results. The performance results of a project are quantitative and regulate the quality and quantity of work completed and the amount of time required to complete the work. When allocating budgets, it is important to keep in mind that the amount of money allocated for a project can affect performance results. Cost management plan A cost management plan is developed to provide guidelines for the project manager, when dealing with cost variances. The extent of detail included in a cost management plan is dependent on the needs of the project stakeholders. The plan should outline steps to be taken if the actual project costs are higher or lower than the approved project budget. To make a project management plan useful, the accumulated costs of the project must always be available by looking at the cost baseline, which is displayed as an S-curve. Project stakeholders can then compare the approved budget to the cost baseline to determine if the project costs are as planned. Do it! D-1: Budgeting cost
2 What are the two standards to be kept in mind while establishing standards for cost budgeting?
Capital budgeting
Explanation Organizations choose projects in which the benefits exceed the costs. These benefits can be financial or non-financial. Capital budgeting is a technique used to determine the financial benefits that a project can bring to an organization. In addition, capital budgeting involves the evaluation of projects that require the purchase of major fixed assets, such as buildings and equipment. It is important to understand some specific concepts when learning about capital budgeting. Payback period Discounted cash flows Net present value Internal rate of return Payback period A payback period is the amount of time that an organization needs to recover its initial investment and become profitable. To recover its initial investment, an organization calculates expected cash inflows. For example, if a building costs an organization $30,000 to build, and the expected inflows are $6000 per year, the payback period would be 5 years.
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However, it is important to realize that using the payback period technique is not a precise method of capital budgeting because it does not take into account the time value or the effects of inflation on the value of todays dollars. In the previous example, the $6000 inflow in the fifth year would not necessarily be worth the amount it is today. Discounted cash flows It is important to understand that a dollar today is worth more than a dollar 10 years from now. Discounting cash flows enable you to discount future values of money to their present values to compare them. This can be an effective way to assess the value of an investment. The equation to use for discounted cash flows is:
PV = [CF 1 /(1 + k) 1 ] + [CF 2 /(1 + k) 2 ] . . . [CF n /(1 + k) n ]
In this equation, PV represents the present value of the cash flow stream, n represents the number of years, CF n represents the cash flow amount during period n, and k is the investment interest rate. For example, you want to determine the present value (PV) of an uneven cash flow stream (CF1, CF2, and so on) over a three-year time period (n), at an interest rate of 10% (k). The assets cash flow stream includes $300 in the first year, $400 in the second year, and $500 in the third year. To calculate the PV of this cash flow stream, plug the appropriate numbers into the equation:
PV = [300/(1 + .10) 1 ] + [400/(1 + .10) 2 ] . . . [500/(1 + .10) 3 ] = $978.96
Net present value Net present value , or NPV, is a capital budgeting equation that compares the discounted cash inflows against the initial investment to make sure that the inflows are large enough to recover the investment. Completing the NPV enables an organization to determine if an investment is worthwhile. To calculate NPV, subtract the initial investment from the sum of discounted cash flows. If the NPV is negative, you should reject the investment. If the NPV is positive, you should accept the investment. Do it! D-2: Budgeting capital
Exercises
1 What will the payback period be if an organization purchased a piece of equipment for $90,000 and expects it to produce inflows of $3000 per year? A 30 years B 3 years C 35 years D 18 years 2 Which of the following capital budgeting concepts enables you to reduce future values of money to the present value of money in order to compare them? A Payback period B Discounted cash flows C Net present value D Internal rate of return 3 Determine why using a projects payback period is not completely accurate. A Using the payback period doesnt take into account the time value of money or the effects of inflation. B Using the payback period doesnt consider revised project strategies and goals. C Using the payback period doesnt account for a projects long-term financial growth and time management advantages.
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D Using the payback period doesnt consider adjustments to the projects time frame or the projects scope. 4 Determine whether the following project was worthwhile: Company A invested $2,000,000 to streamline its production process and expected cash inflows of $1,850, 000 over the long term. A These amounts dont provide enough information to determine whether or not Company As investment was worthwhile. B Using the payback period doesnt account for a projects long-term financial growth and time management advantages. C Based on these amounts, Company A was correct in investing the money to streamline its production process.
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planned effort of 30 hours. The planned duration is five days. Description. This section provides a detailed description of the activity. Assumptions. Major assumptions related to this particular WBS item are documented. Results/Deliverables. This section briefly lists the main outcomes from the WBS item. Dependencies . This section lists the WBS number for any predecessor or successor activities. Exhibit 5-2: Cost control input form for a business systems replacement project Because the activity has not yet started, it does not include the actual number of hours or the actual duration for the activity. Actual cost, actual duration, and percentage complete information is required to perform EVM. Do it! E-1: Controlling cost
Exercises
1 What is EVM?
2 Which one of the following best defines cost control? A Cost control involves identifying changes to the cost baseline and then managing the changes. B Cost control involves deciding the resources required to complete project activities. C Cost control entails estimating the cost of the resources needed to complete a project. D Cost control involves distributing overall cost estimates to specific project activities.
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complete after week 1. To calculate the earned value (EV) for week 1, you multiply the planned value of $10,000 for week 1 by 75 percent to obtain an earned value of $7,500 for the activity at that point in time.
Activity Week 1 Week 2 Total % Complete after week 1 75% Earned value after week 1 (EV) 7,500
Purchase Web server Planned value (PV) Actual cost (AC) Cost variance (CV) Schedule variance (SV) Cost performance index (CPI) Schedule performance index (SPI)
10,000
10,000
10,000
10,000
15,000 7,500
5,000
20,000
2,500
50%
75%
The following table summarizes the formulas used in EVA. Note that all these formulas start with EV, the earned value. Variances are calculated by subtracting the actual cost or planned value from EV, and indexes are calculated by dividing EV by the actual cost or planned value. The earned value calculations in the previous table are carried out as follows:
EV = $10,000 x 75% = $7,500 CV = 7,500 15,000 = 7,500 SV = 7,500 10,000 = 2,500 CPI = 7,500/15,000 = 50% SPI = 7,500/10,000 = 75%
Term
Earned value Cost variance Schedule variance Cost performance index Schedule performance index
Formula
EV = PV to date X percent complete CV = EV AC SV = EV PV CPI = EV/AC SPI = EV/PV
Cost variance (CV ) is the budgeted cost of work performed minus the actual cost of work performed. In other words, cost variance shows the difference between the estimated cost of an activity and the actual cost of that activity. If cost variance is negative, it means that performing the work cost more than planned. If cost variance is positive, it means that performing the work cost less than planned. Schedule variance (SV) is the budgeted cost of work performed minus the budgeted cost of work scheduled. Schedule variance shows the difference between the scheduled completion of an activity and the actual completion of that activity. A negative schedule variance means it took longer than planned to perform the work, and a
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positive schedule variance means it took less time than planned to perform the work. The cost performance index (CPI ) is the ratio of work performed to actual costs and can be used to estimate the projected cost of completing the project. If the cost performance index is equal to one, then the budgeted and actual costs are equal, or the costs are exactly as planned. If the cost performance index is less than 1 or less than 100 percent, the project is exceeding its budget. If the cost performance index is greater than 1 or more than 100 percent, the project is within its budget. The schedule performance index (SPI) is the ratio of work performed and work scheduled. It can be used to estimate the projected time to complete the project. Similar to the cost performance index, a schedule performance index of 1 or 100 percent means that the project is according to the schedule. If the schedule performance index is greater than 1 or 100 percent, then the project is ahead of schedule. If the schedule performance index is less than 1 or 100 percent, the project is behind schedule. Note that, in general, negative numbers for cost and schedule variance indicate problems in those areas. The project will cost more than planned or will take longer than planned. Likewise, CPI and SPI of less than 100 percent also indicate problems. Earned value calculations for all project activities (or summary level activities) are required to estimate the earned value for the entire project. Some activities may be over budget or behind schedule, but others may be under budget and ahead of schedule. By adding all the earned values for all project activities, you can determine how the entire project is performing. Exhibit 5-3 provides sample earned value information for a one-year project. This project had a planned total cost of $100,000. The spreadsheet shows the actual cost and percentage complete information for the first five months, or through the end of May. Notice the % Complete column on the upper-right side, or in column O, of the spreadsheet. The EV for each activity is calculated by multiplying the percent complete value with the planned or budgeted cost. The Monthly Actual row (row 15 of the spreadsheet) shows the actual cost each month for the projects activities through May. By calculating the total budgeted or planned costs, the total actual costs, and the earned value costs, you can determine the cost variance, schedule variance, cost performance index, and schedule performance index for the entire project (see cells A18 through B25 in Exhibit 5-3. Exhibit 5-3: Earned value calculations for a one-year project after five months of operations In this example, the cost variance is $9,000, and the schedule variance is $2,000. These values mean that the project is both over budget and behind schedule after five months. The cost performance and schedule performance indexes are 83 percent and 96 percent, respectively. You can use the SPI to calculate the time required to complete the project. For example, in Exhibit 5-3 the estimated cost at completion is $120,455, or $100,000/83 percent. The estimated time to complete the project is 12.55 months, or 12 months/96 percent (see cells A26 through B27). You can graph earned value information to track project performance. Exhibit 5-4 shows an earned value chart for the one-year sample project from Exhibit 5-3. The chart includes: Planned value (PV), the cumulative planned amounts for all activities by month. Note that the planned value line extends for the estimated length of the entire project. Actual cost (AC), the cumulative actual amounts for all activities by month. Earned value (EV), the cumulative earned value amounts for all activities by month. Budget at Completion (BAC) , the original total budget for the project, or $100,000 in this example. The BAC point is plotted on the chart at the original time estimate of twelve months. Estimate at Completion (EAC) estimated to be $120,455. This EAC point is plotted on the chart at the estimated time to complete in 12.55 months. Exhibit 5-4: Earned value chart for the project after five months Viewing earned value information in chart form helps you visualize how the project is performing. For example, you can see the planned performance by looking at the PV (or BCWS) line. If the
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project progresses as planned, it will complete in 12 months and cost $100,000, which is represented by BAC. In this example, the actual cost of work performed line is always to the right or above the EV (or BCWP) line. When this is the case, costs are equal to or more than planned. The PV line is pretty close to the EV line, just slightly higher for the last month. This relationship means that the project progressed on schedule until the last month, when the project got a little behind schedule. Senior managers overseeing multiple projects often like to see performance information in a graphic form, such as this earned value chart. Earned value charts allow you to see quickly how projects are performing. If there are serious cost and schedule performance problems, senior managers might decide to terminate projects or take other corrective action. The estimates upon project completion are important input to budget decisions, especially if total funds are limited. EVA is an important technique because when used effectively, it helps senior managers and project managers evaluate progress and make sound management decisions. Earned value analysis, however, is not used on many projects outside of government agencies and their contractors for two reasons: its focus on tracking actual performance versus planned performance and the importance of percentage completion data in making calculations. Many projects, particularly IT projects, lack good planning information, therefore, tracking performance against a plan might produce misleading information. Several estimates are made on IT projects, and keeping track of the latest estimate and the actual costs associated with it can be cumbersome. In addition, estimating percentage completion of tasks might produce misleading information. What does it really mean to say that a task is 75 percent complete after three months? Such a statement is often not synonymous with saying the task will be finished in one more month or after spending an additional 25 percent of the planned budget. To make EVA easier to use, organizations can modify the level of detail and still reap the benefits of the technique. For example, you can use percentage completion data such as 0 percent for items not yet started, 50 percent for items in progress, and 100 percent for completed tasks. Till the time the project is defined in detail, this simplified percentage completion data provides enough summary information to allow managers to see a project performance. You can obtain very accurate information about total project performance by using these simple percentage complete amounts. Earned value analysis is the primary method available for integrating performance, cost, and schedule data. It can be a powerful tool for project managers and senior managers to use in evaluating project performance. Do it! E-2: Calculating EVA
Exercises
1 Calculate the cost variance for the following example: Company As office construction team estimated that the budget for laying the buildings carpet should be $35,000. However, after the work was completed, the cost was $40,000. A $5000 B $75,000 C $75,000 D $5000 2 If the cost variance for laying the carpet is $5000, determine if Company A overspent, underspent, or spent on budget to complete this activity. A Company A underspent its budget to carpet the premises. B Company A overspent its budget to carpet the premises. C Company As budget is right on track after laying the carpet. 3 Calculate the schedule variance in the following example: For landscaping, the budgeted cost of work performed is $25,000, and the budgeted cost of work scheduled is $65,000.
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A $90,000 B $90,000 C $40,000 D $40,000 4 Determine the projects status in the following example: During the one-year update of Company As office construction project, the analysis showed that the PV (or BCWS) was $1,000,000, the AC (or ACWP) was $500,000, and the EV (or BCWP) was $750,000. A The project operated within its budget but was behind schedule. B The project operated over its budget and was behind schedule. C The project operated both on schedule and according to the assigned budget. D The project operated within its budget but ahead of its schedule.
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CV = EV AC = 20,000 - 25,000 = -5,000 SV = EV PV = 20,000 23,000 = -3,000 CPI = EV / AC = 20,000 / 25,000 = 80% SPI = EV / PV = 20,000 / 23,000 = 87%
How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or over budget?
Because the CPI is less than 100% (its 80%), the project is exceeding its budget. Because the SPI is less than 100% (its 87%), the project is behind schedule.
Use the SPI to estimate how long it will take to finish this project.
The project is scheduled for 1 year; therefore, 12months / SPI = 12 / 87 = 13.79 months.
2 Create a cost estimate for building a new state-of-the art multimedia classroom for your organization within the next six months. The classroom should include 20 high-end personal computers with appropriate software, a network server, Internet access for all machines, a teacher station, and a projection system. Be sure to include all personnel costs associated with the project management for this project. Document the assumptions you made in preparing the estimate and provide explanations for key numbers.
Answers might vary.
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Quality must be viewed at an equal level with project scope, time, and cost. If stakeholders are not satisfied with a projects quality or its resulting products, the project team will need to make adjustments to scope, time, and cost to meet the stakeholders expectations. Meeting documented requirements for scope, time, and cost is not sufficient. For stakeholders satisfaction, the project team must develop a good working relationship with all stakeholders and understand their stated or implied needs. The main purpose of project quality management is to ensure that a project meets the needs for which it was undertaken. It involves three processes: Quality planning includes identifying and meeting the quality standards relevant to the project. Incorporating quality standards into project design is a key part of quality planning. For an information technology (IT) project, quality standards may include allowing for system growth, planning a reasonable response time for a system, or ensuring consistent and accurate information. Quality standards can also apply to IT services. For example, you can set standards to limit the time taken by a help desk to answer queries or ship a replacement for a hardware item. Quality assurance involves continuously evaluating overall project performance to ensure that the project meets the relevant quality standards. The quality assurance process involves taking responsibility for quality both during the project and at the end of the project. Senior management must emphasize the roles of employees in quality assurance, especially the role of senior managers. Quality control involves monitoring specific project results to ensure that they comply with the quality standards and identifying ways to improve the quality. This process is often associated with the technical tools and techniques of quality management, such as Pareto charts, quality control charts, and statistical sampling.
Design of experiments is a quality technique that helps identify variables that maximally influence the outcome of a process. Understanding the variables that affect the outcome is a crucial part of quality planning. For example, computer chip designers might want to determine a combination of materials and equipment to produce reliable chips at a reasonable cost. Planning also involves communicating the correct actions clearly and completely to the team for ensuring quality. While planning for ensuring quality in projects, you must describe important factors that directly contribute to meeting the customers requirements. Organizational policies related to quality, projects scope statement and product descriptions, and related standards and regulations are essential input for the quality planning process. The main outputs of quality planning are a quality management plan and checklists to ensure quality throughout the project life cycle. It is often difficult to completely understand the performance dimension of IT projects. Even if hardware, software, and networking technology remain constant, it is often difficult for customers to explain their requirements clearly. Important scope aspects of IT projects that affect quality include functionality and features, system output, performance, reliability, and maintainability. Functionality is the degree to which a system performs its intended function. Features are the special characteristics that appeal to users. It is important to clarify the business functions and features that the system must perform, and the functions and features that are optional. System output refers to the screens and reports that the system generates. It is important to define clearly the types of screens and reports for a system.
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Performance addresses how well a product or service performs the customers intended use. To design a system with high-quality performance, project stakeholders must address issues such as the volumes of data and transactions that the system can handle, the number of simultaneous users that the system can handle, the projected growth rate of the number of users, the type of equipment that the system must use, and the response time for aspects of the system under different circumstances. Reliability is the ability of a product or service to perform as expected under normal conditions without unacceptable failures. Maintainability addresses the ease of maintaining a product. Most IT products cannot reach 100 percent reliability, but stakeholders must define their expectations. These aspects of project scope are just a few requirements issues related to quality planning. Project managers and their teams must consider all these project scope issues to determine quality goals for the project. The projects customers must also understand their role in defining the most critical quality needs for the project and constantly communicate these needs and expectations to the project team. Because most IT projects involve requirements that might be flexible, it is important for all project stakeholders to work together to balance the scope, time, cost, and quality dimensions of the project. Project managers, however, are responsible for quality management on their projects. According to Demings philosophy, 85% of all quality problems are management problems. Issues addressed by quality management Project managers and team members should carefully examine specific issues during project quality management. Some important quality management issues are: Error-prevention, which eliminates errors before they occur. Accountability, which means that the project manager is ultimately responsible for making sure the resources necessary for successful project completion are available to team members. Activity verification, which ensures that each activity is executed as planned. Lessons learned from past projects, which enable the project team to create better products, provide better service, attract new customers, retain existing customers, and regain former customers. Quality plans Quality plans are guidelines set by the project manager to maintain product standards. Some goals of quality plans include: Making sure products are fit for use when they reach customers. Products that require assembly by a customer are considered fit for use unless parts are damaged or missing. Fostering customer satisfaction by providing quality products and efficient customer service. Developing products that conform to customers needs and expectations. Do it! A-1: Addressing quality management issues
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3 Mr. Harris, a project manager, needs each of his team members to list the resources required for successful completion of the project. Which quality management issue is he trying to address?
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activities. This technique allows the project manager to determine the adjustments that must be made to the project before work begins. Flowcharting. Uses flowcharts, such as cause and effect diagrams, to illustrate relationships among parts of a project. Design of experiments. Distinguishes the parts of a project that maximally impact a projects final product. Quality policy A quality policy is a companys statement that describes the procedures and methodologies that it will follow to develop quality products and the corrective actions it will take if products are defective. Most often, the senior management defines a quality policy to be implemented by project managers and team members. If a company does not have a formal quality policy, then project managers and team members must draft one before starting a new project. It is also important that a projects stakeholders are familiar with the terms of the quality policy before a project begins. Do it! A-2: Planning for quality
Exercises
1 Which of the following is a quality planning technique used to verify if production processes meet a projects quality standards? A Decomposition B Resource loading C Design of experiments D Procurement verification 2 In your opinion, why is it important for project stakeholders to know the terms of quality policy before a project begins?
Quality audits
Project quality audits are evaluations of a projects quality management system. One purpose of project quality audits is to identify areas of improvement. It is important to conduct project quality audits because they highlight incidents of deviation from a projects quality objectives. Project quality audits can be planned or spontaneous, announced or unannounced, and should be conducted by an independent person or group. Project audits are conducted before, during, and after a project. The scope of an audit depends on the
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time at which it is performed. For example: Audits conducted before a project begins focus on the technical aspects of a project, such as product design. Auditing a products design before production begins can be an important first step toward quality improvement. Audits conducted during a project might focus on the progress of the project according to the schedule and budget provisions. If a project runs behind schedule, an audit can help determine the causes. Audits conducted after project completion might focus on whether a product meets legal requirements or meets the actual expenses as compared to the budgeted expenses. Conducting a credible audit For a quality audit to be credible, it is important that the person or group conducting the audit is independent from the organization whose project is the focus of the audit. Auditors should never be involved in conflicts that occur within a projects parent organization since involvement in such conflicts could jeopardize the credibility of the audit. A quality audit must be conducted by the person or group qualified to analyze project data. Qualifications vary depending on the project and the level of detail necessary for the audit. In addition, the person or group conducting the audit must be provided free access to all project data and members of a project team. Without access to the proper information and personnel, the audit cannot be conducted effectively. Do it! B-1: Conducting an audit
Exercises
1 The goal of quality assurance is improved quality of a projects processes and improved quality of end products. True or false?
2 To conduct an effective audit, the auditor should: A Be part of the organization whose project is the focus of the audit B Be qualified to analyze project data C Not be involved in conflicts occurring within a projects parent organization D Be provided free access to all project data
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Project quality audit reports are useful tools for project managers. Audit reports contain information, such as a projects status at the time of the audit and the status of activities that most influence a projects success. Audit reports often analyze the level of risk, such as likelihood of a projects failure. Determining the level of risk gives project managers and stakeholders the opportunity to consider ways to minimize the risk. In addition, audit reports should detail the assumptions made and restrictions faced during the audit. If an auditor made a faulty assumption during an audit, that assumption can impact the accuracy and validity of the audit report. Do it! B-2: Assuring quality
Exercises
1 It is the responsibility of a project quality auditor to conduct a subjective analysis of project data to determine whether a project will be a success or failure. True or false? Give reasons.
2 As a project manager for an IT project at Company A, you hired an auditor from Bedford & Brown to conduct an audit for Company As technical support team. Which information should your audit report include?
If the auditor makes any assumptions and faces any restrictions during an audit, should that be included in the audit report?
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Process adjustments correct or prevent further quality problems based on quality control measurements.
Exercises
1 The term mean refers to the number of defects that occur most frequently in a sample of product units. True or false?
2 In a data sample, the number that occurs most frequently represents: A Mean B Median C Mode D Sample size
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problems. It is, sometimes, referred to as the 8020 rule, which means that 80 percent of problems are often due to 20 percent of the causes. Theoretically, if project managers focus on the 20% of processes identified using Pareto analysis, they will be able to solve 80% of the projects problems. Pareto analysis uses histograms to list product defects based on their type and frequency of occurrence. Project managers can use Pareto analysis to rank defects according to severity, and then focus on correcting the most critical defects. In addition, Pareto analysis diagrams are used to determine whether corrective action has actually rectified a problem. It also evaluates the differences between project activities or methods. A Pareto diagram is an effective tool for analyzing user complaints and helping project managers prioritize the complaints to be addressed. For example, suppose users issued several complaints about a new Executive Information System (EIS) launched recently. You can use the Pareto diagram to analyze and address these complaints. Exhibit 6-1 shows the Pareto diagram of user complaints by category that can apply to an EIS project. The bars represent the number of complaints for each category, and the line shows the cumulative percent of the complaints. Exhibit 6-1 shows that the most frequent user complaint is log-in problems, followed by the system locking up, the system being too slow, the system being hard to use, and the reports being inaccurate. The first type of complaint accounts for 55 percent of total complaints, and the first and second types of complaints together account for a cumulative percentage of almost 80 percent, which means that these two types of complaints alone account for 80 percent of all complaints. Therefore, the company should focus on making it easier for users to log in to the system to improve quality because the majority of users face this problem. The company should also determine why systems lock up. Because the problem of inaccurate reports was rare, the project manager should determine the user who faced this problem before spending effort on addressing this potentially critical problem with the system. The project manager should also find out if complaints about the system being too slow were because users were unable to log on or the systems were locking.
Exhibit 6-1: A sample Pareto diagram Statistical sampling and standard deviation Statistical sampling is a key concept in project quality management. Members of a project team who focus on quality control must clearly understand statistics, but other team members need to understand only the basic concepts. These concepts include statistical sampling, certainty factor, standard deviation, and variability. Standard deviation and variability are fundamental concepts for understanding quality control charts. Statistical sampling involves choosing part of a population for inspection. For example, suppose a company wants to develop an electronic data interchange (EDI) system to handle data on invoices from all of its suppliers. Assume that in the past year, the total number of invoices received from 200 suppliers was 50,000. It will be time-consuming and expensive to review each invoice to determine data requirements for the new system. Even if all invoice forms were reviewed, the data might be entered differently on every form, posing problems related to interpretation. To manage and process data from a large number of sources, statisticians developed techniques to help determine an appropriate sample size. If system developers used statistical techniques, they might find that by studying only 100 invoices, a sample of the type of data required to design the system will be available. The size of the sample depends on the extent of sample representation you require. A formula for determining sample size is:
Sample size = .25 x (certainty factor/acceptable error)2
The certainty factor denotes how certain you want to be that the data sampled will not include variations that do not naturally exist in the population. You calculate the certainty factor from tables in statistics books. The following table shows commonly used certainty factors.
Desired certainty
95%
Certainty factor
1.960
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90% 80%
1.645 1.281
For example, the developers of the EDI system described earlier accept a 95 percent certainty that a sample of invoices contain no variation, unless it was part of the population of total invoices. They then calculate the sample size as:
Sample size = 0.25 x (1.960/.05)
2
= 384
If the developers require 90 percent certainty, they calculate the sample size as:
Sample size = 0.25 x (1.645/.10)2 = 68
If the developers want 80 percent certainty, they calculate the sample size as:
Sample size = 0.25 x (1.281/.20)2 = 10
Another key concept in statistics related to quality control is standard deviation. Standard deviation measures the variation in the distribution of data. A small standard deviation means that data cluster closely around the center of a distribution, and there is little variation in the data. A large standard deviation means that data are spread out around the center of the distribution, and there is relatively higher variation. Statisticians use the Greek symbol s (sigma) to represent standard deviation. Exhibit 6-2 provides an example of a normal distribution a bell-shaped curve that is symmetrical about the mean or average value of the population. In any normal distribution, 68.3 percent of the population is within one standard deviation (1s) of the mean, 95.5 percent is within two standard deviations (2s), and 99.7 percent is within three standard deviations (3s) of the mean. Note that being within 3s of the mean in this example indicates plus or minus 3s. Exhibit 6-2: Normal distribution and standard deviation
Standard deviation is important in quality control because it is a key factor in determining the acceptable number of defective units. Some companies, such as Motorola, GE, and Polaroid, are setting high quality standards by using Six Sigma (6s) as a quality control standard instead of three or four sigma. Six Sigma is considered to be one of the best-known contributions to quality improvement. The following table further illustrates the relationship between sigma, the percentage of the population within the sigma range, and the number of defective units per billion. The next section describes how sigma is used on quality control charts.
Quality control charts, six sigma, and the seven run rule A control chart is a graphic display of data that illustrates the results of a process over a period of
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time. The main use of control charts is to prevent defects, rather than to detect or reject defects. Quality control charts allow you to determine whether a process is in control or out of control. When a process is in control, any variations in the results of the process are created by random events. Processes that are in control do not need to be adjusted. When a process is out of control, variations in the results of the process are caused by nonrandom events. You need to identify the causes of nonrandom events and adjust the process to correct or eliminate such events. Control charts are often used to monitor manufactured products, but they can also be used to monitor the volume and frequency of change requests, errors in documents, cost and schedule variances, and other items related to project quality management. Exhibit 6-3 illustrates an example of a control chart for a process that manufactures 12-inch rulers. Assume that these are wooden rulers created by machines on an assembly line. Each point on the chart represents a length measurement for a ruler that leaves the assembly line. The scale on the vertical axis extends from 11.90 to 12.10. These numbers represent the lower and upper specification limit for the ruler. This means that the customer has specified that all rulers must be 11.9 to 12.1 inches long or 12.0 inches, plus or minus 0.1 inch. Thus, the lower and upper control limits on the quality control chart are 11.91 and 12.09 inches, respectively. This means the manufacturing process is designed to produce rulers that are 11.91 to 12.09 inches long.
Exhibit 6-3: Sample quality control chart Note the dotted lines on the chart at 12.03 inches, 12.06 inches, and 12.09 inches. These dotted lines represent the points at one, two, and three standard deviations above the mean. The dotted lines at 11.97 inches, 11.94 inches, and 11.91 represent the points at one, two, and three standard deviations below the mean. Based on the definition of 3s described earlier, 99.73 percent of the manufactured rulers should be 11.91 to 12.09 inches long, if the manufacturing process is operating in control. Exhibit 6-4 illustratesthe concept of moving from a quality control process operating at 3s to a process operating at 6s. Important goals of quality are to reduce defects and process variability. By reducing process variability, the standard deviation of the process distribution decreases. As you continue to reduce process variability, it is possible for the product tolerance or control limits that formerly included only three sigmas to eventually include six sigmas. 1 Exhibit 6-4: Reducing defects with six sigma
Looking for patterns in process data and analyzing them is an important part of quality control. You can use quality control charts and the seven run rule to look for patterns in data. Theseven run rule states that if seven data points in a row lie below the mean, above the mean, or are all increasing or decreasing, then the process needs to be examined for non-random problems. In Exhibit 6-3, data points that violate the seven run rule are starred. In the ruler manufacturing process, these data points might indicate that a calibration device needs to be adjusted. For example, the machine that cuts the wood for the rulers might need to be adjusted or the blades on the machine might need to be replaced. Testing Many IT professionals assume testing is a stage toward the end of IT product development. Instead of putting serious effort into proper planning, analysis, and design of IT projects, some companies rely heavily on testing their products just before dispatch to ensure quality. Contrary to popular belief, testing must be performed during every phase of the product development life cycle and not just before product delivery. Exhibit 6-5 shows one way of portraying the software development project life cycle. This example includes 17 main phases involved in a software development project and shows their interrelationships. For example, every project should start by initiation, then by performing a feasibility study, and then by planning for the project. The exhibit shows that the work involved in detailing requirements and the architecture for the system can be performed simultaneously. The oval-shaped phases represent areas where you should test the product to help ensure quality on software development projects. 2
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Several phases shown in Exhibit 6-5 include specific work related to testing. A unit test is performed to test each individual component (often a program) to ensure it is defect-free. Unit tests are performed before moving on to the integration test. Integration testing occurs between unit and system testing to test functionally-grouped components. It ensures that each subset of the system works together. System testing tests the entire system as an entity. It focuses on the big picture to ensure that the entire system works properly. User acceptance testing is an independent test performed by the end user prior to accepting the delivered system. It focuses on the business fit of the system to the organization, rather than on technical issues. Do it! C-2: Discussing quality control techniques
Exercises
1 Seven run rule applies to which quality control tool? A Checklist B Pareto analysis C Control charts D Inspection 2 A projects process is out of control when the data points on a control chart are: A In a periodic pattern B Not random around the mean C Random around the mean D Hugging the control limit 3 Do you agree with the following statement? Quality cannot be infused in a project or a product by inspection.
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Business
Automated teller machines (medium-sized bank) Package shipping service Telephone ticket sales Catalog sales center Airline reservation center (small airline)
The five major cost categories related to quality include: 1 Prevention cost. This is the cost of planning and executing a project so that it is error-free or within an acceptable error range. Preventive actions such as training, detailed studies related to quality, and quality surveys of suppliers and subcontractors fall under this category. The cost of 100 dollars spent for refining user requirements can save millions by detecting defects before implementing a large system. The Year 2000 issue, commonly called Y2K, provides a good example of these costs. If companies had decided during the 1960s, 1970s, and 1980s that all dates would need four characters to represent the year instead of two characters, they could have saved billions of dollars. 2 Appraisal cost. This is the cost of evaluating processes and their output to ensure that a project is error-free or within an acceptable error range. Activities such as inspection and testing of products, maintenance of inspection and test equipment, and processing and reporting inspection data contribute to the appraisal costs of quality. 3 Internal failure cost. This is the cost incurred to correct an identified defect before the customer receives the product. Items such as scrap and rework, charges related to late payment of bills, inventory costs incurred as a result of defects, costs of engineering changes related to correcting a design error, premature failure of products, and correcting documentation contribute to the internal failure cost. 4 External failure cost. This is the cost that relates to all errors not detected and corrected before delivery to the customer. Examples of external failure cost include warranty cost, field service personnel training cost, product liability suits, complaint handling, and future business losses. 5 Measurement and test equipment costs. This is the capital cost of equipment used to perform prevention and appraisal activities. Senior management is primarily responsible for the high cost of nonconformance in IT. Senior managers often rush their organizations to develop new systems and do not give project teams enough time or resources to do a project right the first time. To correct these quality problems, senior management must create a culture that embraces quality. Organizational influences, workplace factors, and quality A study done by Tom DeMarco and Timothy Lister, which was published in Peopleware: Productive Projects and Teams , produced interesting results related to organizations and relative productivity. Starting in 1984, DeMarco and Lister conducted Coding War Games over several years. Over the years, more than 600 software developers from 92 organizations have participated in these games. The games are designed to examine programming quality and productivity over a wide range of organizations, technical environments, and programming languages. The study demonstrated that organizational issues influenced productivity in a larger way than the technical environment or programming languages. DeMarco and Lister found that productivity varied by a factor of about 1 to 10 across participants. This means that one team might have completed a coding project in one day while another team took 10 days to complete the same project. In contrast, productivity varied by an average of only 21 percent between pairs of software developers from the same organization. If one team from a specific organization finished the coding project in one day, the longest time that another team from the same
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organization took to finish the project was 1.21 days. DeMarco and Lister also found no correlation between productivity and programming language, years of experience, or salary. Moreover, the study showed that providing a dedicated workspace and a quiet work environment were key factors in improving productivity. The results of the study suggest that senior managers must focus on work-place factors to improve productivity and quality. 3 Maturity models Another approach to improving quality in software development projects and project management, in general, is the use of maturity models frameworks for helping organizations improve their processes and systems. Three popular maturity models include the Software Quality Function Deployment (SQFD) model, the Capability Maturity Model (CMM),and the Project Management Maturity Model. The SQFD model is an adaptation of the quality function deployment model suggested in 1986 as an implementation vehicle for total quality management. SQFD focuses on defining user requirements and planning software projects. The result of SQFD is a set of measurable technical product specifications and their priorities. Defining clear requirements can lead to fewer design changes, increased productivity, and, ultimately, software products that meet stakeholder requirements. Another popular maturity model, the CMM, is in continuous development at the Software Engineering Institute at Carnegie Mellon University. The Software Engineering Institute (SEI) is a federally funded research and development center established in 1984 by the U.S. Department of Defense with a broad mandate to address the transition of software engineering technology. The CMM is a five-level model that lays out a generic path for process improvement for software development in organizations. The five levels of the CMM model are: 1 Initial. The software development processes for organizations at this maturity level are ad hoc and occasionally even chaotic. Few processes are defined, and success often depends on individual effort. 2 Repeatable. Organizations at this maturity level have established basic project management processes to track cost, schedule, and functionality for software projects. Process discipline is defined to repeat earlier successes on similar projects. 3 Defined. At this level, software processes for both management and software engineering activities are documented, standardized, and integrated into a standard software process for the organization. All projects use an approved, tailored version of the standard process in the organization. 4 Managed. At this maturity level, organizations collect detailed measures of the software process and product quality. Both software processes and products are quantitatively interpreted and controlled. 5 Optimizing. Operating at the highest level of the maturity model, organizations can enable continuous process improvement by using quantitative feedback from the processes and from piloting innovative ideas and technologies.4 In the late 1990s, several organizations began developing project management maturity models based on the Capability Maturity Model. Just as organizations realized the need to improve their software development processes and systems, they also realized the need to enhance their project management processes and systems. The third maturity model is the Project Management Maturity Model . The PMI Standards Development Program made substantial progress on an Organizational Project Management Maturity Model (OPM3) Standard in 1998. PMI has worked with several companies to prepare guidelines for a maturity model for project management. The OPM3 includes a method for assessing organizations project management maturity levels and a step-by-step method for increasing and maintaining an organizations ability to deliver projects as committed. One sample project management maturity model developed by Micro-Frame Technologies, Inc. and Project Management Technologies, Inc. in 1997 has the following basic levels.
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Ad-Hoc. The project management process is described as disorganized and, occasionally, even chaotic. The organization does not follow defined systems and processes, and project success depends on individual effort. There are chronic cost and schedule problems. Abbreviated. Some project management processes and systems are defined to track cost, schedule, and scope. Project success is largely unpredictable and cost and schedule problems are common. Organized. Standardized, documented project management processes and systems are integrated into the rest of the organization. Project success is more predictable, and cost and schedule performance is improved. Managed. Management collects and uses detailed measures of effectiveness of project management. Project success is uniform, and cost and schedule performance conforms to plans. Adaptive. Feedback from the project management process and from piloting innovative ideas and technologies enables continuous improvement. Project success is the norm, and cost and schedule performance shows continuous improvement.5 Many organizations are assessing where they are in terms of project management maturity, just as they did for software development maturity. Organizations are recognizing that they must make a commitment to the discipline of project management to improve project quality. Do it! C-3: Improving IT project quality
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2 To illustrate a normal distribution, shake and roll a pair of dice 30 times and plot the results on a graph or draw a grid. It is more likely for someone to roll a six, seven, or eight than a two or twelve, so these numbers should come up more often. On the graph, label the x-axis with the numbers 2 through 12. Label the y-axis with the numbers 1 through 8. Fill in the appropriate grid for each roll of the dice. Do your results resemble a normal distribution? Why or why not?
Answers might vary.
3 Which quality control tool uses a graphic display of data that illustrates the results of a process over a period of time to prevent defects, rather than to detect or reject defects? A Trend analysis B Pareto analysis C Control chart D Flowchart
Endnotes
# 1 Reference Ireland, Lewis R. Quality Management for Projects and Programs. PMI, 1991, cover page illustration and comments. Hollstadt & Associates, Inc. Software Development Project Life Cycle Testing Methodology Users Manual. Burnsville: MN, August 1998, 13. DeMarco, Tom and Timothy Lister. Peopleware: Productive Projects and Teams. New York: Dorset House, 1987. Paulk, Mark C., Bill Curtis, Mary Beth Chrissis, and Charles V. Weber. Capability Maturity Model for Software, Version 1.1, Technical Report, CMU/SEI-93-TR-024, ESC-TR-93-177 (February 1993). Enterprise Planning Associates. Project Management Maturity Model, Interactive Quick Look (1998).
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A Define the elements of organizational planning. B Discuss staff acquisition and explain how to negotiate
successfully.
C Discuss the development of successful teams and how to
motivate them.
D Use software to assist in human resource management.
Organizational planning
Organizational planning for a project involves identifying, documenting, and assigning project roles, responsibilities, and reporting relationships. This process generates an organizational chart for the project team, as well as roles and responsibility assignments, which are often shown in a matrix form called aresponsibility assignment matrix (RAM). It also generates a staffing management plan. Before creating an organizational chart for a project, senior managers and the project manager must identify the resources they need to ensure the projects success. If the project requires Java programmers or a top-notch project manager and experienced team leaders, then this must be
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can provide the basis for defining and finalizing work requirements. The project team leaders then decide a technical approach for work. They also decide if work should be broken down using a product-oriented approach or a phased approach. In addition, they decide if part of the work can be outsourced or subcontracted. After the project team decides a technical approach, they develop a work breakdown structure (WBS) to establish manageable elements of work. They then develop activity definitions to further define the work involved in each activity on the WBS. The last step in the process is assigning the work. Exhibit 7-2: Work definition and assignment process After the project manager and project team split the work into manageable elements, the project manager assigns the work to organizational units of the project. The project manager often bases these work assignments on where the work fits in the organization and uses an organizational breakdown structure to conceptualize the process. An organizational breakdown structure (OBS) is a specific type of organizational chart that shows the organizational units and their corresponding work items. The OBS can be based on a general organizational chart and then broken down into detail based on specific units within departments in the company or units in any subcontracted companies. After developing an OBS, the project manager can create a responsibility assignment matrix (RAM). A responsibility assignment matrix (RAM) maps the work of the project as described in the WBS to the human resources responsible for performing the work, as described in the OBS. Exhibit 7-3 shows an example of a RAM. The RAM allocates work to responsible and performing organizations, teams, or individuals, depending on the required level of detail. For small projects, it is best to assign individual resources to WBS activities. For large projects, it is effective to assign the work to organizational units or teams.
Exhibit 7-3: Sample responsibility assignment matrix In addition to using the RAM to assign detailed work activities, you can use it to define general roles and responsibilities for projects. This type of RAM can include the project stakeholders. Exhibit 7-4 provides a RAM that shows whether stakeholders are accountable or participants in part of a project, and whether they are required to provide input, review, or sign off on parts of a project. This simple tool can be an effective way for the project manager to communicate the roles and expectations of important stakeholders on projects. Exhibit 7-4: RAM showing stakeholder roles Another output of organizational planning is a staffing management plan. This plan describes when and how resources will be allocated to the project team. It can be a formal or an informal plan; the level of detail will vary based on the type of project. For example, if an IT project is estimated to need an average of 100 team members for over a year, the staffing management plan describes the types of resources needed to work on the project, such as Java programmers, business analysts, and technical writers, and the number of each type of resource. The staffing management plan often includes a resource histograma column chart that shows the number of resources assigned to a project over time. Exhibit 7-5 provides an example of a histogram used for a large, one-year IT project. The columns represent the number of people needed in each areaJava programmers, business analysts, technical writers, managers, administrative staff, database analysts, and testing specialists. After determining the project staffing needs, the next few steps in project human resource management are to acquire the necessary staff and develop the project team. Exhibit 7-5: Sample resource histogram for a large IT project Do it! A-2: Identifying the elements of organizational planning
Exercises
1 Which of the following is an element of organizational planning?
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A Adoption of quality control techniques B Rough ideas for a staff management plan C Clearly defining roles and responsibilities D Greater independence from contractors 2 What is RAM?
3 A staffing management plan often includes a resource histogram. Describe this tool.
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resources. An important measure of a project managers success is how well he or she balances the tradeoffs among performance, time, and cost. During crises, it is occasionally possible to add additional resourcessuch as additional team memberswithout adding to the projects cost. On most occasions, however, resolving performance, time, and cost tradeoffs entails additional costs to the organization. The project managers goal must be to achieve success without increasing the costs or time required to complete the project. The key to accomplish this goal is to manage the human resources assigned to the project effectively. After human resources are assigned to projects, project managers can use two techniques to use project staff most effectively, resource loading and resource leveling. Resource loading refers to the number of resources the project requires during specific time periods according to the existing schedule. This technique helps project managers understand the demands a project will make on the organizations resources. Project managers often use histograms to depict period-by-period variations in resource loading. A histogram helps determine staffing needs or identify staffing problems. A resource loading histogram can also show the period when work is over-allocated to a specific team member or group. Over-allocation means more resources than are available are assigned to perform work at a given time. Resource leveling is a technique for resolving resource conflicts by delaying tasks. It is a form of schedule development technique in which resource management concerns drive scheduling decisions (start and finish dates). The main purpose of resource leveling is to ensure uniform resource usage in a project. Project managers examine the network diagram to identify areas of slack or float and those of resource conflicts. Over-allocation is a type of resource conflict. If a resource is over-allocated or under-allocated, the project manager can modify the schedule to change the workload of the resource. Resource leveling, therefore, aims to minimize period-by-period variations in resource loading by shifting tasks within their slack allowances. Exhibit 7-6 illustrates a simple example of leveling resources. The network diagram at the top in this exhibit shows that activities A, B, and C can start at the same time. Activity A requires two resources to complete it in two days; Activity B requires four resources to complete it in five days; and Activity C requires two resources to complete it in three days. The histogram on the lower left in this exhibit shows the resource usage if all activities start on the first day. The histogram on the lower right in Exhibit 7-6 shows the resource usage if Activity C is delayed by two days, which is its total slack allowance. Notice that the lower right histogram is flat or leveled, which means that its pieces (activities) are arranged to take up the least space (saving days and numbers of workers). You might recognize this strategy from the computer game Tetris, in which you earn points for keeping the falling shapes as level as possible. The player with the maximum points (and the maximum level shape allocation) wins. Resources are also used best when they are leveled.
Exhibit 7-6: Resource leveling example Resource leveling has several benefits. First, when resources are used regularly, they require less management. For example, it is easier to manage a part-time team member who works 20 hours a week for 3 months than a team member who works 10 hours the first week, 40 hours the next, and 5 hours the next. Second, resource leveling enables project managers to use a just-in-time inventory type of policy for using subcontractors or other expensive resources. For example, a project manager might want to level resources related to work performed by specific subcontractors, such as testing consultants. This leveling might allow the project to use four external consultants full time to test the deliverables for four months, instead of using more time or more resources. The latter approach is more expensive. Third, resource leveling results in smooth operations for project personnel and accounting departments. Increasing and decreasing labor levels and particular human resources often require additional work and causes confusion. For example, if a team member with expertise in a particular domain works two days a week and another member works two different days, it will be impossible to get the two team members to work together on the project. In addition, the accounting department might need to handle subcontractors requests for a higher rate for billing less than 20 hours a week
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or any other such condition. However, the accountants, along with project managers, will strive to get work done at the lowest possible rates. Finally, resource leveling improves morale. Human resources prefer stability in their jobs and might find it difficult to work during periods of uncertainty or lack of information about their project assignments. Project management software can automatically level resources. However, the project manager must be careful in using the results of the software. Automatic leveling often modifies the projects completion date. Resources might be reallocated to work at time periods that are inappropriate, given other constraints. A wise project manager should ensure that leveling is appropriate by proficient use of the project management software. Do it! B-1: Discussing resource loading and resource leveling
Successful negotiation
Explanation Depending on the nature of the project and that of the projects parent organization, negotiations can play a major role in staffing for a project. For example, a project manager might negotiate with a functional manager to assign specialized personnel from a particular department. Negotiating for project personnel can be a difficult task. However, as a project manager, you can alleviate some of the stress by following these suggestions: 1 Develop a plan. 2 Adjust your approach. 3 Compromise. Developing a plan A critical element of successful negotiations is preparation. When preparing to negotiate for project personnel, a project manager should follow these steps: 1 Determine the human resource skills necessary to complete each activity listed on the projects work breakdown structure. 2 Write clear and concise job descriptions.
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3 Set goals for staff acquisition. 4 Assess the party with whom youll negotiate. This step involves referring to records from previous negotiations, verifying the authority of the party with whom youll negotiate, and discerning their needs. 5 Set limits that coincide with the staff acquisition goals and identify the options available. When you know the decisions that might or might not be acceptable, youll know when to abandon an unproductive negotiation. 6 Create an agenda for the negotiation. This step involves prioritizing issues according to your goals. Prioritizing issues prevents you from wasting time debating unnecessary points and keeping the negotiation focused on your goals for staff acquisition. Never start a negotiation unless you are thoroughly prepared. If the other party is ready to negotiate, but you are not, establish a date when youll be ready to negotiate. Adjusting your approach While negotiating for project staff, tension might arise. If the negotiation gets intense, you might want to take a break to allow yourself and the other party to regroup and, perhaps, gain a different perspective. It is helpful to understand that an individuals negotiation style is influenced by personality, experience, and attitudes. You might need to adjust your negotiating style to encourage a nonconfrontational atmosphere during negotiations. Compromising Sometimes, the skilled personnel required for your project might not be available. In such situations, you need to work out the feasibility of training the existing team members and determine whether the project can allow the time, resources, and capacity to do the same. It is important that you do not reject your staff acquisition goals but work on alternative measures. Do it! B-2: Developing a negotiation plan
Exercises
1 As a project manager, what can you do to alleviate stress when negotiating for personnel?
2 When developing a negotiation plan, which of the following should you do first? A Set goals for staff acquisition. B Create an agenda for the negotiations. C Determine necessary skills for activity completion. D Assess the party with whom youll negotiate. 3 Never start a negotiation unless you are thoroughly prepared. True or false?
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adapt quickly to changes. During adaptation periods, a team members performance might be adversely impacted before it stabilizes. Policy-based problems. A parent companys policies influence team members motivation levels and behavior. For example, the team members working at a project office might have a better opportunity to earn bonuses based on their performance than team members who work in other project areas. Such discrepancies can lead to jealousy and arguments among team members. Do it! B-3: Resolving personnel problems
Exercises
1 Which of the following can influence a project team members performance? A Budget constraints B Project scope C Project changes D Resource procurement 2 What are the two types of personnel problems?
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Special occasions. Celebrate special occasions, such as successful achievement of project milestones. Rewards and recognition. Use rewards and recognition to show gratitude for team members hard work. Collocation. When possible, have team members work at the same location. Working in close proximity fosters team unity and helps build trust among members. Training. Make sure team members are adequately trained to perform their assigned activities. This helps avoid frustration that can arise from the inability to perform specific tasks. Meetings. Meet team members both as a group and individually to discuss project issues. Including them in meetings and decision-making encourages them to commit to a project. Reviews are beneficial to team development because they highlight the areas of improvement. When a review reveals a problem, the project manager can take corrective action. The frequency of reviews depends on factors such as the size and duration of a project and the morale of team members. Effective team development improves communication, team members skill levels, and teamwork. Most importantly, effective team development improves a projects overall performance. Do it! C-1: Developing successful teams
Exercises
1 Which of the following indicates why reviews are useful to a project manager? A Highlight areas of improvement and reveal problems. B Determine stakeholders level of satisfaction. C Ascertain the project managers competence. D Re-evaluate goals for future performance. 2 During project team building, a project manager must exercise good interpersonal and conflict resolution skills. True or false?
3 Write about an instance when your performance was excellent and the reasons that led to your peak performance.
Motivational theories
Explanation Understanding the key factors that motivate team members can help a project manager during human resource management. There are several human-behavior theories that a project manager must know when determining how to motivate team members. These theories include: Maslows Hierarchy of Needs McGregors Theory X and Theory Y Herzbergs Theory Maslows Hierarchy of Needs According to Maslows Hierarchy of Needs, individuals have the following five kinds of needs: 1 Survival needs, which include food, water, and sleep.
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2 Safety needs, which are fulfilled when individuals feel safe. 3 Social needs, which are fulfilled when individuals interact with each other. 4 Esteem needs, which are fulfilled when individuals are empowered and praised. 5 Self-actualization needs, which are fulfilled when individuals seek knowledge, peace, esthetic experiences, self-fulfillment, oneness with God, etc. Maslow theorized that individuals are driven to satisfy survival needs first, followed by safety needs, and then social needs. Maslows theory includes the supposition that individuals are driven to meet these needs. After the needs are met, the drive to meet them is lost until the needs arise again. The application to human resource management is that specific needs must be met for individuals to function at their peak physical and mental levels, enabling them to fulfill their project responsibilities. McGregors Theory X and Theory Y According to McGregors Theory X, the average individual is lazy, avoiding work and responsibility whenever possible, needs constant supervision, and is motivated to work only when threatened. McGregors Theory Y suggests that the average individual is willing to work without requiring constant supervision. A project manager who agrees with Theory X is strict with team members, threatening them with undesirable consequences. This kind of project manager does not allow team members to participate in making project decisions. A project manager who agrees with Theory Y motivates team members by allowing them to work with little supervision and encourages participation in making project decisions. Allowing team members to work independently helps build their confidence. Listening to their input before making decisions can strengthen team members commitment to a project. During human resource management, project managers should recognize whether Theory X or Theory Y applies best to their individual team members. Herzbergs Theory Herzbergs Theory has two notable characteristics. First, there are three levels of sentiment: satisfaction, dissatisfaction, and neutral. According to Herzbergs Theory, individuals usually try to be in the neutral zone, which is a state of neither satisfaction nor dissatisfaction. Second, there are two main factors that influence a persons level of satisfaction: hygiene factors and motivators. Hygiene factors relate to the work environment and the presence of these factors prevents dissatisfaction. Motivators relate to the work itself, and their presence increases satisfaction. Examples of hygiene factors include a team members salary and relationships among project team members. Examples of motivators include opportunities for professional growth and the feeling of importance to a project. During human resource management, a project manager can provide both hygiene factors and motivators for team members. Ways of motivating team members There are several different approaches to motivating reluctant team members. For example, a project manager can motivate by setting a positive example for team members. A project manager must never make empty promises or disparaging remarks about senior managers or other employees. Another approach to motivating team members is to offer incentives, such as bonuses, overtime wages, or extra vacation days. When team members are appreciated and rewarded for hard work, they perform better than if their efforts go unrecognized. Finally, some team members are motivated by challenges. Some individuals prefer challenging work because they derive satisfaction from overcoming difficulties, while others prefer less-stressful activities. Do it! C-2: Motivating teams
Exercises
1 Which motivational theory asserts that individuals feel satisfied, dissatisfied,
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or neutral? A Maslows Hierarchy of Needs B McGregors Theory X and Theory Y C Herzbergs Theory D Relative Needs Theory 2 What are some ways of motivating team members? What motivates you the most in a work environment?
3 Which motivational theory do you use to handle your team? Give reasons for your answer.
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Exhibit 7-8 is a Resource Usage report based on the same file. This standard report shows similar information, but the data is automatically formatted to show the number of hours each resource is scheduled to work each week during the project. In this exhibit, you can see that Joe Franklin is scheduled to work 120 hours during the weeks of March 16 to the last week in April. He is also scheduled to work 104 hours during the week of May 4. If a standard workweek is 40 hours or even 60 hours, the project manager can easily see in the report that Joe Franklin will be unable to complete the work assigned to him. Exhibit 7-8: A resource usage report from Microsoft Project Several project management professionals might not be aware of the powerful cost-management features of Microsoft Project 2003, and many others might be unaware of its powerful human resource management features. With the aid of the software, project managers can obtain information in useful formats to help them decide how to most effectively manage human resources. Project resource management involves much more than using software to assess and track resource loading, level resources, and other associated tasks. Human resources are the most important assets for most projects, and this category of resources needs to be managed much differently. Human resources need to be trained, skilled, motivated, and encouraged. They also need to coordinate with other resources to be able to work together for the benefit of the project. Good project managers not only require skills for using tools and equipment, but also need to be able to manage and encourage teams to deliver their best on a project. Do it! D-1: Using software to manage human resources
3 What features of Microsoft Project 2003 might be unknown to many project management professionals?
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2 Does your organization have recruiting and retention strategies? What distinguishes your organization from another in this area? What strategies most appeal to you?
Answers might vary.
3 Which theory argues that individuals are naturally lazy and avoid work and responsibility whenever possible? A Mc Gregors Theory X B Murphys Law C Herzbergs Theory D McGregors Theory of Y 4 Which theory argues that individuals are willing to work hard without constant supervision? A Herzbergs Theory B McGregors Theory of Z C Johnsons Theory of Management D McGregors Theory of Y
planning.
B Evaluate and measure the performance of a project.
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throughout the project life cycle. Before beginning a project, it is important for you to understand project communications, its components, and their integration into the project management process.
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record special considerations or details related to each stakeholder, document, and meeting.
Stakeholders Customer Management Document name Monthly Status Report Monthly Status Report Monthly Status Report Monthly Status Report Monthly Status Report Training Plan Software Implementation Plan Document format Printed copy Contact person Gail Feldman, Tony Silva Julie Grant, Jeff Martin Evan Dodge, Nancy Michaels Bob Thompson Due First of every month First of every month First of every month First of every month First of every month 11/1/2003 6/1/2003
Printed copy
Printed copy
Intranet
Angie Liu
Many projects do not include enough information on communications. Project managers, senior managers, and team members assume the use of existing communications channels to relay project information. However, the problem with using these channels is that each group, as well as other stakeholders, has different communication needs. Creating a communications management plan and reviewing it with project stakeholders early in a project helps prevent potential communication problems. If organizations work on many projects, ensuring consistency in handling project communications helps the organization run smoothly.
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the participants are prepared for it. Ensure that participants read reports before the meeting and collect necessary information. Insist on an agenda so that the meeting is directed towards achieving an outcome and the attendees get a chance to decide whether they really need to attend. Prepare handouts, visual aids, and make logistic arrangements ahead of time. Creating handouts and visual aids requires meeting organizers to sort out their thoughts and ideas. This usually helps the entire meeting run effectively. Making logistical arrangements by booking an appropriate room, making necessary equipment available, and providing refreshments or entire meals, if appropriate, also improves a meetings effectiveness. Project managers and their team members should take the necessary time to prepare for meetings, especially important ones with key stakeholders. Run the meeting professionally . Introduce people, restate the meetings purpose, and state any ground rules that should be followed. Assign facilitators to make sure important items are discussed, watch the time, encourage participation, summarize key issues, and clarify decisions and action items. Designate a team member to take minutes and send them out soon after the meeting is over. Minutes should be short and should focus on crucial decisions and action items. Build relationships . Depending on the culture of the organization and project, it might help to build relationships by making meetings fun experiences. For example, it might be appropriate to use humor, refreshments, or prizes for good ideas to keep the participants actively involved. If used effectively, meetings are a good way to build relationships. Do it! A-2: Improving project communications
Exercises
1 What are the areas that should be considered to improve project communication? 2 Which of the following is a guideline to help make your meetings more effective? A Decide who should attend the meeting. B Develop better communication skills. C Acquire technical skills. 3 As a project manager, what guidelines would you follow to run an effective meeting?
Distributing information
Explanation Information distribution is vital to a projects success. For example, people need information to carry out their responsibilities toward the completion of a project. If project team members do not have access to the information they need, then they cannot complete their activities effectively. In addition, distributing information allows stakeholders to monitor the project progress as well as record the changes made to the project.
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Means of distributing information There are a number of ways information is distributed during project execution. The following are some common means of information distribution. Written, which includes reports, memos, spreadsheets, business letters, faxes, and files. Oral, which includes presentations, meetings, and conference calls. Multimedia, which includes videoconferencing and teleconferencing. Internet or intranet, which includes e-mail, Web sites, and online bulletin boards. The form of communication you use depends on three factors: Who is the recipient? What is the information? When does the recipient need the information? Informal communication Informal communication between a project manager and team members can build trust and strong working relationships. As a project manager, you should encourage informal communication. This strengthens your working relationships with team members, which can increase their willingness to communicate with you informally. Team members who are uncomfortable talking to their project managers are likely to withhold information about problems, jeopardizing the projects success. You can encourage informal communication by making yourself available to team members. Being available to team members includes visiting them in their work areas, having lunch with them, and listening to their ideas and complaints. Using templates for project communications Many find it difficult to write a performance report or prepare a 10-minute technical presentation for a customer review. To simplify preparing project communication, project managers need to provide examples and templates for common project communication items, such as project descriptions, project charters, monthly performance reports and oral status reports. Good documentation from earlier projects can be used as examples. Samples and templates of both written and oral reports are particularly helpful for team members who need to write project documents or prepare project presentations. A one-page project description can be used to show a snapshot of an entire project on one page. For example, senior managers might require all project managers to provide a brief project description as part of a quarterly management review meeting. A project description should include the project objective, scope, assumptions, cost information, and schedule information. You can also include information from the projects Gantt chart to highlight key deliverables and other milestones. The following table further describes the elements of a project description.
Element
Objective Scope Assumptions Cost
Description
Describe the objective of the project in one or two sentences. Focus on the business benefits of doing the project. Briefly describe the scope of the project. Include the business functions involved and the main products the project will produce. Summarize the most critical assumptions for the project. Provide the total estimated cost of the project. If desired, list the total cost for each year.
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Schedule
Provide summary information from the projects Gantt chart as shown in Exhibit 8-1. Focus on summary tasks and milestones.
Exhibit 8-1: Sample template for a project description Exhibit 8-2 provides an example of a template file created in Project 2003. Team members can develop and follow a similar template for their projects. Notice the main tasks in this template follow the project management process of project initiating, planning, executing, controlling, and closing. The template includes milestones to highlight significant events, such as signing the letter of agreement or the dispatch of major deliverables. It also includes hyperlinks that link users to template files they can use to create a letter of agreement, a progress report, or a final report. Hyperlinks to other project documentationsuch as meeting minutes, product information, and presentationscan also be included. Exhibit 8-2: Gantt chart template When the members of a project team develop their communications management plan, they should also decide the templates to be used for key documentation. To simplify using templates, an organization can make project templates readily available online. The project team should also understand the documentation expected by senior management and customers for each particular project. For example, if a project sponsor or customer wants a one-page monthly progress report for a specific project, but the project team delivers a 20-page report, there are communication problems. In addition, if particular customers or senior managers want specific items in all final project reports, they must ensure the project team is aware of those expectations and modify any templates to take these requirements into account. Developing a communications infrastructure A communications infrastructure is a set of tools, techniques, and principles that provide a foundation for the effective transfer of information. Tools include e-mail, project management software, groupware, fax machines, telephones, teleconferencing systems, document management systems, and word processors. Techniques include reporting guidelines and templates, meeting ground rules and procedures, decision-making processes, problem-solving approaches, and conflict resolution and negotiation techniques. Principles include providing an environment for open dialogue using straight talk and following an agreed upon work ethic. Because the defense industry has been involved in project management for a long time, many government agencies and defense contractors use formal communications infrastructure that is already set up. For example, in the early 1980sbefore personal computers were commonly usedthe U.S. Air Force created standard forms for reporting project progress information, outlines for developing project final reports, regulations describing the progression of major projects, inspections of project archives, and forms and procedures for creating project Gantt charts. Today, some organizations have designed customized systems for collecting and reporting project information and most use several forms of IT as part of their project communications infrastructure. Some organizations use intranets to keep track of all project information and others use Lotus Notes or other groupware to maintain consistent and complete project information. Do it! A-3: Distributing information
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Some frequent problems with progress reporting include: Too much information or the wrong kind of information Information not distributed in a timely manner To avoid these problems when reporting progress, it is important to: Make sure information is current and relevant. Create reminders for the due dates of progress reports. A status report covers a broader range of information than a progress report. A status report is a detailed account of a projects status at a specific phase. The focus of a status report is on tasks such as activity completion, resource consumption, and budget expenditure. Status reports must include the current status of all activities completed during a reporting period so that the project manager can determine whether there are any problems and the corrective action that can be taken. Performance reports can be classified by frequency and/or purpose. The following are common classifications of performance reports: Routine Exception Special analysis Routine Routine, or regular performance reports, are not necessarily scheduled, but might be distributed at intervals that coincide with project phases or milestones. The frequency of performance reports depends on how smoothly the project functions. Exception Exception performance reports provide project team members with information they need to make a decision or notify them of a change that affects their work. Exception performance reports are also distributed to stakeholders to inform them that a decision has been made. Special analysis Special analysis performance reports contain information about the results of a special study. Special studies might be conducted as part of a project or to determine a solution to a problem encountered during a project. Special analysis reports are useful not only to a current project but are valuable documentation of lessons learned for future projects. Individual status meetings Individual status meetings are important to project communication. One-on-one status meetings with members of a projects team can be more informative than performance reviews because some members of the project team might not feel comfortable voicing opinions or concerns in a large group. Individual status meetings are also great opportunities for a project manager to offer constructive feedback, receive feedback, and know project team members. Do it! B-1: Evaluating performance
Exercises
1 During performance reviews, a project manager should do which of the following. A Reaffirm the projects goals. B Test a new products functionality. C Discuss changes in processes. D Estimate the projects remaining duration.
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Cost variance Schedule variance Cost performance index Schedule performance index Do it! B-2: Using tools to measure performance
Exercises
1 Which of these calculations is used during earned value analysis? A Schedule variance B Actual Cost of Work Performed C Budgeted Cost of Work Performed 2 What are the tools and techniques used to measure the performance of an employee?
2 List some ways you can encourage the use of good communication skills?
Answers might vary, but can include: provide communications training, senior management must set high communications expectations and lead by example, and allocate time in project schedules for preparing drafts of important reports and presentations.
3 In your experience, how has project information been distributed? Can this process be improved? If so, how?
Answers might vary.
Unit 9
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Risk management
Unit time: 60 Minutes Complete this unit, and youll know how to:
A Discuss and classify project risks. B Identify risks and explain the use of risk identification
tools.
C Define and discuss qualitative risk analysis. D Discuss the steps involved in quantitative risk analysis. E Discuss risk response planning. F Describe how to monitor and control risks.
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What is the specific risk, and what are the risk mitigation deliverables? How will the risk be mitigated? (Which risk mitigation approach will be used?) Who is responsible for implementing the risk management plan? When will the milestones associated with the mitigation approach occur? Which resources are required to mitigate the risk? The risk management plan can include a methodology for risk management, roles and responsibilities for activities involved in risk management, budgets and schedules for the risk management activities, descriptions of scoring and interpretation methods used for the qualitative and quantitative analyses of risk, threshold criteria for risks, reporting formats for risk management activities, and procedures for tracking and documenting risk activities. In addition to a risk management plan, many projects include contingency plans, fallback plans, and contingency reserves. Contingency plans are predefined actions that the project team takes if an identified risk event occurs. For example, if the project team is aware that a new release of a software package might not be available in time for use in their project, they might have a contingency plan to use the existing, older version of the software. Fallback plans are developed for risks with a high impact on meeting project objectives, and are used if attempts to reduce the risk are not effective. Contingency reserves or contingency allowances are provisions made available by the project sponsor and used to mitigate cost or schedule risks if changes in project scope or quality occur. For example, if a project runs behind schedule because team members are inexperienced with a new technology, the project sponsor may provide funds from contingency reserves to train the project members in using the new technology. Do it! A-1: Discussing risk management
Project risk
Explanation To manage project risks, you must first understand what constitutes a risk: Risks are associated with uncertain outcomes or lack of knowledge of future events. Risks are measured in terms of the probability of their occurrence and the consequences of not achieving project goals. Deviations from the projects quality standards, as detected in the products, also constitute risks. Classifications for project risks You can classify project risks in three ways: Knowns are situations that the project team is certain will occur. For example,
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the project team is aware that to complete a project they need specific resources. Known-unknowns are identifiable uncertainties. For example, the team is aware that the project will bear expenses related to the utilities used during the project, but is not aware of the exact cost. Unknown-unknowns are situations that the project team cannot anticipate. For example, an unforeseen incident or a mishap may adversely impact the project operations. Although you can classify risks in several ways, the most common classifications are business risks or insurable risks. Business risks result in opportunities for profits or losses. For example, if a snowstorm damages the structure of a facility under construction, this is considered a business risk. Insurable risks , also called pure risks, result only in losses. For example, if a project team member is injured on the job, this is considered an insurable risk. It is important to understand that if insurance is purchased, a project manager does not have to manage insurable risks. In this example, the team members compensation would cover the injured employee. Other broad categories of risk include: Market risk . If an information technology (IT) project develops a new product or service, will that product or service be useful to the organization or marketable to others? Will users accept and use the product or service? Will competitors be able to create a better product or service faster, making the current project a waste of time and money? Financial risk . Can the organization afford to undertake the project? How confident are stakeholders in the projects financial projections? Will the project meet NPV, ROI, and payback estimates? If not, can the organization afford to continue the project? Is this project the best way to use the organizations financial resources? Technological risk . Is the project technically feasible? Will hardware, software, and networks function properly? Will the technology be available in time to meet project objectives? Could the technology be obsolete before a useful product can be developed? Several studies show that IT projects share some common sources of risk. For example, the Standish Group did a follow-up study to the 1995 CHAOS research, which was called Unfinished Voyages. This study brought together 60 IT professionals to elaborate on how to evaluate a projects probability of success. The following table lists the Standish Groups success potential scoring sheet and shows project success criteria.
Success criterion User involvement Executive management support Clear statement of requirements Proper planning Realistic expectations Smaller project milestones Competent staff Ownership Clear visions and objectives Weights 19 16 15 11 10 9 8 6 3
The Standish Group lists questions under each criterion of success to help decide the number of points to assign to a project. For example, you assign a value to the user involvement criterion by adding 3.8 points to the score for each of the following questions you answer in the affirmative: Do I have the right user(s)? Did I involve the user(s) early and often during a project? Do I have a quality user(s) relationship? Do I make involvement easy? Did I find out what the user(s) need(s)? You can use data from research to identify the scope of software project failures, the major factors that cause software projects to fail, and the key ingredients that can reduce project failures. Do it! A-2: Classifying project risks
Exercises
1 What constitutes a risk?
3 Situations that the project team cannot anticipate are classified as_______ risks. A Known B Known-unknown C Unknown-unknown D Market
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Knowledge area
Integration Scope Time Cost Quality Human Resources Communications Risk Procurement
Risk conditions
Inadequate planning; poor resource allocation, poor integration management, and lack of post-project review Poor definition of scope or work packages, incomplete definition of quality requirements, and inadequate scope control Errors in estimating time or resource availability, poor allocation and management of float, and early release of competitive products Estimating errors; inadequate productivity, cost, change, or contingency control; poor maintenance, security, and purchasing Poor attitude toward quality; substandard design, materials, or workmanship; and inadequate quality assurance program Poor conflict management, poor project organization and definition of responsibilities, and absence of leadership Carelessness in planning or communicating and improper or no consultation with key stakeholders Ignoring risk, unclear assignment of risk, and poor insurance management Unenforceable conditions or contract clauses and adversarial relations
Exercises
1 Risk identification involves determining whether or not to take risks associated with a particular project. True or false?
2 Which of the following is a manner in which project stakeholders can classify risks? A According to the source of the risks, internal or external to the
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organization B According to the time at which risks occur C According to the activities they will affect D According to stakeholders desire to accept or reject a project
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SWOT analysis Strengths, weaknesses, opportunities, and threats (SWOT) analysis is often used in strategic planning. It can also assist in risk identification by having project teams focus on the broad perspectives of potential risks for a project. For example, before writing a proposal, a president can ask a group of employees to discuss the companys strengths, weaknesses in relation to the project, and the opportunities and threats. In addition, the president can discuss with the team information about competing firms and their probability of winning a contract as well as the impact of winning a contract on future awards and possible expansion of the companys business. Applying SWOT to potential projects can help identify the broad risks and opportunities. Other risk identification techniques Two other techniques for risk identification include the use of checklists and diagramming. Checklists based on risks encountered in previous projects provide a meaningful template for understanding risks in a current project. You can use checklists to help identify risks in IT projects. Diagramming techniques include using cause-and-effect diagrams, flow charts, and influence diagrams. System or process flow charts are diagrams that show how different parts of a system interrelate. For example, many programmers create flow charts to show programming logic. An influence diagram represents decision problems by displaying essential elements, including decisions, uncertainties, and objectives, and how they influence each other.3
Exercises
1 What are the four common information-gathering techniques?
2 When brainstorming possible project risks, the project team should: A Organize ideas into logical groups. B Use the work breakdown structure (WBS) to generate ideas. C Evaluate each idea as it is suggested. D Keep an open mind as ideas are suggested.
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Exhibit 9-1: Sample probability/impact matrixes for qualitative risk assessment The Air Force used the matrix shown in Exhibit 9-1 to assess the risk of proposed technologies, such as providing radial tires for planes, using a more efficient fuel system, or developing a sophisticated onboard computer system to monitor and adjust various systems on the aircraft. The top matrix in Exhibit 9-1 was used to assign a Probability of Failure (Pf) value to each proposed technology, and the bottom matrix was used to assign a Consequence of Failure (Cf) value. Experts used their judgment to assign a value for both the probability of failure and impact of each proposed technology. For example, an expert assigned a Pf value of 0.1 for the radial tires technology because the hardware existed, had a simple design, and multiple programs and services used it. Likewise, the expert assigned a Cf value of 0.9 to a risk with no acceptable alternatives, an impact on increasing life cycle costs, and low probability of meeting schedule dates and reducing the aircraft downtime factor. The expert then used these values in a formula to calculate an overall risk factor. A risk factor is defined as the probability of failure (Pf) plus the consequence of failure (Cf) minus the product of the two. 4 For example, a technology with a Pf of 0.1 and a Cf of 0.9 will have a risk factor of .01, or (.1 + .9) - (.1 * .9) = .01. Exhibit 9-2 provides an example of how the risk factors were used to graph the probability and consequence of failure for proposed technologies in the Air Force study. The figure classifies potential technologies (dots on the chart) as high-, medium-, or low-risk, based on the probability and consequences of failure. The researchers for this study highly recommended that the Air Force invest in the low- to medium-risk technologies and suggested that they not pursue the high-risk technologies.5 You can see that the rigor behind using the probability/impact matrix and risk factors provides a much stronger argument than simply stating that risk probabilities or consequences are high, medium, or low. Exhibit 9-2: Chart showing high-, medium-, and low-risk technologies Do it! C-1: Using probability/impact matrices
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Risk item
Inadequate planning Poor definition
Absence of leadership
A risk management review accomplishes several objectives. First, it keeps management and the customer (if included) informed of the major influences that can pose problems for the project. Second, by involving the customer, the project team might be able to consider alternatives that can mitigate the risk, such as reducing the scope of a project by postponing some work for a later project in order to meet cost and schedule goals. Third, it promotes confidence in the project team by
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demonstrating to management and the customer that the team is aware of the significant risks, has a well-defined mitigation strategy, and is effectively implementing the strategy.
Expert judgment
Many organizations rely on the intuitive feelings and past experience of experts in performing qualitative risk analyses. Organizations might use expert judgment in lieu of or in addition to other techniques for analyzing risks. For example, experts can categorize risks as high, medium, or low by using or not using sophisticated techniques, such as identifying risk factors. Using sophisticated risk analysis tools has a number of disadvantages. For example, the output is only as good as the input, and the team using the tools might be using poor assumptions. The math and statistics used in various techniques might confuse the team. Because of these disadvantages, it is important to include expert opinion when using both qualitative and quantitative risk assessment techniques. Do it! C-2: Discussing Risk Item Tracking and expert judgment
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Exhibit 9-3: Expected monetary value (EMV) example To use EMV, you must estimate the probability, or chances, of events occurring. For example, in Exhibit 9-3, there is a 20 percent probability or chance (P=.20) that a hypothetical firm will win Project 1, which is worth $300,000 in profits, the outcome of the top branch in the exhibit. There is an 80 percent probability (P=.80) that the company will not win the competition for Project 1, and the outcome is estimated to be $40,000, which means that the company will need to invest $40,000 into Project 1, with no reimbursement if it does not win the award. The sum of the probabilities for outcomes for each project must equal 1 (for Project 1, 20 percent plus 80 percent). Probabilities are determined based on expert judgment. The president or other employees of the company should have some idea of the companys probability of winning the projects. Exhibit 9-3 also shows probability and outcomes for Project 2. There is a 20 percent probability that the company will lose $50,000 on Project 2, a 10 percent probability the company will lose $20,000, and a 70 percent probability that the company will earn $60,000. To calculate the EMV for each project, you multiply the probability by the outcome for each potential outcome for each project. To calculate EMV for Project 1, moving from the left to the right, multiply the probability with the outcome for each branch. In this example, the EMV for Project 1 is $28,000.
0.2($300,000) + 0.8($40,000) = $60,000 $32,000 = $28,000
Because the EMV provides an estimate for a decisions total dollar value, you want to obtain a positive number; the higher the EMV, the better. Because the EMV is positive for both Projects 1 and 2, the company would expect a positive outcome from each and can bid on both projects. If the company had to choose between the two projects, perhaps because of limited resources, the company should bid on Project 2 because it has a higher EMV. Notice that in Exhibit 9-3, if you look at the potential outcome of the two projects, Project 1 looks more appealing. You can earn $300,000 in profits from Project 1, but you can only earn $60,000 for Project 2. If the president were a risk seeker, he or she will naturally want to bid on Project 1. However, there is only a 20 percent chance of winning $300,000 on Project 1, and there is a 70 percent chance of earning $60,000 on Project 2. Using EMV helps account for all possible outcomes and their probabilities of occurrence, thereby reducing the tendency to seek overly aggressive or conservative risk strategies. Do it! D-1: Discussing decision trees and EMV
2 What is EMV?
3 If projects A and B have an EMV of $40,000 and $35,000, respectively, which project would you choose?
Simulation
Explanation A sophisticated quantitative risk analysis technique is simulation. Simulation uses a
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representation or a model of a system to analyze that systems expected behavior or performance. Most simulations are based on some form of Monte Carlo analysis. Monte Carlo analysis simulates a models outcome many times to provide a statistical distribution of the calculated results. For example, a Monte Carlo simulation can determine if a project will meet its schedule or cost goals given a 10 percent, 50 percent, or 90 percent probability. The basic steps of a Monte Carlo simulation are: 1 Assess the range for the variables being considered and determine the probability distribution for each. In other words, collect the most likely, optimistic, and pessimistic estimates for the variables in the model and determine the probability of each variable falling between the optimistic and most likely estimates. 2 For each variable, select a random value based on the probability distribution for the occurrence of the variable. For example, suppose an optimistic estimate is 10 (units can be days, dollars, labor hours, or any other unit that the model uses). In addition, suppose the most likely estimate is 20, and the pessimistic estimate is 50. If there is a 30 percent probability of being between 10 and 20 (the optimistic and most likely estimates), then 30 percent of the time, select a random number between 10 and 20, and 70 percent of the time, select a number between 20 and 50 (the pessimistic estimate). 3 Run a deterministic analysis or one pass through the model using the combination of values selected for each variable. 4 Repeat steps 2 and 3 several times to obtain the probability distribution of the results. The required number of iterations depends on the number of variables and the degree of confidence needed in the results, but it typically lies between 100 and 1,000. You can use software to perform the steps required for a Monte Carlo simulation. Several PC-based software packages are available that perform Monte Carlo simulations. Another technique for quantifying risk is Program Evaluation and Review Technique (PERT) analysis. PERT analysis involves making three estimates of each activitys duration. The three estimates represent a pessimistic or worst case estimate, an optimistic or best case estimate, and a most likely estimate, similar to those described in a Monte Carlo simulation. However, the PERT formula weights the most likely estimate four times more than the pessimistic or optimistic estimates, instead of assigning a probability for the estimate falling between the optimistic and most likely estimates and then running a simulation of the model. Although this approach can be better than using a discrete estimate, it does not provide the flexibility or accuracy of a Monte Carlo simulation. Do it! D-2: Discussing simulation
Exercises
1 What does simulation do?
2 Which of the following is one of the steps of Monte Carlo simulation? A Run a deterministic analysis. B Simulate the process. C Calculate the EMV. D Select the best course.
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develop responses to the risks. To develop effective risk responses, take the following actions: Plan appropriate responses. Present recommendations to stakeholders.
Planning responses
Risk response consists of planning the appropriate actions for responding to project risks. Risk response is not only a component of the risk management variable, but also a part of the second step of the project management processproject planning. After the project team determines that a risk warrants a response, the team must develop a strategy to minimize the extent of damage that the risk can cause. After the most important risks are identified, the project team must plan appropriate responses to these risks or determine ways to minimize the probability of occurrence of these risks. The projects risk management policies regulate the actions a project team can take in response to high-impact risks. Before completing this step, the project team might need to gather more information about the nature of the possible risks. There are four basic categories for possible risk response plans: Risk avoidance Risk acceptance Risk transference Risk mitigation Risk avoidance Risk avoidance involves eliminating a specific threat or a risk, usually by eliminating its causes. It might not be possible to eliminate all risks, but specific risk events can be eliminated. For example, a project team might decide to continue using specific hardware or software for a project because it is familiar with its functioning. Other products might be available, but if the team is not familiar with them, the products might pose significant risks. Using familiar hardware or software eliminates this risk. Risk acceptance Risk acceptance means accepting the consequences should a risk occur. For example, a project team plans for a big project review meeting, the venue for which is undecided. The team can adopt an active approach to risk by developing a contingency or a backup plan if the specific meeting site is unavailable. Alternatively, the team can adopt a passive approach and use the facility their organization provides them. Risk transference Risk transference is shifting the consequence, responsibility, and management of a risk to a third party. For example, risk transference is often used in dealing with financial risk exposure. A project team may purchase special insurance or warranty protection for specific hardware needed for a project. If the hardware fails, the insurer must replace it within an agreed-upon period. Risk mitigation Risk mitigation involves reducing the impact of a risk event by minimizing the probability of its occurrence. Examples of risk mitigation include using proven technology, engaging competent project personnel, using various analysis and validation techniques, and purchasing maintenance or service agreements from subcontractors. The following table provides general mitigation strategies for technical, cost, and schedule risks on projects. 6 Note that increasing the frequency of project monitoring and using a WBS and PERT/CPM are strategies for all three areas. Increasing the project managers authority is a strategy for mitigating technical and cost risks, and selecting the most experienced project manager is recommended for reducing schedule risks. Improving communication is also an effective strategy for mitigating risks.
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Technical risks
Emphasize team support and avoid stand-alone project structures Increase project manager authority Improve problem handling and communication Increase frequency of project monitoring
Cost risks
Increase the frequency of project monitoring.
Schedule risks
Increase the frequency of project monitoring.
Improve communication, project goals understanding and team support. Increase project manager authority.
Important output from risk response planning includes development of a risk response plan, analysis of residual risks, and analysis of secondary risks. The risk response plan describes identified risks, personnel assigned responsibilities for managing risks, results of risk analyses, response strategies, budget and schedule estimates for responses, and contingency and fallback plans. Residual risks continue to impact the project even after the team implements all the response strategies. For example, even though the team might use a stable hardware product on a project, the risk that the product may fail to functional properly still exists. Secondary risks are a direct result of implementing a risk response. For example, using the more stable hardware might cause a risk of peripheral devices failing to function properly. Other outputs of risk response planning include contractual agreements, estimates of needed contingency reserve, and input to other processes and the project plan.
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4 Which of the following is one of the basic categories for possible risk response plans? A Acceptance of risks B Understanding stakeholders needs C Occurrence of these risks
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It is important to develop contingency reserves before a project begins because neither the project team nor the stakeholders want to make changes to the projects scope after the project begins. If contingency reserves are negotiated into the cost and time allowances from the beginning, they provide the project manager with some flexibility. Alternative strategies When a project team identifies a potential risk, it develops alternative strategies to respond to that risk before it occurs. Use of alternative strategies can enable the team to prevent or avoid the risk by changing the planned approach to the part of the project at risk. For example, additional quality checkpoints might simplify the problems with the projects end product, resulting in high overall revenues. Insurance Sometimes, the best response to project risks is to insure them. The type and cost of insurance coverage available depends on the type of project being completed and the type of risks to be covered. Types of project reserves There are two types of project reserves, management reserves and contingency reserves. Key stakeholders control management reserves, which are created to account for risks in the category of unknown-unknowns. For example, a key component of a projects product is unavailable when it is most required, but a slightly more expensive alternative is available. In this situation, stakeholders can use their management reserves to purchase the more expensive component without exceeding the budget. The project manager controls contingency reserves, which are created to account for risks in the category of known-unknowns. For example, a known-unknown situation can occur if the project manager knows that during the first phase of the project the team will need to work overtime, but the amount of overtime is unknown because it is dependent upon the availability of resources. Contingency reserves can be used if the amount of overtime exceeds the amount allotted in the budget. Do it! F-1: Developing project standards
Exercises
1 What are the ways of developing project standards?
3 Which of the following project standards is developed to cover unexpected needs or risk damages that can occur throughout a project? A A risk management plan B Procurement contracts C Alternative strategies D Contingency reserves
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Risk control
Explanation The final step in project risk management is risk control. Risk control entails executing the risk management plan to minimize the effects of project risks. It is important to document risks and their effects in a database for reference during subsequent projects. Risk control is a continuous process that requires monitoring the projects condition and taking action to minimize the adverse affects of risks on projects. Risk control is not only a component of the risk management variable, but also a part of the fourth step of the project management processproject controlling. In addition, any time a new project risk occurs, the project manager must return to the planning step of the process to identify and assess the risk. Carrying out separate risk management plans involves monitoring risks on the basis of defined milestones and making decisions regarding risks and mitigation strategies. It might be necessary to alter a mitigation strategy if it becomes ineffective, implement a planned contingency activity, or eliminate a risk that no longer exists from the list of potential risks. Project teams, sometimes, use workaroundsunplanned responses to risk eventswhen contingency plans are not defined. A workaround is an unplanned response, or an alternative solution, developed to account for a problem created by taking a risk. Workarounds are considered unplanned because the response to the problem is not defined before the risk occurs. During project execution, if a risk is accepted, its negative impact on the project goals might not be immediately apparent. However, if the product of a project fails to perform as expected, the quality is compromised by accepting the risk. For example, if a product is expected to generate returns of $80,000 per year for ten years, but it has a major defect, customers will not buy the product. Therefore, the product will not generate the expected rate of return. You can use several tools and techniques to monitor and control risks. These include project risk audits, periodic risk reviews such as the Top 10 Risk Item Tracking method, earned value management, technical performance measurement, and additional risk response planning. Outputs of this process include corrective action, project change requests, and updates to other plans. Do it! F-2: Controlling risks
Exercises
1 Risk control is a part of which project management process?
2 A workaround is a generic response developed before a project begins to account for problems created by taking risks. True or false?
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collect optimistic, pessimistic, and most likely duration estimates for project tasks on a project network diagram, which is similar to the PERT technique. You must also collect estimates for the probability of completing each task between the optimistic and most likely times. You can use the same approach for cost estimates. You can collect optimistic, pessimistic, and most likely estimates for factors that determine project costs and establish the probability of the cost factors ranging between the optimistic and most likely values. For example, an expert might estimate that a task will most likely take three months to complete, but it can take as little as one month or as much as nine months to complete. When asked the probability of completing the task between one and three months, the expert might report the probability as only 20 percent. Another expert might estimate that the project task will take five months to complete, but it can take as little as two months, or as much as seven months to complete. This expert might estimate that the probability of completing that task between two and five months is 80 percent. Estimating the probability of completing tasks between the optimistic and most likely times helps to account for estimating bias. Compared with a PERT calculation, the Monte Carlo approach simulates various probability distributions for each estimate instead of applying the same simple PERT variation for all estimated durations. Unlike PERT, which focuses on schedule estimates, Monte Carlo simulation can also be used to estimate cost risks. Exhibit 9-4 illustrates the results from a Monte Carlo simulation of a project schedule. The simulation was created using Microsoft Project and the Risk+ add-on software. On the left side of Exhibit 9-4, a chart displays columns and an S-shaped curve. The height of each column, read by the scale on the left of the chart, indicates how many times the project was completed within the specified time interval during the simulation run, which is the sample count. In this example, the time interval is two working days, and the simulation was run 250 times. The first column shows that the project was completed by 1/29/05 only two times during the simulation. The S-shaped curve, read from the scale on the right of the chart, shows the cumulative probability of completing the project on or before a specific date. The information is also shown in tabular form on the right side in Exhibit 9-4. For example, there is a 10 percent probability that the project will be completed by 2/8/05, a 50 percent chance of completion by 2/17/05, and a 90 percent chance of completion by 2/25/05.
Exhibit 9-4: Sample Monte Carlo simulation results for a project schedule You can also use Monte Carlo simulations to help estimate project costs. First, you develop a model for estimating the total project cost. Suppose project costs can be estimated based on the number of pounds of material, the cost per pound, the number of hours for specific workers, and the cost per hour for each category of worker (such as managers, programmers, and electrical engineers). You can run a Monte Carlo simulation of the total project cost based on estimates of the optimistic, pessimistic, and most likely values for all the four variables. Exhibit 9-5 shows the results of a Monte Carlo simulation to estimate total project cost. These simulation results show that there is a 20 percent chance of the project costing less than $175,693, a 65 percent chance of it costing less than $180,015, and a 95 percent chance of the total project cost being under $184,528. Given the risk tolerance, you can use this information to decide how much to bid on a project if you are the seller, or how much to budget for the project if you are the buyer. For example, if you are a risk-averse seller, you might want to bid $185,000 to be extremely confident that you will not exceed the budget. Exhibit 9-5: Sample Monte Carlo simulation results for project cost In addition to estimating overall probabilities for project goals, such as completion dates or cost estimates, you can use Monte Carlo simulations to find top sources of risk (risk drivers). For example, a cost simulation might show that the number of labor hours budgeted for the electrical engineers was the main source of cost risk for a project. Simulations are powerful tools, and it is important that the team members who use them understand all the variables, inputs, and outputs involved. As with any software product, the information that is obtained is only as good as the information provided. Therefore, it is important to collect data from sources who understand the project or specific tasks involved. It is also important to test the model used in simulations to ensure that it provides realistic results.
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2 Discuss Monte Carlo simulations and explain their significance in managing risks.
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Yes
6 In your experience, which method(s) have you used to determine project risks that require the maximum attention?
Answers might vary.
Endnotes
# 1 Reference Wideman, R. Max. Project and Program Risk Management: A Guide to Managing Project Risks and Opportunities, Upper Darby, PA: Project Management Institute, 1992, II-4. Couger, J. Daniel. Creative Problem Solving and Opportunity Finding, Boyd & Fraser Publishing Company, 1995. Lumina, Influence Diagrams. (2003) www.lumina.com/software/influencediagrams.html. Defense Systems Management College. Systems Engineering Management Guide, Washington, DC, 1989. McDonnell Douglas Corporation. Hi-Rel Fighter Concept, Report MDC B0642, 1988. Couillard, Jean. The Role of Project Risk in Determining Project Management Approach, Project Management Journal, Project Management Institute (December 1995).
3 4
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require laptops and need to be provided maintenance, training, and user support. Using make-or-buy analysis, the company estimates its cost as an initial investment of $3 million and annual support costs of $2 million. The estimate includes costs for hardware and software, travel, shipping, and technical support. (Note that a make-or-buy analysis must include the life cycle cost.) The company can outsource this service if vendors quote less than the companys cost estimates. Internal experts Internal experts must be consulted as part of procurement planning. Considering the same example again, experts might suggest that the company will be unable to provide quality maintenance, training, and service for laptops because the company will be unable to station personnel with the required skills at different locations. Experts within the company might also be aware of the competitors outsourcing this type of work and might help identify vendors that can undertake this work. Experts external to the company, including potential vendors, can also provide expert judgment. For example, vendors might suggest an option for salespeople to purchase the laptops themselves at a reduced cost. This option would solve problems of employee turnoverexiting employees would own their laptops and new employees would purchase a laptop through the program. An internal expert might then suggest that employees receive a technology bonus to help offset what they might view as an added expense. Expert judgment, both internal and external, is important in making procurement decisions. Do it! A-1: Discussing procurement planning
Exercises
1 What is procurement planning?
3 Which of the following are the tools and techniques of procurement management? A Internal experts B Market conditions C Project scope statement D Make-or-buy analysis
Solicitation planning
Explanation Solicitation planning involves preparing the documents required for solicitation and determining the evaluation criteria for the contract award. Two common examples of solicitation documents include: Requests for Proposal (RFPs) Requests for Quotes (RFQs) Requests for Proposal Request for Proposal (RFP ) is a document used to solicit proposals from prospective vendors. Organizations issue RFPs to potential vendors. For example, if a government department wants to automate its work practices, it issues an RFP so that vendors can respond with proposals. Vendors might propose various hardware, software, and
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networking solutions to meet the governments needs. Writing a good RFP is a critical part of project procurement management. To generate a good RFP, expertise is invaluable. Several examples of RFPs are available within different companies, from potential contractors, and from government agencies. Legal requirements are often involved in issuing RFPs and reviewing proposals, especially for government projects. It is important to consult experts familiar with the solicitation planning process for a particular organization. To make sure the RFP contains the required information to provide the basis for a good proposal, the buying organization should ask the following questions: Can you develop a good proposal based on the information in the RFP? Can you determine detailed pricing and schedule information based on the RFP? Exhibit 10-2 provides a basic outline for creating an RFP. Its main sections include a statement of the purpose, background information about the organization issuing the RFP, the basic requirements for the products and/or services being proposed, the hardware and software environment (which constitutes important information for IT-related proposals), a description of the RFP process, the statement of work and schedule information, and appendices, if required. A simple RFP may be three to five pages long, while an RFP for a larger, more complicated procurement might be hundreds of pages long.
Exhibit 10-2: Outline for a Request for Proposal (RFP) Request for Quote A Request for Quote (RFQ ) is a document used to solicit quotes or bids from prospective sellers. Organizations often use an RFQ for solicitations that involve specific items. For example, if the government wants to purchase 100 personal computers with specific features, it issues an RFQ to potential vendors. RFQs usually do not take as long to prepare as RFPs, nor do responses to them. Other solicitation documents Other documents used in solicitation planning include invitations for bid, invitations for negotiation, and initial contractor responses. All solicitation documents must be written to facilitate accurate and complete responses from prospective sellers. They should include background information about the organization and the project, the relevant statement of work, a schedule, a description of the desired form of response, evaluation criteria, pricing forms, and any required contractual provisions. They should also be comprehensive enough to ensure consistent, comparable responses, but flexible enough to allow consideration of seller suggestions for improved ways to meet the requirements. It is essential for organizations to prepare a form of evaluation criteria, preferably before they issue a formal RFP or RFQ. Organizations use criteria to rate or score proposals, and they often assign a weight to each criterion to indicate its importance. Some examples of criteria include the technical approach (30 percent weight), management approach (30 percent weight), past performance (20 percent weight), and price (20 percent weight). The criteria should be specific and objective. For example, if the buyer wants the sellers project manager to be a certified Project Management Professional (PMP), this requirement must be stated clearly in the procurement documents and followed during the award process. Losing bidders may pursue legal recourse if the buyer does not follow a fair and consistent evaluation process. INPUT, a Web-based IT market research and marketing services firm, provides market reports and buyer guides to assist organizations in IT outsourcing. One buyer guide offers suggestions on selection criteria, which includes reputation and past performance, industry knowledge, strategic partnership, and ability to meet needs. INPUTs research shows that most contracts include provisions to safeguard against unsatisfactory partnering, but most companies hesitate to exercise the provisions. Therefore, buyers should look for a supplier with a proven record of excellence and reputation for quality. 2 Organizations should heed the saying, Let the buyer beware. It is critical to evaluate proposals on more than the appearance of the paperwork. A key factor in evaluating bids, particularly for projects involving IT, is the bidders past performance record. The RFP should require bidders to list other
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similar projects they have worked on and provide customer references for those projects. Reviewing performance records and references helps reduce the risk of selecting a vendor with a poor track record. Vendors should also demonstrate their understanding of the buyers needs, their technical and financial capabilities, their management approach to the project, and their price for delivering the desired goods and services. Some IT projects also require potential sellers to deliver a technical presentation as part of their proposal. The proposed project manager should lead the potential sellers presentation team. When the external project manager leads the proposal presentation, the organization can build a relationship with the potential provider. Visits to contractor sites can also help the buyer get information about the sellers capabilities and management style.
Solicitation
Solicitation involves obtaining proposals or bids from prospective sellers. Prospective sellers complete most of the work in this process, at no cost to the buyer or the project. The buying organization is responsible for advertising the solicitation, and might hold a bidders conference to answer questions about the solicitation. The main output of this process is receipt of proposals or bids. Organizations can advertise in many different ways to procure goods and services. Sometimes, a specific seller might be the buyers preferred vendor. In this case, the buyer provides solicitation information to only that vendor. If the preferred vendor responds favorably, both organizations proceed to work together. In many cases, however, several sellers may be qualified to provide the desired goods and services. Solicitation with several potential vendors often provides the buyer advantage of the competitive business environment and allows the development of competitive bidding strategies. As a result, the buyer is able to procure goods and services at low cost. A bidders conference, also called a vendor conference or pre-bid conference, is a meeting with prospective sellers prior to preparation of a proposal. These conferences help ensure that everyone involved shares a clear and common understanding of the products or services that the buyer desires. The buyer may incorporate responses to questions as amendments to the procurement documents before, during, or after the conference. Do it! A-2: Discussing solicitation planning
Exercises
1 What is an RFP?
2 What is solicitation?
3 You are planning to install 150 computers in your organization. Design an RFP that you will send to prospective sellers.
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sections of the proposals. There might be a technical team, a management team, and a cost team to focus on their respective fields. Buyers frequently develop a short list of the top three to five vendors to reduce the work involved in selecting a source.
Exhibit 10-4: Detailed criteria for selecting vendors It is customary to negotiate contracts during the source selection process. Selected vendors prepare a best and final offer (BAFO). In addition, senior managers from both the buying and selling organizations meet before making final decisions. The final output from the source selection is a contract that obligates the seller to provide the specified products or services and the buyer to pay for them.
Types of contracts
Contract type is an important consideration. Different types of contracts might be used by an organization. The different categories of contracts are: Fixed price or lump sum Cost reimbursable Time and material Unit price Fixed price or lump sum Fixed price or lump sum contractsinvolve a fixed total price for a well-defined product or service. The buyer incurs little risk in this situation. For example, a company can award a fixed price contract to purchase 100 laser printers of the desired specifications to be delivered at a location within two months. In this example, the product and delivery date are well defined. Fixed price contracts might also include incentives for meeting or exceeding selected project objectives. For example, the contract can include an incentive fee paid if the laser printers are delivered within one month. A firm-fixed price (FFP) contract poses the minimum risk to the buyer, followed by a fixed price incentive (FPI) contract. Cost reimbursable
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Cost reimbursable contracts involve payment to the seller for direct and indirect actual costs. Direct costs are costs related to a project that can be traced back in a cost-effective way. Indirect costs are costs related to the project that cannot be traced back in a cost-effective way. For example, the salaries of team members working on a project and hardware or software purchased for a specific project are direct costs, while the cost of providing a workspace constitutes an indirect cost. Indirect costs are often calculated as a percentage of direct costs. Cost reimbursable contracts often include fees, such as a profit percentage or incentives for meeting or exceeding selected project objectives. These contracts are often used for projects that include providing goods and services involving new technologies. The buyer absorbs more risk with cost reimbursable contracts than with fixed price contracts. Three types of cost reimbursable contracts, in order of lowest to highest risk to the buyer, include: Cost plus incentive fee (CPIF) contract. The buyer pays the seller for allowable performance costs along with a predetermined fee and an incentive bonus. If the final cost is less than the expected cost, both the buyer and the seller benefit from the cost savings based on a negotiated share formula. For example, suppose the expected cost of a project is $100,000, the fee to the seller is $10,000, and the share formula is 85/15, which means that the buyer absorbs 85 percent of the uncertainty and the seller absorbs 15 percent. If the final price is $80,000, the cost savings are $20,000. The seller is paid the final cost and the fee plus an incentive of $3,000 (15 percent of $20,000), for a total reimbursement of $93,000. Cost plus fixed fee (CPFF) contract. The buyer pays the seller for allowable performance costs plus a fixed fee payment, usually based on a percentage of estimated costs. This fee does not vary, however, unless the scope of the contract changes. For example, suppose the expected cost of a project is $100,000, and the fixed fee is $10,000. If the actual cost of the contract rises to $120,000 but the scope of the contract remains the same, the contractor will receive the fee of $10,000. Cost plus percentage of costs (CPPC) contract. The buyer pays the seller for allowable performance costs along with a predetermined percentage based on total costs. From the buyers perspective, this is the least desirable type of contract because the seller has no incentive to decrease costs. In fact, the seller might be motivated to increase costs because that will automatically increase profits based on the percentage of costs. This type of contract is prohibited for federal government use, but is sometimes used by organizations that are part of the construction industry. All the risk is borne by the buyer. Time and material Time and material contracts are a hybrid of both fixed price and cost reimbursable contracts. For example, an independent computer consultant might be contracted based on a fee of $80 per hour for the services and a fixed price of $10,000 for providing specific material for the project. The materials fee might also be based on approved receipts for purchasing items, with a maximum limit of $10,000. The consultant sends an invoice to the company each week or month, listing the materials fee, the number of hours worked, and a description of the work produced. This type of contract is often used for services required when the work cannot be clearly specified and total costs cannot be estimated in a contract. Generally, contract programmers and consultants prefer time and material contracts. Unit price Unit price contracts require the buyer to pay the supplier a predetermined amount per unit of service, and the total value of the contract is a function of the quantities needed to complete the work. For example, an IT department might use a unit price contract for purchasing computer hardware. If the company purchases only one unit, the cost might be $1,000. If the company purchases 10 units, the cost will be $10,000. This type of contract often involves volume discounts. For example, if the company purchases 10 to 50 units, the contracted cost might be $900 per unit. If the company purchases more than 50 units, the cost might go down to $800 per unit. Any type of contract should include specific clauses that take into account issues unique to the project. For example, if a company uses a unit price contract for consulting services, the contract should stipulate different hourly rates based on the level of experience of individual contractors. The services of a junior programmer with no bachelors degree and less than three years experience might be billed at $40 per hour, but the services of a senior programmer holding a bachelors degree
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and more than 10 years of experience might be billed at $80 per hour. Contract types versus risk Exhibit 10-5 summarizes the spectrum of risks to the buyers and sellers for different types of contracts. Buyers face the minimum risks with FFP contracts because they are aware of the payment to be made to the seller. Buyers face the maximum risks with cost plus percentage of costs contracts because they are unaware of the sellers costs in advance and the sellers might increase costs randomly. The sellers face minimum risks with a cost plus percentage of costs contract and the maximum risks with the FFP contract. Exhibit 10-5: Contract types versus risk
Time and material and unit price contracts can be viewed as high- or low-risk, depending on the nature of the project and other contract clauses. For example, if an organization is unclear on the nature of work to be done, it cannot expect a supplier to sign a FFP contract. However, the buyer can engage a consultant or group of consultants to work on specific tasks based on a predetermined hourly rate. The buying organization can evaluate the work produced every day or every week to decide if consultants should continue. In this case, the contract includes a termination clause a contract clause that allows the buyer or supplier to end the contract. Some termination clauses state that the buyer can terminate a contract for any reason and by serving the supplier only 24 hours notice. Suppliers must often serve a one-week notice to terminate a contract and must provide sufficient reasons for the termination. The buyer can also include a contract clause specifying hourly rates based on the education and experience of the consultants. These contract clauses reduce the risk incurred by the buyer while providing flexibility for accomplishing the work. Statement of work Many contracts include a statement of work (SOW). The SOW is a description of the work required for procurement. The SOW describes the work in detail to allow prospective sellers to determine if they can provide the required goods and services and to determine an appropriate price. A SOW should be clear, concise, and complete. It must describe all the required services and include performance reporting. It is important to use appropriate words in a SOW such as must instead of may. For example, must implies that something is obligatory or necessary; may implies a choice in doing or not doing something. The SOW should specify the product of the project, use industry terms, and refer to industry standards. Many organizations use samples and templates to generate SOWs. Exhibit 10-6 provides a template for a SOW that an organization can use when hiring outside consultants or purchasing goods or services. For example, for an operating system conversion project, a company should specify information, such as the specific manufacturer and model number for the hardware, the operating systems in use and the operating systems required for the conversion, and the number of units of each type of hardware involved (mainframes, midrange computers, or PCs). The SOW should also specify the location of the work, the expected period of performance, specific deliverables and their due dates, standards, acceptance criteria, and special requirements. A comprehensive SOW gives bidders a better understanding of the buyers expectations. A SOW can and should become part of the official contract to ensure that the buyer gets what the supplier bid on.
Exercises
1 Which of the following are the types of contracts used in different situations? A Cost reimbursable B Unit price
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4 Identify the contract type if the buyer pays the seller for allowable performance costs along with a predetermined percentage based on total costs.
5 In your experience, before starting work on a project, have you signed an SOW with the clients? What features did it have?
Contract administration
Explanation Contract administration ensures that the sellers performance meets contractual requirements. The contractual relationship is a legal relationship and is subject to state and federal contract laws. Therefore, appropriate legal and contracting professionals must be involved in writing and administering contracts. It might be possible that project managers have limited knowledge about contract administration. Several project managers and technical professionals might prefer not to be involved in the contract process or might face problems due to their lack of understanding about the contracts. Ideally, the project manager and his or her team should be actively involved in writing and administering the contract so that everyone understands the importance of good procurement management. The project team should also seek expert advice in working with contractual issues. Project members must be aware of potential legal problems they might cause by not understanding a contract. For example, most projects involve changes for items under contract, and these changes must be handled properly. If the project manager does not understand the provisions of the contract, it might inadvertently lead to authorizing the contractor to do additional work at additional cost. Change control is essential to the contract administration process. Following are suggestions to ensure adequate change control on projects that involve contracts: