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CAM 205: PROJECT MANAGEMENT

CAM 205: PROJECT MANGEMENT

CAM 205: PROJECT MANGEMENT

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CAM 205: PROJECT MANGEMENT

About this STUDY MANUAL


CAM 205, PROJECT MANGEMENT, has been produced by KCA
University. All Modules produced by are structured in the same
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How this STUDY MANUAL is structured


The course overview
The course overview gives you a general introduction to the course.
Information contained in the course overview will help you
determine:
If the course is suitable for you.
What you will already need to know.
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The overview also provides guidance on:
Study skills.
Where to get help.
Course assignments and assessments.
Activity icons.
CHAPTERs.
We strongly recommend that you read the overview carefully
before starting your study.
The course content
The course is broken down into CHAPTERs. Each CHAPTER
comprises:

CAM 205: PROJECT MANGEMENT

An introduction to the CHAPTER content.


CHAPTER outcomes.
New terminology.
Core content of the CHAPTER with a variety of learning
activities.
A CHAPTER summary.
Assignments and/or assessments, as applicable.
Resources
For those interested in learning more on this subject, we provide
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MANUAL; these may be books, articles or web sites.
Your comments
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CAM 205: PROJECT MANGEMENT

Course Code:
Course Title:

CAM 205
PROJECT MANAGEMENT

Course Purpose
The course introduces the concept of project management, project support, leadership,
Monitoring and control and risk identification
Expected Learning Outcomes
At the end of the course, students should be able to:
1.

Prepare a detailed plan of Scheduling, execution, monitoring, risk identification and


control.

2.

Identify and explain project success factors.

3.

Provide sound advice on project management.

Course Contents
Introduction to Project Management: Definitions of a project, examples of typical projects,
project management, brief history of project management as a discipline, project manager,
qualities and responsibilities of a project manager and project team;

Project Life Cycle: General description of the project life cycle phases;
Initiation Phase: Project ideas and idea screening, project feasibility study, project proposal
format, project standards and procedures, capital project evaluation techniques (cost/benefit
analysis, accounting rate of return, payback period, net present value method, profitability index
and internal rate of return);
Planning and Organizing Phase: Detailed planning of the project, project scheduling and
sequencing, work breakdown structure, network diagrams, critical path method, program
evaluation and review technique, least cost scheduling(crashing), floats, Gantt charts, project
organization structures, organizing for resources and recruitment of project team;
Project Execution and Control Phase: Actual work on various tasks, reporting quality, cost,
schedule, technical and financial status of a project, comparing actual performance with planned
performance, investigation of variances, and Earned value performance measurements.

CAM 205: PROJECT MANGEMENT

Project Closure Phase: Tasks undertaken, lessons learnt;


Project Stages Exit Criteria: Exit information, exit signatures;
Risk Management: Risk and opportunity, examples of project risks, risk identification (brain
storming, Delphi technique, lessons learn from previous projects), risk quantification, risk
response strategies, risk monitoring and control;
Project Success Criteria and Success Factors: Project manager, project team, organizing,
external environment, configuration management, force field analysis;
Teaching Methodology:
Lectures, tutorials and discussion
Instructional Materials/Equipment
Class with visual aids
Course Assessment/Student Performance
Continuous Assessment: 30%
Examination: 70%
(Grading as detailed under examination regulations)
Recommended Readings
1.

Chandra, P (1995). Projects: Planning, Analysis, Selection, Implementation and


Review.

(4th.ed.). New Delhi: Tata McGraw Hill.

2.

Gardiner, P (2004). Project Management. London: Palgrave Macmillan

3.

Meredith, J. R & Mantel, S. J (2002). Project management; A Managerial Approach


(4th.ed.). New York: John Wiley & Sons.

4.

Nagarajan, K (2001). Project Management. New Delhi: New Age International.

Yeates, D & Cadles, J (1996). Project Management for Information Systems (2nd.ed.)
London: Pitman.

CAM 205: PROJECT MANGEMENT

Table of Contents
About this STUDY MANUAL ......................................................................................... 2
How this STUDY MANUAL is structured ....................................................................... 2
Course Contents................................................................................................................. 4
Instructional Materials/Equipment

Course Assessment/Student Performance

LECTURE ONE: INTRODUCTION TO PROJECT MANAGEMENT: ........................ 7


LECTURE TWO: PROJECT LIFE CYCLE ............................................................... 13
PROJECT PROPOSAL FORMAT

17

LECTURE THREE: CAPITAL PROJECT EVALUATION TECHNIQUES: .............. 20


LECTURE FOUR: PROJECT PLANNING ............................................................... 27
Scheduling Tools ............................................................................................................. 30
LECTURE FIVE: PLANNING AND ORGANIZING PHASE (Continued) ............. 40
Organising projects within the Functional Organization Structure ....................... 49
LECTURE SIX: PROJECT EXECUTION AND CONTROL PHASE ...................... 51
Tools and Techniques ............................................................................................ 55
LECTURE SEVEN: PROJECT PERFORMANCE MEASUREMENT: ....................... 56
Over/Under or Favorable/Unfavorable? ................................................................ 58
How are Variance Reports used? ........................................................................... 58
When should a variance be investigated - factors to consider ............................... 58
LECTURE EIGHT: PROJECT RISK MANAGEMENT ............................................... 65
1. Brainstorming..................................................................................................... 66
2. Nominal Grouping Technique ........................................................................... 66
3. Mind Mapping.................................................................................................... 67
4. Delphi Technique ............................................................................................... 67
5. Lessons Learned from Similar Projects ............................................................. 68
Tools Available for Risk Control ........................................................................... 71
LECTURE NINE: PROJECT CLOSURE PHASE:........................................................ 73
PROJECT PHASE EXIT PLAN

75

Phase exit information ........................................................................................... 75


LECTURE TEN: PROJECT SUCCESS CRITERIA AND SUCCESS FACTORS: .. 78
i) Describe the project Success Criteria ................................................................. 78

CAM 205: PROJECT MANGEMENT

LECTURE ONE: INTRODUCTION TO PROJECT MANAGEMENT:


1.1 Introduction
Welcome to the first lecture in Project Management. We shall start our lesson by introducing
several concepts related to project management. Project management processes describes how
various elements of project management interrelate.
1.2 Specific objectives:
By the end of this lesson you should be able to:
i)

1.3

Define the term project and give typical examples of projects

ii)

Define Project Management

iii)

Write a brief history of project management as a discipline

iv)

Explain the qualities and responsibilities of a project Manager

v)

Briefly explain the composition of a project team

Lecture Outline

1.3.1 Projects.
1.3.2

Project Management

1.3.3 History of project Management


1.3.4 Project Manager
1.3.5 Project Team
1.3.1 Projects.
a) Definitions of a project

A project is a series of related activities which must be implemented in a logical


sequence from a given start time to a given end time.

A project may be defined as a means of moving from a problem to a solution via


a series of planned activities. It is a set of interrelated activities that has a definite
starting and ending point and results in the accomplishment of a unique often
major outcome; or an identifiable goal and an integrated system of complex but
interdependent relationships.

CAM 205: PROJECT MANGEMENT

A project is an investment of money or otherwise in a time-bound intervention to


create productive deliverables/outcomes.

b) Types of projects
Projects are usually categorized into one of three types below:

Change driven: The need to change operations to match the environment.

Market driven: Producing a new product in response to market needs

Crisis driven: Usually in response to an urgent situation eg. Introducing a


replacement of a defective product

c) Examples of typical projects:


Personal projects:
Obtain a Bachelors degree, write a report, plan a wedding, build a house,
Grow horticultural products, run a campaign for a political office, etc
Industrial projects:
Construct a processing plant, provide a gas supply to an industrial estate,
design a new product, etc
Business projects:
Develop a new course, develop a new computer system, introduce a new product,
prepare an annual report, set up a new office, Implement a new business
procedure, etc

1.3.2

Project Management
a) Definitions of project Management:

Project management is the application of knowledge, Skills, tools and techniques


to project activities in order to meet or exceed stakeholder needs and expectations
from a project.

Project management is the discipline of planning, organizing, securing and


managing resources to bring about the successful completion of specific project
goals.

CAM 205: PROJECT MANGEMENT

Project management is an Approach to management of work within the constraints


of time, cost, and performance requirements.

b) Project Management Knowledge areas:


i) Project Integration Management
Describes the processes required to ensure that the various elements of the project
are properly coordinated. It consists of project plan development, project plan
execution and overall change control
ii) Project scope Management
Describes the processes required to ensure that the project includes all the work
required and only authorized work is executed. It consist of initiation, scope planning,
scope definition, scope verification and scope change control
iii) Project time Management
Describes the processes required to ensure timely completion of the project. It
consists of activity definition, activity sequencing, activity duration estimation,
schedule development and schedule control.
iv) Project cost Management
Describes the processes required to ensure that the project is completed within the
approved budget. It consists of resource planning, cost estimation, cost budgeting and
cost control.
v) Project Quality Management
Describes the processes required to ensure that the project will satisfy the needs for
which it was undertaken. It consists of quality planning, quality assurance and quality
control.
vi) Project human resource Management
Describes the processes required to make the most effective use of people involved
with the project. It consists of organizational planning, staff acquisition and team
development.
vii) Project communications Management
Describes the processes required to ensure timely and appropriate generation,
collection, dissemination, storage and disposition of project information. It consists of

CAM 205: PROJECT MANGEMENT

communication planning, information distribution, performance reporting and


administrative closure.
viii)

Project Risk Management

Describes the processes concerned with the identifying, analyzing and responding to
project risk. It consists of risk identification, risk quantification, risk response and risk
response control.
ix) Project procurement Management
Describes the processes required to procurement planning, solicitation planning,
solicitation, source selection, contract administration and contract close out.

1.3.3 History of project Management


Different scientists have used several measures to categorize the historical periods of Project
Management evolution. In this module, we are going to use the classification proposed by
Carayannis (2005), where the historical evolution is divided in four major phases: the craft
system, prior to 1958, application of management science from 1958 to 1979, projects as
production centres (1980-1994) and creating new environments 1995 to present.
The craft system, prior to 1958:
The ancient civilizations learned how to manage processes using the simplest tools. It was not
until middle 1900s and 1950s, when the industrial engineers began to investigate how the
processes were undertaken in practices, in order to develop an organizational theory that
advocates the procedure of project realization. In the early 1900s, Henry Fayol and Henry Gantt
became the forefathers of the twentieth century project management. Henry Fayols major
Achievement was the delineation of five primary management functions, among which are
planning organizing, commanding, and controlling. This theory effectively put contemporary
project management on more specific footing. Gantt created a project management tool called
the Gantt chart. According to Betchel, the first use of the term Project Management in the
international work is traced to the 1950s. At that time, the PM techniques were developed in
U.S. Navy forces. They were concerned with the control of contracts for its Polaris Missile
projects. These contracts consisted of research, development work and were unique, never been
previously undertaken.

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Application of management science from 1958 to 1979


Critical Path Method (CPM) and PERT were developed at the Integrated Engineering Control in
1959. CPM is based on duration of the process, while PERT takes into consideration four major
Variables: optimistic, pessimistic, and most probable times. Pert method is planned to be used in
highly uncertain environments, where the necessity to measure different risk can arise. In
contrast, environment with low level of uncertainty can be evaluated with CPM, based on
previous experience duration of similar processes.
Popularity of PERT and CPM increased within the private and public sector. Defense
Departments of several countries, NASA and large engineering and construction companies
worldwide applied project management principles and tools to manage large- budget and
schedule projects. In 1970s, the Material Requirements Planning (MPR) was introduced.
Projects as production centres (1980-1994)
During the 1980s and early 1990s, the revolution of IT/IS sector shifted people from using a
mainframe computer to a multitasking personal computer, which demonstrated high efficiency in
managing and controlling complex projects schedules. In the mid-1980s, the internet served
researches, developers, local area networks and Ethernet technology started to dominate network
technology. During this period low cost project management software became available, that
made projects management technique more accessible. As a result, Internet permited
organizations to be more productive, more efficient and more customers oriented
Modern stages and trends of Project Management (1995 to present)
This period is characterized by high speed of innovation in the theory and perspective on the
project management. Topics that cover alternative spheres of the study include: examination of
the concept of learning curve, project complexity, and project management in product
development sphere, variability of project performance and managing business by project
concept. In the later 2000s, scientist started to discuss the factors of project failures and success,
role of the culture and communication because of the growing amount of cross national projects.
Besides, researches came back to the origins of PM methodology with an aim to change static,
well-established set of recommendation to the dynamic project environment rectory set of
techniques and references. Relationship problems, studies on stakeholders, management and
studies on governance issues in project are an evidence of raising popularity and wide spread

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interest in the field. The basics of PM models were slowly introduced to smaller organizations
and governmental institutions with an aim to improve the work efficiency and reduce time and
cost of project realization

1.3.4

Project Manager- A project manager is a professional in the field of project management.


Project managers have the responsibility of the planning, execution, and completion of any
project with Limited time and other resources.
A project manager should possess solid technical knowledge (to be able to take usage of
models and instruments for planning, scheduling and control), experience in human
resources sphere (to be able to manage persons form different field) and professional
background in situation of stress, limited time and resources

1.3.5 Project Team- Project team refer to a number of people who work closel together to
achieve shared common goals. It is vital to identify all the team members and clearly
define their roles and responsibilities. Team members can have various roles such as
engineers, technicians, planners, software specialists, etc. Projects pose particular
problems of building and managing project teams. Project managers should have good
team management skills
1.4 Activities
1.4.1

Differentiate between a process and a project

1.4.2

Explain the qualities and responsibilities of a project Manager

1.4.3

Explain why a project team may fail

1.5 Summary
A project is made up of a defined beginning, multiple activities which are performed to a plan
and a Defined end.
All projects must be planned out in advance if they are to be successfully executed. The
execution of the project must be controlled to ensure that the desired results are achieved.
1.6 Self-assessment
You have been appointed the project manager of Gate pump water project. Describe the skills
required for such an appointment.
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CAM 205: PROJECT MANGEMENT

LECTURE TWO: PROJECT LIFE CYCLE:


2. Introduction
Welcome to the Second lecture in Project Management. Organisations performing projects will
usually divide each project into several project phases to provide better management control and
appropriate links to the on-going operations of the performing organisation. Collectively, the
project phases are known as the project life cycle.
2.1. Specific objectives:
By the end of this lesson you should be able to:
i)

Describe in general the project life cycle phases

ii)

Describe how project ideas are screened

iii)

Write a project feasibility study report

iv)

Prepare a project proposal

v)

Discuss project standards and procedures

2.2. Lecture Outline


2.2.1.

Project life cycle phases

2.2.2.

Project Ideas

2.2.3.

Feasibility study

2.2.4.

Project proposal

2.2.5.

Project standards and procedures

2.3. Project life cycle phases


The Project Life Cycle is a framework for dividing a project into manageable phases.
Regardless of scope or complexity, any project goes through a series of stages during its
life. Most projects can be subdivided into four generic phases: Concept and Initiation phase,
Design or Planning phase, Implementation or execution phase and Closure or Exit phase.
1) Initiation Phase
In this first stage, the scope of the project is defined along with the approach to be taken to
deliver the desired outputs. The need, goals/objectives and the viability of the project are

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established. The project manager is appointed and in turn, he selects the team members
based on their skills and experience.
2) Planning Phase
The second phase should include a detailed identification and assignment of each task until
the end of the project. Project schedules, resource requirements, cost budget , policies and
procedures are developed. It should also include a risk analysis and a definition of a criteria
for the successful completion of each deliverable. The governance process is defined, stake
holders identified and reporting frequency and channels agreed.
3) Execution Phase
the most important issue in this phase is to ensure project activities are properly executed
and controlled. Project manager coordinates his team to ensure that the project is executed
according to its scope, quality, time and cost. The planned solution is implemented to solve
the problem specified in the project's requirements.
4) Closure
In this last stage, the project manager must ensure that the project is brought to its proper
completion. The closure phase is characterized by a written formal project review report
containing the following components: a formal acceptance of the final product by the client,
Weighted Critical Measurements (matching the initial requirements specified by the client
with the final delivered product), rewarding the team, a list of lessons learned, releasing
project resources, and a formal project closure notification to higher management.
2.4. Project Ideas
Project idea screening is a process used to evaluate innovative product ideas, strategies and
marketing trends. New product ideas are seldom revolutionary, they are mostly evolutionary.
Many develop from the products of the past, making improvements in quality; convenience, cost
or variety .Idea screening criteria are used to determine compatibility with overall business
objectives and whether the idea would offer a viable return on investment. Whatever does not
meet these criteria is typically discarded. Idea screening helps to reduce the amount of ideas into
a manageable number.

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Screening criteria:
a) Qualitative criteria:

All ideas are presented on the wall/board

Each person in the idea generation group receives a highlighter and chooses all
the ideas he/she believes have a potential based on consumer needs and potential
solutions
Give a red sticker to each participant and make them put it on the idea their heart/
gut feeling would like to realize

Ask them to put a yellow sticker on the idea they think will be the most successful
if realized

To put a green sticker on the idea they believe in the most

And finally put a blue sticker on the idea that is of greatest importance to the
company

Put specific names on the idea(s) you personally would like to take responsibility
for, and on the ideas you would like to support. Ideas without a person responsible
for them should be rejected. The coloured stickers should then decide which and
how many ideas to take further and which one to reject, and could also decide
which one to start with. Ideas with many hearts are more likely to succeed,
because someone in the company wants to take them further these ideas should be
chosen first.

b) Quantitative criteria
Important attributes for evaluating the ideas are defined
Option 1:

Give the attributes an importance- score from 1- 10 (10= most important)

Rate each idea for each attribute

The ideas with the highest scores are chosen

Option 2:

Define outcomes and rate them for probability and importance

Give each idea a score on probability for the outcome and the importance if it
happens

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The ideas with the highest scores are chosen

2.5. Feasibility study


A feasibility study is an analysis of the ability to complete a project successfully, taking into
account legal, economic, technological, scheduling and other factors. It allows project managers
to investigate the possible negative and positive outcomes of a project before investing too much
time and money.
The study is based on extensive investigation and research to support the process of decision
making. Feasibility studies aim to objectively and rationally uncover the strengths and
weaknesses of an existing business or proposed venture, opportunities and threats present in the
environment, the resources required to carry through, and ultimately the prospects for success. In
its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.
A well-designed feasibility study should provide a historical background of the business or
project, a description of the product or service, accounting statements, details of the operations
and management, marketing research and policies, financial data, legal requirements and tax
obligations. Generally, feasibility studies precede technical development and project
implementation.
A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is
an important factor in the credibility of the study for potential investors and lending institutions.
It must therefore be conducted with an objective, unbiased approach to provide information upon
which decisions can be based.

Feasibility Study Report


Typical contents of a feasibility study report include:

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Project definition covering goals and objectives

General background and introduction with an outline description of the options

A clear definition of success criteria

Findings of the feasibility study

Financial appraisal

Preliminary compliance

Organizational suitability

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Plan for implementation and management of the project


2.5.1.Project proposal

A project proposal is a detailed account of a succession of activities meant to solve a certain


problem. In order to be successful, the document should: give a logical arrangement of a research
idea, demonstrate the importance of the idea, explain the idea's connection to past actions, and
express the activities for the intended project.
The proposal is written with a specific purpose in mind: to convince someone that the project can
and should be undertaken. Although there isn't a universal format for project proposals, many
elements in proposals are important, and often, mandatory. Above all else, you must remember
that a project proposal is an argument. If you don't present a viable and logical argument, your
proposal will likely be rejected. Foundations give specific proposal guidelines:

PROJECT PROPOSAL FORMAT


SAFARICOM FOUNDATION PROJECT PROPOSAL FORMAT
GENERAL INFORMATION
1. Name of Organisation
2. Project Title
3. Project Location
4. Contact Person
5. Contact Information: Physical Address, Postal Address, Phone Number and Email
Address
6. Project Timeline
7. Amount Requested
EXECUTIVE SUMMARY:
Provide a brief overview and summary of the project. It should provide a credible statement that
describes your organisation and establish the significance of the project

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PROBLEM STATEMENT:
State the challenges identified, the rationale/need to address these challenges and the conditions
to be changed by the project
PROJECT OBJECTIVES:
The objectives should describe the intended outcome of the project and should be SMART
(Specific, Measurable, Accurate, Realistic and Time Bound) .
Indicate how the objectives will contribute to the achievement of the project, what difference the
project will make and the time frame during which this will happen.
PROJECT IMPLEMENTATION AND MANAGEMENT PLAN:
Describe the project activities indicating how the objectives will be accomplished, what will be
done, who will do it, who are the implementers, partners and beneficiaries and when it will be
done. Describe how the project will be sustainable after the funding period.
PROJECT MONITORING AND EVALUATION:
Describe how you are going to monitor and evaluate the project so as to assess progress during
implementation and improve the project efficiency as the project moves along.
DOCUMENTATION AND SHARING RESULTS:
Describe how you are going to document the progress of your project during and after
implementation. State how you will document and share your results and let others know of
your purpose, methods and achievements.
PROJECT BUDGET:
Indicate the total cost of the project and also provide a detailed budget for these costs.
2.5.2.

Project standards and procedures

The project standards and procedures are typically documented in a Project Standards and
Procedures Manual. This manual consists of an introductory section followed by separate
sections for each aspect of the project activities, such as:

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Standards and Procedures for Team Performance, including such general project
practices as the code of conduct and standard project terminology, meetings, change control
procedures (including the use of Change Requests and Decision Requests), and risk
management.
Standards and Procedures for Cost/Schedule Management, including organizing the
work, project monitoring, project accounting, and cost/schedule analysis.
Standards and Procedures for Data Management, including the project library,
document identification, document structure and style, and document preparation.
Standards and Procedures for Configuration Management, including identifying,
controlling , maintaining, and reporting on configuration items.
Standards and Procedures for Quality Management, including such things as: walkthroughs, reviews, audits and inspections, handling and storing, packaging and shipping,
and procedures for eliminating the cause of problems.

2.6 Activities
Describe the following feasibility areas:
i) Technology and system feasibility
ii) Legal feasibility
iii) Operational feasibility
iv) Economic feasibility
v) Schedule feasibility

2.7 Summary
Every unique project has unique activities in each project life cycle phase

2.8 Self-assessment
Write a project proposal for a project of your choice
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LECTURE THREE: CAPITAL PROJECT EVALUATION TECHNIQUES:


3. Introduction

Welcome to the third lecture in project management. A capital project is a long-term investment
which requires the use of huge amounts of capital, both financial and labour , to undertake and
complete. E.g. a new building , acquisition of land or property, lease of property, the
refurbishment of an existing building , purchase of an equipment, etc The commitment of funds
to capital projects gives rise to a management decision problem, the solution of which, if
incorrectly arrived at, may seriously impair company profitability and growth. The proper use of
evaluation techniques and criteria should enable management to make more effective decisions
which result in future success. The purpose of investment appraisal is to evaluate whether or not
the current sacrifice is worthwhile.
3.1. Specific objectives:
By the end of this lesson you should be able to:
i)

Discuss the cost/benefit analysis evaluation Technique

ii)

Describe the accounting rate of return

iii) Discuss the payback period method


iv) Explain the net present value method
vi)

Describe the profitability index method

vii)

Discuss the internal rate of return method

3.2. Lecture Outline


3.2.1.Cost/benefit analysis
3.2.2. Accounting rate of return method
3.2.3.Payback period method
3.2.4.Net present value method
3.2.5.Profitability index method
3.2.6.Internal rate of return method

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3.3. Cost/benefit analysis


Costbenefit analysis (CBA), sometimes called benefitcost analysis (BCA), is a systematic
process for calculating and comparing benefits and costs of a project. It has two purposes:
1. To determine if it is a sound investment project
2. To provide a basis for comparing projects.
It involves comparing the total expected cost of each option against the total expected benefits, to
see whether the benefits outweigh the costs, and by how much.
The following is a list of steps that comprise a generic costbenefit analysis.
1. List alternative projects.
2. List the stakeholders.
3. Select measurement(s) and measure all cost/benefit elements.
4. Predict outcome of cost and benefits over relevant time period.
5. Convert all costs and benefits into a common currency.
6. Apply discount rate.
7. Calculate net present value of project options.
8. Perform sensitivity analysis.
9. Adopt recommended choice.
3.3.1.
-

Accounting rates of return (ARR)

This technique uses accounting information as revealed by the financial statements to


measure the profitability of the investment.

ARR

Average income after tax and depr.


x100
Average investment

Average investment

Initial investment cos t Re sidual value


2

Acceptance criterion
-

Management should establish the minimum ARR for its projects

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A project whose ARR is higher than the managements ARR should be accepted and vice
versa.

If the projects are mutually exclusive, chose the one with the highest ARR

Strengths of ARR

Simple to understand and use.

Calculate from accounting data which is readily available from financial


statements of a business organization.

Uses returns from entire life of the project to determine project profitability.

Weaknesses of ARR

Ignores time value of money.

Uses accounting profits and not cash flows in appraising. Projects. Accounting
profits include non-cash items.

There is no universally acceptable way of computing ARR and this means


different parties can come up with different rates depending on the formula used.

3.3.2.

Payback Period Method

Payback refers to the duration required for the project to recoup or recover the initial
investment cost. Initial investment cost is recovered from the future cash inflows expected
from the project. If the project generates a constant annual cash inflows, its payback period
is computed by dividing the initial investment cost by the annual constant cash inflows.
PBP

Initial investment cos t


Cons tan t annual cash inf lows

If the project undertaken is to yield un equal cash inflows, its PBP can be determined by
adding up the cash inflows until the total cash inflows are equal to the initial investment
cost. It is assumed that the cash inflows are evenly generated and that cash inflows for a
fraction of a year can be calculated proportionately.
Acceptance criteria
-

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The management should fix the maximum acceptable PBP for its future projects

CAM 205: PROJECT MANGEMENT

A project whose PBP is less than the managements PBP should be accepted and vice
versa.
If the projects are mutually exclusive, the one with the smallest PBP

Strengths of payback period method include the following:

Its simple to understand and easy to calculate

It chooses ventures with the shortest pay back period and this minimizes the risks
associated with returns which will be generated some time in future and which may
be uncertain.

Choosing of the ventures with the shortest payback period improves the liquidity
position of the company

Payback period is realistic for those companies that which to re-invest intermediary
returns.

Weaknesses of payback period method include the following:

Ignores the time value of money.

Ignores cash flows after the payback period

There is no rational basis for setting a maximum payback period

Its not consistent with the objectives of maximizing the market value of firms shares.
Shares values do not depend on payback period of investment projects.

When the project does not yield uniform returns payback period will not be accurate
as it will assume that cash flows occurs evenly throughout the year which is
unrealistic

3.3.3.

Net Present Value (NPV)

This technique recognises the fact that cash flows arising at different time period differ in
value and are comparable only where their present values are determined. NPV is the
difference between the present value of cash inflows and the present value of cash outflows.
Decision criterion
-

Undertake projects with positive NPV

Reject projects with negative NPV

23

CAM 205: PROJECT MANGEMENT

If the projects are mutually exclusive, chose the one with the highest positive NPV

Strengths of NPV

It recognizes the time value of money.

It takes into account cash flows over the entire life of the project to determine the
project viability.

It ranks projects according to their true profitability

It uses cash flows and not profits and therefore gives a reasonable assessment of the
investment viability.

It is consistent with the value additively principle. The NPVs of various projects

can be added together to determine the increase in the value of the firm.

Weaknesses of NPV

It is more difficult to use compared to the traditional methods.

It use the firms cost of capital to discount the cash flows. It thus assumes that the
firms cost of capital is always available for use and is easy to calculate which is
not the case.

It is only ideal in ganging the profitability of investments similar in a number of


aspects such as similar economic life, similar initial cost, etc.

It ignores risks associated with an investment. All the firms future projects are
evaluated using the same discount rates irrespective of the differences in their
level of risk.

Use of the firms cost of capital as an investment discount rate to be applied to the
firms future project is based on the assumption that the firms future projects will
bear the same risks as the current projects which is unlikely.

It involves estimates of future cash flows which is a tedious task.

3.3.4.

Profitability Index (PI) or benefit Cost Ratio (BCR)

Profitability index is the ratio of cash inflows to the initial cost of the project.
PI of the above project

24

Pv of cash inf lows


Initial cos t

CAM 205: PROJECT MANGEMENT

Decision criterion
-

Undertake projects whose PI>1

Reject projects whose PI<1

If the projects are mutually exclusive, chose the one with the highest PI

Strengths of PI

Recognizes time value of money

Takes into account cash flows over the entire life of the project

Uses cash flows and not profits and therefore gives a reasonable assessment of the
investment viability.

Weaknesses of PI

Difficult to use compared to the traditional methods

Assumes that the firm cost of capital is always available for use and easy to calculate
which not the case is.

Involves estimates of feature cash flows which is a tedious task

Ignores risks associated with an investment. All the firms future projects are evaluated
using the same discount rates irrespective of the difference in their level of risks.

3.3.5.
-

Internal rate of return (IRR)

IRR is the discount rate at which the NPV of a project is zero

Decision criterion
-

Undertake projects whose IRR> cost of capital

Reject projects whose IRR<Cost of capital

If the projects are mutually exclusive, chose the one with the highest IRR

Strengths of IRR

Takes into account time value of money.

Considers cash flows occurring over the entire life of the project.

Ranks projects according to their true profitability giving the same result as NPV
method.

It is consistent with shareholders wealth maximization objectives.

25

CAM 205: PROJECT MANGEMENT

Uses cash flows and not profits and therefore it gives a reasonable assessment of
the project profitability.

Weakness of IRR

May involve tedious calculations

May yield multiple and negative rates of return which may not have any meaning.

Not consistent with value addivity principle. IRR of various projects cannot be added
together to give the firms additional wealth from the projects.

Requires estimates of cash flows which is a difficult task.


3.4 Summary

Proper use of evaluation techniques and criteria should enable management to make
more effective decisions which result in future success

3.5 Self-assessment
The management of ABC Ltd anticipates purchasing one of the pump models
below. Each model has an initial cost outlay of Ksh 15,000 and a useful life of 5
years.
The corporation tax rate is 30% and the required rate of return is 10%. The
pumps are depreciated using straight line method. The before tax and
depreciation cash flows expected to be generated by the projects are as follows:
Year

Model I

8,000

8,000

6,000

5,000

4,000

Model II

6,000

6,000

6,000

6,000

6,000

Required:
a) Determine the cash flows after tax
b) Compute the AAR, PBP, NPV, PI and IRR for each project
c) Advice the management on the pump model to purchase

26

CAM 205: PROJECT MANGEMENT

LECTURE FOUR: PROJECT PLANNING


4.0 Introduction
Project planning is part of project management, which relates to the use of schedules to plan and
subsequently report progress within the project environment. Planning process not only
establishes what is to be done, but also smoothens the way to make it happen. Many experts
believe that proper planning is essential for project success.
4.1 Specific objectives:
By the end of this lesson you should be able to:
i) Outline the detailed planning of a project
ii) Prepare a schedule for the project activities
iii) Prepare a work breakdown structure
iv) Draw network diagrams, determine the project duration and the critical path
v) Apply program evaluation and review technique
4.2 Lecture Outline
4.2.1

Project planning

4.2.2

Work breakdown structure

4.2.3

Project scheduling

4.2.4

Network diagrams

4.2.5

Program evaluation and review technique

4.3 Project planning


Project planning is a discipline for stating how to complete a project within a certain timeframe,
usually with defined stages, and with designated resources.
Detailed planning involves:

Clearly defining project objectives (definition agreed upon by customers, organizations


/contractors performing the project).

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CAM 205: PROJECT MANGEMENT

Dividing and subdividing project scope into major pieces or work packages shown by
work breakdown structure (WBS).

Defining the specific activities that need to be performed for each work package in order
to accomplish the project objectives.

Graphically portraying the activities inform of network diagrams, Gantt charts, etc .

Making a time estimate for how long it will take to complete each activity.

Making a cost estimate for each activity based on the quality and quantity of resources
for each activity.

Developing a project schedule and budget to determine whether the project can be
accomplished within the required time.

Documenting a project plan


4.3.1

Work breakdown structure

A complex project is made manageable by first breaking it down into individual


components in a hierarchical structure, known as the work breakdown structure (WBS). It
provides definition to the project scope by showing the hierarchical break down of activities
and end products that must be completed to finish the project. Such a structure defines tasks
that can be completed independently of other tasks, facilitating resource allocation,
assignment of responsibilities, and measurement and control of the project.
Example:
HOUSE

CIVIL

Foundati
on

4.3.2

28

Walls/R
oof

PLUMBING

Piping

Project scheduling

Sewerage

ELECTRICAL

Wiring

Appliances

CAM 205: PROJECT MANGEMENT

Example 1: Project Schedule

Project Management Improvement

Effort

Planned

Planned

Project Phase 1

Estimate in

Start

End Date

Days

Date

Resource

Initiate Project

1.1

Develop Project Charter

1.1.1

Define Scope

4.00

06/01/05

06/08/05

Name1, Core Team

1.1.2

Define Requirements

3.00

06/09/05

06/15/05

Name1, Core Team

1.1.3

Identify High-Level Roles

0.25

06/16/05

06/17/05

Name1

1.1.4

Develop High-Level Budget

1.00

06/16/05

06/20/05

Name1

1.1.5

Identify High-Level Control Strategies

0.50

06/21/05

06/21/05

Name1

1.1.6

Finalize Charter and Gain Approvals

2.00

06/21/05

06/30/05

Name1

1.1.6.1

Consolidate and Publish Project Charter

1.00

06/21/05

06/23/05

Name1

1.1.6.2

Hold Review Meeting

0.50

06/24/05

06/24/05

Name1

1.1.6.3

Revise Project charter

0.50

06/27/05

06/28/05

Name1

1.1.6.4

Gain approvals

0.50

06/29/05

06/30/05

Name1

Plan Project

2.1

Develop Work Plan

2.1.1

Develop Work Breakdown Structure

2.00

07/01/05

07/06/05

Name1

2.1.2

Develop Project Staffing Plan

2.00

07/07/05

07/11/05

Name1

2.1.3

Develop Project Schedule

3.00

07/12/05

07/14/05

Name1

2.1.4

Develop Project Budget

3.00

07/15/05

07/20/05

Name1

2.2

Develop Project Control Plan

2.2.1

Develop Communication Plan

1.50

07/15/05

07/17/05

Name1

2.2.2

Develop Quality Management Plan

1.50

07/17/05

07/21/05

Name1

2.3

Finalize Project Plan and Gain


5.00

07/22/05

07/29/05

Name1

Approvals
3

Execute and Control Project

3.1

Design Framework

3.1.1

Define framework stages and activities

5.00

08/01/05

08/15/05

Name1, core team

3.1.2

Design framework content formats

1.00

08/16/05

08/18/05

Name3, Name2

3.1.3

Design web framework delivery tool

2.00

08/19/05

08/31/05

Name3

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CAM 205: PROJECT MANGEMENT

3.2

Build the Framework

3.2.1

Write the framework content

3.2.2

Review framework content for quality

65.00

09/15/05

10/21/05

Build web tool prototype

3.3

Test the Framework

3.3.1

Test usability of web tool

Name2

review team
Name3, web

20.00

08/19/05

08/31/05

developer

core team, review


4.00

3.3.2

10/31/05

Name1, core team,


12.00

3.2.3

09/01/05

09/19/05

11/25/05

Test usability of content

team
core team, review

4.00

10/19/05

11/25/05

team

5.00

11/18/05

11/30/05

Name2, Name3

environment

5.00

12/01/05

12/16/05

Name1

3.4.2

Announce availability of framework

0.50

12/19/05

12/30/05

Name1

Close the Project

4.1

Conduct Post-Project Review

3.3.3

Adjust framework based on user feedback

3.4

Implement Framework

3.4.1

Move framework to production

Name1, core team,


5.00

4.2

01/03/06

01/10/06

Celebrate

review team
Name1, core team,

0.50

01/13/05

01/13/05

review team

A schedule is a listing of a project's milestones, activities, and deliverables, usually with intended
start and finish dates. Those items are often estimated in terms of resource allocation, budget and
duration, linked by dependencies and scheduled events. Elements on a schedule may be closely
related to the Work Breakdown Structure (WBS) terminal elements.
A schedule tells you when each activity should be done, what has already been completed, and
the sequence in which activities need to be finished.

Scheduling Tools
Here are some tools and techniques for combining these inputs to develop the schedule:

Schedule Network Analysis This is a graphic representation of the project's activities,


the time it takes to complete them, and the sequence in which they must be done. Project

30

CAM 205: PROJECT MANGEMENT

management software is typically used to create these analyses Gantt charts and PERT
Charts are common formats.

Critical Path Analysis This is the process of looking at all of the activities that must be
completed, and calculating the 'best line' or critical path.

Schedule Compression This tool helps shorten the total duration of a project by
decreasing the time allotted for certain activities. It's done so that you can meet time
constraints, and still keep the original scope of the project. You can use two methods
here:
Crashing This is where you assign more resources to an activity, thus

decreasing the time it takes to complete it. This is based on the assumption that
the time you save will offset the added resource costs.
Fast-Tracking This involves rearranging activities to allow more parallel work.

This means that things you would normally do one after another are now done at
the same time

Example 2: Project Schedule


Activity

Predecessors

Duration Weeks

Crew Size Workers

D, E

F, G

4.3.3

Network diagrams

A network shows the various activities and their duration. It shows the sequence in which the
activities are to be carried out.
A project network diagram has the following features:

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CAM 205: PROJECT MANGEMENT

(a)

Arrows which denote activities.


An activity is an action which is time and resource consuming
Each activity will be necessary to complete a particular part of the overall project.
Activities are usually denoted by capital letters (A, B, C, )

(b)

Circles Which denote events


An event is an instance in time denoting either the start or finish of an activity or a
group of activities.

(c)

Activity duration
This is the time an activity is estimated to take to complete. It is indicated on the
activity arrow.

Rules of drawing a network


1. A complete network has only one start event point and one finishing event point.
2. Each activity has only one starting and one finishing event point. However many activities
can have the same starting point or the same ending point.
3. No two activities can start at the same event point and end at the same event point. When this
happens a loop is said to exist. To remove the loop a dummy activity is introduced. A
dummy activity is one that consumes no resources and is only introduced into the network to
ensure that the rules of network drawing are followed. It is drawn as a broken arrow and is
denoted by D1, D2,
4.No activity can start until the tail event is complete and this event will not be complete unless
all activities leading to it are complete.
5.

(i) Any activity with no predecessor begins at the point of entry.


(ii) Activities with the same predecessors begin at the same point
(iii) Activities preceding the same activity end at the same point.

6. All activities in a network must be connected to the main network.


The two most common and widely used project management techniques classified under the
title of network analysis are;
-

Critical Path Method (CPM)

Programme Evaluation and Review Techniques (PERT)

Both were developed in 1950s to help managers schedule, monitor and control large and
complex projects.

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CAM 205: PROJECT MANGEMENT

There are six stages common to both CPM and PERT


(i) Define the project and specify all activities/task
(ii) Develop the relationships among the activities and decide upon precedence
(iii)Draw networks to connect all activities
(iv) Assign time and/or costs to each activity
(v) Calculate the longest time path through the network i.e. critical path
(vi) Use network to Plan, Monitor and control the project
NB; Finding the critical path (stepv) is a major activity in controlling project
CRITICAL PATH METHOD (CPM)
-

The critical path method (CPAM) places more emphasis on cost control rather than time
control.

It is assumed that the activity time is known with certainty.


CPM is used under conditions of certainty. It is used when cost control
outweighs time control.

Example:
Draw a network for the following set of activities:
Activity

Predecessors

Time (weeks)

B,D,E

F,G,I

Network diagram

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CAM 205: PROJECT MANGEMENT

3
6

12

17

A
6
0

J
3

G
5

10

17

10

B
3
2

H
5

10

10

D1

15

15

Critical path: A-D-H-I-J


Project completion time = 20 weeks
Time analysis This is concerned with the determination of:
(a)

The minimum time it will take to complete the project.

(b)

The critical path

Time analysis involves two stages:


(i)

The forward pass

(ii)

The backward pass.

Forwards Pass

Start at the beginning of network at time zero and progressively work through the
network to the finishing point adding the duration of activities cumulatively.

34

The sums so obtained are referred to as the Earliest Event Starting times (EST).

The last entry will be the earliest completion time of the project.

20

20

CAM 205: PROJECT MANGEMENT

Where there is more than one activity leading to an event there will be two or more
possible cumulative sums. In such a case, the bigger of the sums obtained is taken i.e the
longer path is taken.

Backward Pass

Start at the end of the network and work through the network back to the starting point
cumulatively subtracting the duration of the activities.

The figures so obtained are referred to as the latest event starting times (LST)

Whenever there are more than one possible paths to an event, the smaller of the
difference obtained is used.

Critical activities:
The combination of the backward and forward passes enables us to identify those activities that
are critical. A critical activity has the following characteristics:
(i)

The earliest starting time (EST) and the latest starting time (LST) is the same at the tail
event.

(ii)

The earliest finishing time (EFT) and the latest finishing time (LFT) is the same at the
head event.

(iii)

The difference between the head time and tail time is equivalent to the duration of the
activity

Critical activities in a network form the critical path. Critical path is the longest path
through the network. Any interference with an activity on this path will result in a
similar interference in the overall project.

4.3.4

Program evaluation and review technique

Critical path method assumes that activity completion time is known with certainty.
This is an unlikely situation in practice. The completion time of an activity is better treated as a
random variable described by a probability distribution rather than by a single estimate.
PERT recognizes the uncertainty involved in estimating the duration of an activity that is yet to
take place. The best probability distribution that describes activity completion time is the Betadistribution. For Beta distribution, 3 times estimates are required:

35

CAM 205: PROJECT MANGEMENT

1. Optimistic time (t0)-This is the shortest time possible of completing an activity


2. Modal time( tm) This is the most likely time of completing an activity.
3. Pessimistic time (tp) This is the longest possible time of completing an activity.
Notes:

Expected activity completion time, te

Variance of activity completion time =

t p 4tm t0
6
Pessimistic time Optimistic time]2
6

2a [

t p t0
6

]2

Expected project completion time, tp = summation of expected completion time of


Critical Path activities.

Variance of project completion time, 2 p = summation of the variances of activities


completion times of critical path activities

The distribution of activities in a pert network follows a Beta distribution. Beta distribution is
very similar to the normal distribution except that it has a slight skew. Provided the number of
activities in the project is sufficiently large ( n > 4), normal distribution can be used to describe
project completion time. Once the expected completion time and variance have been
determined, the probability that a project will be completed by a specific time can be assessed.
The assumption is usually made that the distribution of completion time follows that of a normal
distribution curve.
Assumption of using this method
1.

Non critical and critical activities maintain their status i.e the critical path does not
change.

2.

The activity completion times are statistically independent i.e they do not influence one
another.

Illustration
A construction project consists of the activities shown below:

36

CAM 205: PROJECT MANGEMENT

Activities

Optimistic

Most

Pessimistic Expected

Variance

(t0)

likely

(tp)

time =

(t0+4tm+tp)

t p t0 2

(tm)

1-2

10

6.3

1.00

1-3

5.3

1.00

2-4

12

20

12.5

4.69

2-5

5.2

0.69

3-4

11

15

10.8

2.25

4-5

11

6.5

1.36

4-6

14

8.8

3.36

5-6

4.3

1.00

6-7

5.3

1.00

Required:
(a)

The expected time and variance of each activity.

(6 marks)

(b)

A project network for the activities.

(6 marks)

(c)

The expected completion time and variance of the project.

(2 marks)

(d)

If the project is completed in less than 30 weeks, it will cost Sh.1 million. It will cost
Sh.1.5 million if the project is completed between 30 and 35 weeks and Sh.2 million if it
takes more than 35 weeks. Compute the expected cost of the project.

Solution
a) In the table above
b) Project network for the activities

37

(6 marks)

CAM 205: PROJECT MANGEMENT

6.3

6.3
25.3

25.3

0
0

18.8
29.6
18.8

34.9
29.6

34.9

5.3
8.0

Critical path is 1-2, 2-4, 4-5, 5-6, 6-7

(c)

Expected project completion time = 34.9 weeks


Variance of the project completion time= Variances of critical path activities
= 1+4.69 + 1.36 + 1 + 1 = 0.05

(d)

Expected completion time = 34.9 weeks.


Project standard deviation, 9.05 3.008
Project completion time follows a normal probability distribution since number of activities>4.
=3.008

30

34.9

35

Project completion time

t te

Z1

30 34.9
1.63
3.008

Area = 0.4484

Z2

35 34.9
0.03
3.008

Area = 0.0120

P(t < 30) = 0.5 0.4484 = 0.0516, P(30 < t < 35) = 0.4494 + 0.0120 = 0.4604
P(35 < t) = 0.5 0.0120 = 0.488

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CAM 205: PROJECT MANGEMENT

=> Expected cost of the project


=

0.0516 x 1 + 0.4604 x 1.5 + 0.488 x 2

PiXi = Sh.1.7182 million

4.4 Activities
4.4.1

Differentiate between Critical path method and program evaluation & review
technique

4.4.2

Outline the importance of a project schedule to a project manager

4.5 Summary
A project plan is a formal, approved document used to guide both project execution and
project control. The primary uses of the project plan are to document planning assumptions
and decisions, facilitate communication among stakeholders, and document approved scope,
cost, and schedule baselines. If you plan and organise a job well, it should be a productive
and positive experience for everyone.

4.6 Self-assessment
A project has the following activities, precedence relationships, and time estimates in
Activity

Immediate
Optimistic
Most Likely Time
Predecessors
Time
A
15
20
B
8
10
C
A
25
30
D
B
15
15
E
B
22
25
F
E
15
20
G
D
20
20
a) Calculate the expected time or duration and the variance for each activity.

Pessimistic Time

b) Construct the network diagram


c)

Tabulate the values of EST,EFT,LST,LFT and slack for each activity

d) Identify the critical path, and the project duration.


e)

What is the probability that the project will take longer than 57 weeks to complete?

39

weeks:

25
12
40
15
27
22
22

CAM 205: PROJECT MANGEMENT

ECTURE FIVE: PLANNING AND ORGANIZING PHASE (Continued)


5.0Introduction
Project planning and organisation ensures that the project will be executed and completed
within the budgeted time and costs. Identification of flee time of various activities is
important while reorganising the sequence in which the activities are to be executed and also
when crashing project completion time.

5.1 Specific objectives:


By the end of this lesson you should be able to:
i) Determine the total float, Flee float and independent floats of project activities
ii) Determine the duration and cost of a project after it has been crashed
iii) Draw Gantt charts
iv) Discuss the project organisation structures
v) Discuss the procurement of project resources and recruitment of project team
5.2 Lecture Outline:
5.2.1 Project time Floats
5.2.2 Project crashing
5.2.3 Gantt charts
5.2.4 Project organisation structures
5.2.5 Procurement of project resources
5.2.6 Project time Floats
-

Float refers to spare time in a network. Activities on the critical path have no float.

If an activity has some float, it means it can be delayed without having any impact on
other activities or to the overall project.

By definition, any delay in a critical activity will have a similar delay on the overall
project and therefore such activities have got no float.

There are three types of floats:


(i)

40

Total float

CAM 205: PROJECT MANGEMENT

(ii)

Free float

(iii)

Independent float

(i) Total float


This refers to the amount of time an activity or a path of activities could be
delayed without affecting the overall project duration. It is obtained by the
following formulae; Total float = LFT EST Duration of activity
Critical activities have a total float of zero.
(ii) Free float
This is the amount of time that an activity can be delayed without affecting any
other activity in the project. It is given by the formula:
Free float = EFT EST Duration
(iii) Independent float
This is the amount of time an activity can be delayed without affecting the next
activity. It is given by the formulae
Independent float = EFT LST Duration
Exercise: Compute the total float, free float and independent floats for the
activities of the above project:
Activity

Duration
(weeks)

FLOATS
EST

LST

EFT

LFT

Total (TF)

Free (FF)

Independent (IF)

=LFT-EST-D

=EFT-EST-D

=EFT-EST-D

10

10

12

10

10

10

10

12

17

17

10

10

17

17

10

10

15

15

15

15

17

17

17

17

20

20

41

CAM 205: PROJECT MANGEMENT

NB: TF . FF > IF
5.2.7 Project crashing (least cost scheduling)
Least cost scheduling (or crashing) is a technique that is used to analyse the cheapest way of
reducing the overall project duration. The sooner a project is completed the better as time is a
scarce resource. However, in order to be able to reduce the duration of an activity, additional
resources may need to be employed resulting in an increase in costs. Since minimization of cost
is a desirable objective it becomes necessary to identify how best the project duration can be
reduced while still achieving the objective of minimising costs.

Definitions:
1.

Normal cost The cost incurred when an activity is completed within the normal time.

2.

Normal time This is the duration an activity would take if available resources are used
as efficiently as possible. It is the time taken to complete an activity when there is no
delay and no rush.

3.

Crash time This refers to the shortest possible time it would take to complete an
activity if additional resources were employed.

4.

Crash cost cost incurred when an activity is crashed.

5.

Cost slope This refers to the additional cost incurred in crashing an activity by a unit
time.
Cost slope = Crash cost Normal cost
Normal time Crash time

Crashing Process:
The process of reducing the duration of a project by employing additional resources is referred to
as crashing or least cost scheduling. This process involves reducing project duration by
concentrating on those critical activities that are cheapest to crash.
Rules of crashing
1. Only activities on the critical path are crashed.
2. Start crashing the critical activity with the least cost slope.
3. A critical path must remain critical throughout.

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CAM 205: PROJECT MANGEMENT

4. Where there are two or more critical paths an activity must be crashed from each

path

simultaneously.
5. A non-critical path may become critical after crashing. However after it becomes

critical it

must remain critical throughout.


Steps involved when crashing
1. Draw the network and do a time analysis based on the normal time.
2. Determine the overall costs of the project using normal costs.
3. Determine the critical path.
4. Compute the cost slope of the critical activities.
5. Start crashing the critical activity with the least cost slope.
6. Ensure that every reduction effected has an impact on the overall project duration. A
cumulative total project costs should be maintained by adding to total normal costs

every

additional cost incurred while crashing.


Illustration
Mrs. Onyango wants to open a cafeteria in Kisumu city. A small business enterprise adviser
whom she approached, listed for her six major activities to be carried out. The table below gives
a summary of the normal time estimates of each activity, crash time and the cost reduction per
week.

Activity
A:
B:
C:
D:
E:
F:

Predecessor

Procurement of materials
Plumbing
Masonry
Electrical works
Carpentry
Finishing

A
C
C
B,D,E

43

Normal time
(weeks)
3
6
5
8
6
4

Crash time
(weeks)
3
4
3
7
4
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Activity
A
B
C
D
E
F
Required:

Cost slope (Sh.)


45,000
30,000
60,000
22,500
75,000

(a) The project network diagram

(4 marks)

(b) The normal completion time of the project and the critical activities.

(2 marks)

(c)

(i)

The shortest time the project can be completed.

(8 marks)

(ii)

The additional cost to be incurred if the project is crashed.

(2 marks)

(d)

Explain the meaning of the cost slope and how it is computed.

(2 marks)

(e)

Assumptions made when crashing.

(2 marks)
(Total: 20 marks)

a) Network diagram

13
7

13

B
6

A
3

F
4

8
C

17

d1 0

5
5

6
E

11

13

b) Normal completion time = 17 weeks


Critical activities are C, D and F
(c)

(i) The shortest time the project can be completed if it is crashed


Activity

44

Cashable time

Cost slope

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CAM 205: PROJECT MANGEMENT

A
B
C
D
E
F
Path

3-3 = 0
6-4 = 2
5-3 = 2
8-7 = 1
6-4 = 2
4-2 = 2

45,000
30,000
60,000
22,500
75,000

Time

Crash C by 2

Cash D by 1

Crash F by 2

C-D-F

17

15

14

12

A-B-F

13

13

13

11

C-E-F

15

13

13

11

2 x 30

60 + 60 x 1

120 + 75 x 2

= 60

= 120

= 270

Additional
Cost Sh.000

Shortest completion time after crashing = 12 weeks


(ii) Additional costs if the project is crashed = Sh.270,000.
(d)

Cost slope is the additional cost that is incurred when an activity time is reduced by one
unit.
Cost slope = Crash cost Normal cost
Normal time Crash time

(e)

Assumptions made when crashing:


-

Cost slope is constant

Direct linear relationship between time and costs.

5.2.8 GANTT CHART AND RESOURCE SCHEDULING


A Gantt chart is a bar chart that is drawn to a time scale.
It shows the activities and their durations. The length of a bar is directly proportional to the
length of activity duration.
A Gantt chart is used to schedule and balance resources. This helps to smooth the distribution of
the resources available over the whole period of the project.

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Resource balancing
This represents an attempt to have a more efficient usage of resources. If the project has to be
completed within critical path duration, then only activities which are not critical can be
rescheduled to achieve some level of balancing. Activities are rescheduled with the help of total
floats of the activities.

Illustration
Clifford is the project manager of Tumaini Construction Company. The Company is bidding on
a contract to build a go down for Unity importer ltd. It has identified the following activities
along with their predecessor restrictions expected times and worker requirements:

Activity

Predecessors

Duration Weeks

Crew Size Workers

D, E

F, G

Clifford has agreed with the client that the project should be completed in the shortest
duration.
Required:
(i)

Draw a network for the project.

(6 marks)

(ii)

Determine the critical path and the shortest project duration

(4 marks)

(iii)

Clifford will assign a fixed number of workers to the project for its entire duration
and so he would like to ensure that the minimum number of workers. Draw a
Gantt chart showing how the project will be completed within the shortest project
duration. (8 marks)

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CAM 205: PROJECT MANGEMENT

iv)

Comment on the schedule you have drawn in (iii) above.

(2 marks)

Solution
i) Network diagram for the project

A
1

C
3

7
13

14

3
H

2
E

2
F
7

11

11

ii) Critical path is B-E-G-H


Project duration = 14 weeks
(iii)

Time floats: TF = LFT EST - D


TF (A) = 6-0-4 = 2, TF (B) = 0, TF(C) = 7, TF (D) = 2, TF (E) = 0
TF (F) = 2, TF (G) = 0, TF (H) = 6

Gantt chart and Rescheduling of activities


H

47

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Time (weeks) 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Workers 6 6 6 6 8 8 8 9 9 3

Reschedule F by 2 weeks 5 5 5 5 8 8 8 6 6 6

Reschedule C by 7 weeks 6 6 6 6 6 6 6 6 6 6

iv) Minimum number of workers needed throughout the duration is 6 workers.


C & F are pushed to the end of their slack time to ensure there is a smooth engagement of
workers
5.2.9 Project organisation Structure
An organizational structure is a framework of policies and procedures companies use to break
their organization into manageable groups. This process involves setting specific job
responsibilities, creating a line of authority for managers and creating a decision structure for
major business issues or opportunities.
Once management approves a project then the question becomes, how will the project be
implemented? While there are various types of organizations used today, the three most
prominent project management structures are the functional, dedicated project teams and matrix
structure. Project management structures provide a frame work for launching and implementing
project activities within the parent organization.

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CAM 205: PROJECT MANGEMENT

Organising projects within the Functional Organization Structure


The structure is vertical with each employee having one boss. Each functional manager was
responsible for hiring employees having a specific field of knowledge or skill set. The projects
are managed within the existing functional hierarchy of the organization.
Once the management decides to implement a project, the different segments of the project are
delegated to the respective functional units with each unit responsible for completing its segment
of the project. Coordination is maintained through normal management channels.
Organizing projects with a dedicated team:
An independent project team is created. The team operates as a separate unit from the rest of the
functions of the parent organization. A full- time project manager recruits the necessary
personnel from both within and outside the parent company.

Organizing projects within a matrix arrangement:


Matrix management is a hybrid organizational form in which a horizontal project management
structure is overlaid on the normal functional hierarchy. In this arrangement, there are two chains
of command, one along functional lines and the other along the project lines. Instead of
delegating segments of a project to different units or creating an autonomous team, project
participants report simultaneously to both functional and project managers.

5.2.10 Procurement of project resources


This involves planning for all the resources - people, goods and services - required by the
project. It includes selection of goods and services, writing and evaluating tenders and
estimates and negotiating contracts to obtain goods and services for the project.

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CAM 205: PROJECT MANGEMENT

Activities
Distinguish between Total float and free float
State the advantages of organizing projects with a matrix arrangement

Summary
Organizing is the management function that usually follows after planning. It involves the
assignment of tasks, the grouping of tasks into departments and the assignment of authority
and allocation of resources across the organization.

Self-assessment
James Mutiso is a computer engineer in an information technology firm. The firm has decided to
install a new computer system to be used by the firms help desk. James Mutiso has identified
nine activities required to complete the installation.
The table below provides a summary of the activities durations and the required number of
technicians:
Activity

Duration (weeks)

Required number of
technicians

12

13

24

25

34

36

45

56

67

Required:
i) Draw a gantt chart for the project.
ii) Mr. Mutiso would like to reschedule the activities so that not more than 6 technicians are
required each week. Determine if this is possible and how it can be achieved by
rescheduling the activities.
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CAM 205: PROJECT MANGEMENT

LECTURE SIX: PROJECT EXECUTION AND CONTROL PHASE


6.0 Introduction
Most project managers start the project off by holding a formal kick-off meeting with all the
key players (client, customer, project team) involved in the project. This is used as an
opportunity to define the roles and responsibilities of very one involved in the project and to
communicate the project plans clearly and concisely.

6.1 Specific objectives:


By the end of this lesson you should be able to:
i.

Describe project Execution

ii.

Define project control

iii.

Responsibility of the project team during Execution and control phase

iv.

Report on project schedule and cost control

v.

Report on quality assurance and Quality control

vi.

Report on cost status of the project

6.2 Lecture Outline


6.2.1 Project Execution
6.2.2 Project Control
6.2.3 Responsibilities of the project team
6.2.4 Project Schedule and cost control
6.2.5 Quality Assurance and Quality Control

6.2.6 Project Execution


Project execution (or implementation) is the phase in which the plan designed in the prior
phases of the project life are put into action. The purpose of project execution is to deliver
the project expected results (deliverable and other direct outputs). Typically, this is the
longest phase of the project management lifecycle, where most resources are applied.

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CAM 205: PROJECT MANGEMENT

During the project execution the execution team utilizes all the schedules, procedures and
templates that were prepared and anticipated during prior phases. Unanticipated events and
situations will inevitably be encountered, and the Project Manager and Project Team will
have to deal with them as they come up.
The main elements of project execution are:

Conduct Project Execution Kick-off event, where the Project Manager conducts a
meeting to formally begin the Project Execution and Control phase, orient new Project
Team members, and review the documentation and current status of the project.

Manage Project Execution, where the Project Manager must manage every aspect of the
Project Plan to ensure that all the work of the project is being performed correctly and on
time.

Manage CSSQ (Cost, Scope, Schedule, and Quality), where the Project Manager must
manage changes to the Project Scope and Project Schedule, implement Quality Assurance
and Quality Control processes, control and manage costs as established in the Project
Budget.

Monitor and Control Risks, where the project develops and applies new response and
resolution strategies to unexpected eventualities.

Gain Project Acceptance where the project manager acknowledge that all outputs
delivered have been tested, accepted and approved, and that the products/services of the
project has been successfully transitioned to the expected beneficiaries.

6.2.7 Project Control


Project Control involves the comparison of the actual performance with the planned
performance and taking appropriate corrective action to get the desired output. Project controls is
mainly concerned with the metrics of the project, such as quantities, time, cost, and other
resources; however, also project revenues and cash flow can be part of the project metrics under
control.
6.2.8 Responsibilities of the project team
During the project execution and control phase, Project Team is responsible for the following
activities: Team Members execute the tasks as planned by the Project Manager, Project Manager

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CAM 205: PROJECT MANGEMENT

is responsible for performance measurement which includes finding variances between planned
and actual work, cost and schedule, Project manager is responsible for providing Project Status
Report to all key stakeholders, All Project Key stakeholders are responsible for the review of the
metrics and variances, All Project Key stakeholders are responsible for taking necessary action
of the variances thus determined so as to complete the project within time and budget.
The basic processes of the Project Execution and Control can be: Project Plan Execution, Review
of Metrics and Status Reports, Change Control Process. This defines the procedures to handle the
changes that are introduced during Project Execution and Control.
The facilitating processes during Project Execution and Control can be: Quality Assurance and
Quality Control, Performance Monitoring, Information Distribution or Status Reporting, Project
Administration, Risk Monitoring and Control, Scope Control, Schedule and Cost Control,
Contract Administration.
6.2.9 Project Schedule and cost control
The schedule and budget baselines, along with other baselines, are developed in the planning
phase of the project. The project plan is approved prior to execution by the project sponsor or an
appropriate senior level manager. The project plan includes the budget and schedule. Schedule
determines when work elements (activities) are to be completed, milestones achieved, and when
the project should be completed. The budget determines how much each work element should
cost, the cost of each level of the work breakdown schedule (WBS), and how much the total
project should cost. Actual performance can be compared to these plans to determine how well
the project is progressing or finished. The project schedule is also the tool that links the project
elements of work to the resources needed to accomplish that work.
As a minimum, the project schedule includes the following components:
All activities, A planned start date for the project, Planned start dates for each activity, Planned
finish dates for each activity, Planned finish date for the project, Resource assignments, Calendar
based, Activity durations, The flow (sequence) of the various activities, The relationships of
activities, An identified critical path(s), Total and free float
Project cost control may be broken down into these categories :

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CAM 205: PROJECT MANGEMENT

material cost control

labour cost control

miscellaneous cost control

subcontract cost control

6.2.10 Quality Assurance and Quality Control

Effective quality systems can contribute enormously to the success of projects.

Quality Assurance (QA) is the process of managing quality;


QA is focused on planning, documenting and agreeing on a set of guidelines that are
necessary to assure quality. QA planning is undertaken at the beginning of a project, and
draws on both project specifications and industry or company standards. The typical
outcomes of the QA planning activities are quality plans, inspection and test plans, the
selection of defect tracking tools and the training of people in the selected methods and
processes.

Quality control (QC) is used to verify the quality of the output.


It includes all activities that are designed to determine the level of quality of the delivered
project. QC is a reactive means by which quality is gauged and monitored, and QC
includes all operational techniques and activities used to fulfil requirements for quality.
These techniques and activities are agreed with customers and/or stakeholders before
project work is commenced. QC involves verification of output conformance to desired
quality levels. This means that the project is checked against customer requirements,
with various checks being conducted at planned points in the development lifecycle.

6.2.11 Scope control


Scope involves getting information required to start a project, and the features the product would
have that would meet its stake holders requirements. Scope control is both: avoiding of
"unaccepted" new work packages and integrating "accepted" new work packages into the project
scope statement and/or into the WBS.

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CAM 205: PROJECT MANGEMENT

Tools and Techniques

A Change Control System is a documented process by which the scope can officially be
changed

The Variance Analysis determines the causes of variances relative to the scope baseline

Re planning can be evoked by the approved change requests and may be realized by
modifications of the WBS .

The Configuration management system is a system for identifying releases of


deliverables

Activities
Outline the importance project schedule and cost control
How does Quality assurance differ from Quality control

Summary
Producing reports, schedules and budget plans help in controlling the project
throughout its life.

Self-assessment
Controlling cost is much more difficult than monitoring costs. Discuss

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CAM 205: PROJECT MANGEMENT

LECTURE SEVEN: PROJECT PERFORMANCE MEASUREMENT:


7.0 Introduction
Earned value performance measurements look at the project cost and schedule performance by
analyzing the cost and schedule variance along with cost and schedule efficiency. Project
Execution and Control Phase has a direct correlation to project progress and stakeholder's
expectations. Even the minor issues, if unnoticed, can cause major impact on cost, schedule and
risk and deviate the project from the Project Plan.

7.1 Specific objectives:


By the end of this lesson you should be able to:
i) Compare actual and planned performance
ii) Describe the criteria for Investigating Variances
iii) Describe the Earned value performance measurement
v) Estimate project cost at Completion

7.2 Lecture Outline


7.2.1 Comparing Actual and planned performance
7.3.1 Investigation of variances
7.3.2 Earned value performance measurement
7.3.3 1.3.4

Estimate at Completion

7.3.4 Comparing Actual and planned performance


Performance measurements are used to determine the success or failure of a project.
Any system for monitoring project performance should provide the project manager and
stakeholders with the ability to answer questions such as:

56

What is the current status of the project in terms of schedule and cost?

How much will it cost to complete the project?

When will the project be completed?

Are there potential problems that need to be addressed now?

CAM 205: PROJECT MANGEMENT

What and where are the causes for cost and schedule overruns?

Because plans seldom materialize as expected, it becomes imperative to measure deviations from
plan to determine if action is necessary. Periodic monitoring and measuring the status of the
project allow for comparisons of actual versus expected plans. It is crucial that the timing of the
status reports be frequent enough to allow for early detection of variations from the plan and
early correction of causes. If deviations from plans are significant, corrective action will be
needed to bring the project back in line with the original or revised plan. In some cases,
conditions or scope change, which in turn, will require a change in the baseline plan to
recognize new information.

7.3.5 Investigation of variances


A variance report is a way for business executives to gauge their company's performance by
comparing one set of figures to another. This usually means comparing a planned amount to
an actual amount. Companies frequently use variance reports to analyze how close they've
come to hitting forecasted sales targets or to see if they've met their budgetary goals.
A well-rounded budget variance report will address trends, overspending, and under
spending.
Trends: In challenging economic times, it is important for businesses to carefully monitor
over spending and under spending. If there is a trend towards either, then the entire budget
may need to be revisited..
Overspending: Overspending: this can pose a serious threat to the project, to other projects,
and to the company if resources are scarce.
Under Spending: Under spending may indicate a problem in quality control (i.e., the
manufacturing process may be cutting corners) if the project budget was correct at first. It
can be as serious a problem as overspending.
Variance tables:
Tables which show the variances by item, budget period, and project are the most common
variance report format. Companies typically set an approved variance percentage such as
5% before the item appears in a variance report.

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CAM 205: PROJECT MANGEMENT

Over/Under or Favorable/Unfavorable?
Microsoft Office Performance Point 2007 Management Reporter provides two templates for
variance reporting: Over/Under and Favourable/Unfavourable
An Over/Under report is the simpler of the two, both in its purpose and how it is created.
One amount is deducted from another. If the difference is positive, the account is considered
over. If the difference is negative, the account is considered under.
A Favourable/Unfavourable report not only shows whether an account is over or under. It
also considers the kind of account and its effect on the business. If revenue numbers are
more than what was budgeted, the variance is shown as favorable. However, if actual
expenses are more than what was budgeted for, that variance is shown as unfavorable.
How are Variance Reports used?
Once a Variance report is prepared, company executives can analyze the state of the enterprise.
One way to do this is to evaluate the financial risk to the company should those trends continue.
Another is to address the reasons behind the variances identified in the report. A follow up to
both of those steps may be to create new targets for improvement. Investigating variances is a
key step in using variance analysis as part of performance management.
When should a variance be investigated - factors to consider
i) Size- A standard is an average expected cost and therefore small variations between the actual
and the standard are bound to occur. These are uncontrollable variances and should not be
investigated. In addition, a business may decide to only investigate variances above a certain
amount. The following techniques could be used:

Fixed size of variance, e.g. investigate all variances over sh 5,000

Fixed percentage rule, e.g. investigate all variances over 10% of the budget

Statistical decision rule, e.g. investigate all variances of which there is a likelihood of less
than 5% that it could have arisen randomly.

ii) Favourable or adverse- Firms often treat adverse variances as more important than
favourable and therefore any investigation may concentrate on these adverse variances.

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CAM 205: PROJECT MANGEMENT

iii) Cost - For investigation to be worthwhile, the cost of investigation must be less than the
benefits of correcting the cause of the variance.
iv) Past pattern- Variances should be monitored for a number of periods in order to identify any
trends in the variances. A firm would focus its investigation on any steadily worsening trends.
v) The budget- The budget may be unreliable or unrealistic. Therefore, the variances would be
uncontrollable and call for a change in the budget or an improvement in the budgeting process,
not an investigation of the variance.
vi) Reliability of figures- The system for measuring and recording the figures may be
unreliable. If this is the case, the variances will be meaningless and should not be investigated.

7.3.6 Earned value performance measurement


Earned value performance measurements look at the project cost and schedule performance
by analyzing the cost and schedule variance along with cost and schedule efficiency. There
are three key components to earned value: Planned Value, Earned Value and Actual Cost.
PV is the physical work scheduled or what you plan to do.
EV is the quantification of the worth of the work done to date or what you physically
accomplished.
_ AC is the cost incurred for executing work on a project or what you have spent.

Performance measurement is how one determines success or failure on a project


Earned Value performance measurements focus on cost and schedule management.
The Cost Management focuses on the cost performance of the project. It looks at the
relationships between the Earned Value (EV) and the Actual Cost (AC)
Schedule Management focuses on the schedule performance of the project. It looks at the
relationships between the Earned Value (EV) and the Planned Value (PV).
Earned value performance measurements look at the project cost and schedule performance
by analyzing the cost and schedule variance along with cost and schedule efficiency. The
formulas used are as follows:

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CAM 205: PROJECT MANGEMENT

Variance Analyses:
Cost Variance (CV) is the difference between the earned value of work performed and the
actual cost. CV tells you the earned value of work performed for each shillings worth of
work scheduled.
Cost Variance (CV) = Earned Value (EV) Actual Cost (AC)
If the result is POSITIVE, project is experiencing an Underrun
If the result is NEGATIVE, project is experiencing an Overrun
Potential Causes of Unfavorable (-) Cost Performance
Work more complex than anticipated Design review comments extensive ReworkUnclear
Requirements Scope Creep Unfavorable Market Fluctuations in the Cost Labor or
Material Overhead Rate Increases
Potential Causes of Favorable (+) Cost Performance
Efficiencies being realized Work less complex than anticipated Fewer revisions and
rework Favorable Market Fluctuations in the Cost of Labor or Material Overhead Rate
Decreases

Schedule Variance (SV) is the difference between the earned value of work performed and
the work scheduled. SV tells you the value of work performed less value of work scheduled
Schedule Variance (SV) = Earned Value (EV) Planned Value (PV)
If the result is POSITIVE, project is on schedule or exceeding the schedule
If the result is NEGATIVE, project is behind schedule

Potential Causes of Unfavorable (-) Schedule Performance


Manpower shortage Revised Execution Plan Supporting organizations behind
Schedule , Late Vendor delivery Delayed customer feedback/direction Rework
Work more complex than anticipated Design review comments extensive
Unclear requirements Scope creep
Potential Causes of Favorable (+) Schedule Performance
Efficiencies being realized Work less complex than anticipated Fewer revisions and rework
Favorable Market Fluctuations in the Cost of Labor or MaterialSubcontractor ahead of
schedule

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CAM 205: PROJECT MANGEMENT

Performance Indices:
Cost Performance Index (CPI) is a measure of Cost Efficiency. The CPI measures the value of
work performed against the actual cost.
Cost Performance Index = Earned Value (EV)/Actual Cost (AC)
If the result is less than 1.0, cost is GREATER than budgeted
If the result is greater than 1.0, cost is LESS than budgeted

Schedule Performance Index (SPI) is a measure of Schedule Efficiency. The SPI measures the
value of work performed against the work scheduled.
Schedule Performance Index = Earned Value (EV)/Planned Value (PV)
If result is less than 1.0, project is BEHIND schedule
If the result greater than 1.0, project is AHEAD of schedule

Reporting Variances
The size and complexity of the project determines the reporting needed. Different industries and
government agencies will set variance thresholds at different levels, but most set the variance
level between + or - 7% to 10%. This means that a SPI or CPI of .90 to 1.1 will require an
official variance analysis to explain what is happening on the project. Note that you need to
explain positive variances as well as negative variances.

7.3.7 Estimate at Completion


Now it is time to learn how to analyze the future or what is expected to happen
on a project given the progress measurements reported to date. Anticipating
future progress requires determining when the project will be completed and
how much it will cost to complete it. To complete our analysis, we will look at the Estimate at
Completion (EAC) and the Budget at Completion (BAC).
The Estimate at Completion (EAC) is the actual cost to date plus an objective estimate of costs
for remaining authorized work. The objective in preparing an EAC is to provide an accurate
projection of cost at the completion of the project. The Budget at Completion (BAC) is the sum

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CAM 205: PROJECT MANGEMENT

of all budgets allocated to a project scope. The Project BAC must always equal the Project Total
PV. If they are not equal, your earned value calculations and analysis will be inaccurate.
The chart on the following page lists the parameters of the BAC and EAC along with the other
EVM items we have covered

Item

Questions

Planned Value (PV)

How much work should be done?

Earned Value (EV)

How much work was done?

Actual Cost (AC)

How much did the work cost?

Budget at Completion (BAC)

What is the total job budgeted to cost?

Estimate at Completion (EAC)

What do we expect the total job to cost?

Another term you may hear is Latest Revised Estimate (LRE). The LRE is equal to the EAC.
Estimate At Completion = Latest Revised Estimate
For the remainder of the Modules, we will refer to Estimate at Completion as
EAC.
The EAC is the best estimate of the total cost at the completion of the project.
The EAC is a periodic evaluation of the project status, usually on a monthly
basis or when a significant change happens to the project. EACs are developed with varying
degrees of detail and supporting documents.
A comprehensive EAC is usually prepared annually or if there are any major changes in the
project. The EAC should be reviewed on a monthly basis by the Control Account Manager
(CAM) or those responsible. The EAC is developed for projects as well as control Accounts and
Work Packages.
There are multiple ways to develop an EAC. The technique selected is based upon the shilling
value of the project, the risk, accounting system available and the accuracy of the estimates.

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CAM 205: PROJECT MANGEMENT

Calculating Estimate at Completion


The first EAC calculation we will look at is Estimate to Complete:
EAC = Actual Cost (AC) + Estimate to Complete (ETC)
The Estimate to Complete (ETC) is the estimated cost of completing the authorized remaining
work. A detailed ETC will include a description of the work remaining and any revisions to the
estimated resources or cost for completing the project. This formula assumes that all remaining
work is independent of the burn-rate incurred to date.
EAC is the best estimate of the total cost at the completion of the project. It is also used to
determine the Variance at Completion (VAC) for the project. The VAC is calculated as follows:
VAC = BAC EAC
If the result is POSITIVE, project is projecting an Underrun
If the result is NEGATIVE, project is projecting an Overrun

The second EAC formula is as follows: EAC = AC/EV x BAC


This calculation uses the Actual cost, Earned value and Budget at Completion for the project.
This formula is the easiest to use, but it assumes that the burn-rate will be the
same for the remainder of the project

The third EAC formula is as follows: EAC = BAC/CPI


This calculation uses the Budget at Completion (BAC) and the Cost Performance (CPI) Index to
calculate EAC.
This formula is also easy to use and assumes that the burn-rate remains constant for the
remainder of the project. This formula is derived from the previous formula and thus should
result in the same EAC figure. Note that with this formula you need additional information than
the previous formula.

The fourth EAC formula is as follows:


EAC = AC/EV x [Work Completed and in Progress]+[Cost of work not yet begun]

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CAM 205: PROJECT MANGEMENT

This calculation uses the Actual cost, Earned value, the value of work completed and in process
and the cost of work not yet begun. This formula assumes that the work not yet begun will be
completed as planned.

7.3.1 Activity- Distinguish between a Cost Variance and a Schedule Variance

1.1 Summary
Performance measurement defines how success or failure is determined on a project. In
the case of Earned Value Management, performance measurements focus on cost and
schedule management.

1.2 Self assessment- Outline the importance of variance analysis in project management

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CAM 205: PROJECT MANGEMENT

LECTURE EIGHT: PROJECT RISK MANAGEMENT


8.0 Introduction
Project risk can be defined as an unforeseen event or activity that can impact the project's
progress, result or outcome in a positive or negative way. Risk management is the
identification, assessment, and prioritization of risks followed by coordinated and economical
application of resources to minimize, monitor, and control the probability and/or impact of
unfortunate events or to maximize the realization of opportunities.

8.1 Specific objectives:


By the end of this lesson you should be able to:
i) Differentiate between a risk and an opportunity
ii) Give examples of project risks
iii) Describe the various methods of project risk identification
iv) Discuss project risk quantification strategies
v) Discuss project risk response strategies
vi) Discuss project risk monitoring and control

8.2 Lecture Outline


8.2.1 Project risk and a project opportunity
8.2.2 Examples of project risks
8.2.3 Methods of identifying project risk
8.2.4 Project risk quantification strategies
8.2.5 Project risk response strategies
8.2.6 Project risk monitoring and control

8.2.7 Project risk and a project opportunity


Project risk is an unforeseen event or activity that can impact the project's progress, result
or outcome in a positive or negative way. A project Opportunity is a positive condition,

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situation or event that has a potential to have a favourable impact on the project outcome
or objectives.
Risk management is the identification, assessment, and prioritization of risks followed by
coordinated and economical application of resources to minimize, monitor, and control
the probability and/or impact of unfortunate events or to maximize the realization of
opportunities.

8.2.8 Examples of project risks


Unreliable project completion estimates, Team turnover, Changes in requirements; Design
errors, omissions and misunderstandings; Poorly defined or understood roles and
responsibilities; Insufficiently skilled staff, Natural disasters eg earth quakes, Shortage of
Skilled Labour, Shortage of materials, Over running the project cost, Inability to complete
the project as scheduled, Government interference, Accidents at the site, etc

8.2.9 Methods of identifying project risk


This involves identification and naming of the risks. It also includes determining which risk may
adversely affect the project objectives and what the consequences of each risk might be if they
occur. The most common tools and techniques used for developing a list of project risks are
brainstorming, nominal grouping technique, mind mapping, Delphi technique and lessons
learned from similar projects.
1. Brainstorming
The steps involved are as follows:

Chose a facilitator other than the project manager;

Chose a scribe to capture the risks and opportunities;

Use a category or categories to start the creativity flowing; Do not judge or analyze
during this effort; and

Focus on getting the universe of risks and opportunities for the project.

2. Nominal Grouping Technique


The steps involved are as follows:

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Gather the core team for a risk workshop;

Use flip-chat paper or a white board the collect the information for the team;

Begin by requesting that each person identify potential areas of risk;

Request that each person write about three (3) to five (5) risk events for each area.
Participants should not share lists;

Request that the first person provide the first item on his/ her list then proceed to the next
person and repeat the request for his/ her first item; and

Repeat until everyone's items have been listed.

This helps to avoid duplicate listings of the same risk(s) and also saves time taken to perform this
task.
3. Mind Mapping
The steps involved are as follows:

Begin by drawing a circle that represents a risk category;

Represent major risks for that category with lines connecting with the circle;

For each major risk, identify smaller risks that are part of that risk;

Do not judge or evaluate at this point; and

Continue until no more risks can be identified.

At the end of this activity, there should be a fish bone diagram that shows the different
relationships for each risk.
4. Delphi Technique
The steps involved are as follows:

Identify a person to act as the facilitator;


The facilitator identifies qualified experts to participate in the exercise;

The facilitator poses questions to the experts individually;

The facilitator then conducts a factor analysis on the data to identify common themes;

This information is shared with the panel of experts for validation;

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The list of themes is refined and again shared with the panel; and

The facilitator then creates a single results document.

5. Lessons Learned from Similar Projects


The steps involved are as follows:

Identify comparable projects using the project characteristics;

Locate the relevant post project review reports;

Review the lessons learned documents for a list actual risk events that occurred,
response(s) to the risk event, effectiveness of the risk event and any new risks identified
during the project.

Additionally, categories such as cost, schedule, technology, resources, environmental, legal,


economic and political can be used to group risk. Personal experience and intuition (thinking
outside the box) are also quite useful in risk identification.
Involving the stakeholders early in the project opens communication and there is less risk of
interpreting what the stakeholders want and/ or require.
Make sure that there is an adequate amount of the correct information. By applying more than
one of these various tools and techniques appropriately, the list of risks and opportunities will be
the most comprehensive.
At the end result of the risk identification process the project teams knows what may happen and
what will be the impact. The team understands the source and can estimate when it may occur.

8.2.10 Project risk quantification strategies


a) The quantitative approach relies on the use of numeric value. It uses objective data to
determine values and requires an understanding of probability theory. The level of
uncertainty is removed (or at least greatly reduced) due to historical data that must be
provided. Below are some of the quantitative techniques used:
i.

Expected monetary value, EMV=PiXi where Xi is the risk event value (expected
gain or loss that will be incurred if the risk event occurred) and Pi is the risk event
probility. The higher the EMV the higher the risk

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ii.

Statistical sums- Used to calculate a range of total project costs from cost
estimates and a range of project completion time.

iii.

Simulation of project networks- Results of a schedule simulation may be used to


quantify the risk of various schedule alternatives, different project strategies,
different paths through the network or individual activities

iv.

Decision trees- Diagrams that depicts key interactions among decisions and
associated chance events as they are understood by the decision maker. The
branches of the tree represent either decision or chance events. Using the roll back
method EMVs of various decision alternatives are evaluated.

b) The qualitative approach (Expert judgment) - uses subjective values such as High Risk,
Medium Risk or Low Risk. It requires common understanding of the team's preferred
ordinal ranking system and is less precise than the quantitative approach. It relies more
on experience and is an effective way of prioritizing risk.
8.2.11 Project risk response strategies
The project team should begin in defining the steps for responses to opportunities and threats. A
risk response is performed whenever, a new risk is identified, an existing risk changes,
influential factors change or new information about the project surfaces. When developing a
project's risk response, it should be approached it from a project-wide perspective. Relationships
between risk events are extremely important. The project team should develop risk responses for
each risk event within the sphere of project influence and control.
The following documents can be used to assist in developing the project's risk response plan:

List of the project's risks, opportunities and threats;

Project Contract;

Statement of Work or Scope of Work;

Schedule;

Resource List; and

Any other pertinent information.

There are several ways/strategies of dealing with risks. These include:

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1. Risk avoidance. Risk can be eliminated usually by eliminating the cause. An example of
this is using a less complicated or less sophisticated programming language.
2. Risk mitigation. This is done by reducing the risk event probability, risk event value or
both. An example of this is using a proven technology.
3. Risk acceptance. The project team could just decide to accept the consequences and take
it from there. An example of this is changing the relationships on a schedule, thereby
making one or more of the tasks in the sequence late. If the late task(s) are not critical, the
project team will just let it be.
4. Risk transfer. This is done by removing the impact or consequences of the risk event. It
is important to make this distinction from mitigation. An example of transference is
gathering information through user groups and not the project team, insuring some risks,
etc
8.2.12 Project risk monitoring and control
Monitoring risk means to review it and update it continuously.

Identify new risks as soon as possible

Decide where and how to handle that risk

Look for other risks that might be reduced or eliminated and no longer need coverage

Check operating volumes - they change so that coverage levels need to change

Risk control is the process of implementing measures to reduce the risk associated with a
hazard. The control process must follow the control hierarchy, in order, as prescribed in some
health and safety legislation. It is important that control measures do not introduce new hazards,
and that the ongoing effectiveness of the controls is monitored.
"Risk control hierarchy": ranks risk control measures in decreasing order of effectiveness:

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elimination of hazard;

substitution of hazardous processes or materials with safer ones;

engineering controls;

administrative controls; and

CAM 205: PROJECT MANGEMENT

Personal protective equipment.

The risk control measures implemented for the hazards identified should always aim to be as
high in the list as practicable
Risk monitoring and control is a continuous process until the project ends
The monitoring and control of risks in project ensures that the resources of a company put aside
for a project is operating properly. Risk monitoring and control therefore helps to ensure that the
project stays on the track or on course. Risks are monitored because projects are usually dynamic
due to constantly changing variables. Its imperative therefore to keep these variables and their
associated risk stay within the acceptable limits for the project. Risk monitoring control is
performed at the concept phase of the project and ends at the close-our phase. It should be
included in the regular communication process of the project.In particular, risk control is also
performed prior and the during the risk event. It is performed whenever there are changes to the
project scope and on a regularly scheduled basis.
Tools Available for Risk Control
Risk Metrics are appropriate metrics that will aid in monitoring risks on the project. These
include risk events, probability, value and impact. Timeframe, type, priority and status are also
part of this list.
Monitoring and control tools include:

Work Breakdown Structure;

Project budget both estimates and actual ;

Project schedule;

Earned value of project activities whether it be actual point-in-time or forecasting;

Project resource list and plan; and

Change control log and forms.

Risk triggers are actions, events or circumstances that, if ignored, will cause the occurrence of a
risk event. The project manager needs to identify potential triggers that would indicate that a risk

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event will occur and to ensure that these triggers are visible to the project team. He/ she will need
to monitor these triggers frequently.

8.3 Activity
Explain the importance of a project risk quantification exercise

8.4 Summary
When we discuss project risk management, there are two main schools of thoughts.
The first school of thoughts view risks as threats; always. Human nature lead
people to think of a risk event as threat, danger, hazard, or any other word
that reflect negative or bad situation. Another school of thoughts; mostly reflecting
a business perspective, view risk events as uncertain events that could have
negative or positive consequences on the objective of the task, project, or mission
that we are undertaking. Regardless of which school one follows, we need to shift
our paradigm to think of positive and negative consequences to events on our
projects and our lives. If you subscribe to the second school of thought, then you
already understand or accept that risks could be a threat or an opportunity. On
the other hand, if you are from the first school, then you can continue to think of
risk as bad but you also need to think of opportunities.
A risk can be assessed using two factors: impact and probability. If the probability is
1, it is an issue. This means that risk is already materialized. If the probability is
zero, this means that risk will not happen and should be removed from the risk
register.

8.5 Self assessment


Discuss the various techniques used to mitigate project risks.

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LECTURE NINE: PROJECT CLOSURE PHASE:


8.0 Introduction
Project Closure Phase is the last phase of the Project Life Cycle. The commencement of the
Project Closure Phase is determined by the completion of all Project Objectives and acceptance
of the end product by the customer.
8.1 Specific objectives:
By the end of this lesson you should be able to:
i) Outline the tasks undertaken during the project closure phase.
ii) Outline process of the Project Closure Phase
iii) Discuss the Lessons Learned
iv) Describe project stages Exit criteria

8.2 Lecture Outline


8.2.1 Tasks undertaken during the project closure phase
8.2.2 Process of the Project Closure Phase
8.2.3 Lessons Learned
8.2.4 Project stages Exit criteria

8.2.5 Tasks undertaken during the project closure phase


Project Closure includes the following tasks:

Release of the resources, both staff and non-staff, and their redistribution and reallocation
to other projects, if needed.

Closure of any financial issues like labour, contract etc.

Collection and Completion of All Project Records.

Archiving of All Project Records.

Documenting the Issues faced in the Project and their resolution. This helps other projects
to plan for such type of issues in the Project Initiation Phase itself.

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Recording Lessons Learned and conducting a session with the Project Team on the same.
This helps in the productivity improvement of the team and helps identify the dos and
donts of the Project.

Celebrate the project completion.

1.3.1 Process of the Project Closure Phase


The basic process of the Project Closure Phase involves:

Administrative Closure. This is the process of preparation of closure documents and


process deliverables. This includes the release and redistribution of the Project
Resources.

Development of Project Post Implementation Evaluation Report. It includes


o

Project Sign-Off

Staffing and Skills

Project Organizational Structure

Schedule Management

Cost Management

Quality Management

Configuration Management

Customer Expectations Management

1.3.2 Lessons Learned


Lessons Learned forms an integral part of the Project Closure Phase. It helps answer the
following typical question during Project Closure.

74

Did the delivered product / solution meet the project requirements and objectives?

Was the customer satisfied?

Was Project Schedule Met?

Was the Project completed within Budgeted Cost?

were the risks identified and mitigated?

What could be done to improve the process?

CAM 205: PROJECT MANGEMENT

1.3.3 Project stages Exit criteria


Exit criteria refer to how one can tell that an element of the plan is complete So that he can exit
that phase and move on to the next phase. At any milestone, based upon the information that is
being reviewed decisions have to be made. In terms of major project stages these decisions will
be made by senior management.
Decision points usually require one of the three outcomes :
1. Yes. The project carries on to the next stage since everything is on track.
2. No. The project is stopped and closed in a formal manner.
3. Maybe. In this case, more data is required before a further review may allow the project
to continue.
PROJECT PHASE EXIT PLAN
Project Name:
Prepared by:
Date :

t information

ct Phases and for each phase list exit criteria, i.e. those deliverables that must be accepted and those tasks that

must be completed before the project team can move to the next project phase. Sample information is included in

he form below:
Project Phase

Initiation

Exit Criteria

1. Project Charter is approved


2. Project Manager is assigned

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Planning

1. Project Plan is approved. Must include at least the following:


a. Project Budget
b. Project Schedule
c. Scope Statement and WBS
d. Resource Plan
e. Risk Management Plan
f. Change Management Plan
2. Requirements Document(s) approved
3. Specifications Document(s) approved

Execution

1. Use cases work as designed


2. Product (or service) is released for test with no known stopship defects (i.e., all Requirements have been tested)
3. Documentation released for review
4. Training materials released for review
5. Test plan is approved

Closer

1. Product Testing is complete with no stop-ship defects

(Test &deployment)

2. Documentation is complete with no stop-ship defects


3. Training is complete
4. Customer accepts the work of the project
5. Post-partum session is complete and lessons learned recorded
6. Project records are properly archived

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Project phase Exit Signatures


Project Name:
Project
Manager:
I have reviewed the information contained in this Project Phase Exit Plan and agree:
Name

Role

Signature

Date

The signatures above indicate an understanding of the purpose and content of this document
by those signing it. By signing this document, they agree to this as the formal Project Phase
Exit Plan document.

1.3 Activity
What is the importance of discussing the lessons learnt a the project closure phase

Summary
The outputs from Project Closure Phase provides as a stepping stone to execute the
next projects with much more efficiency and control.

1.4 Self assessment


Outline the Phase exit information for a project of your choice

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CAM 205: PROJECT MANGEMENT

LECTURE TEN:

PROJECT SUCCESS CRITERIA AND SUCCESS FACTORS:

10.1Introduction
For those involved with a project, project success is normally thought of as the achievement of
some pre-determined project goals; while the general public has different views, commonly
based on user satisfaction.
10.2

Specific objectives:

By the end of this lesson you should be able to:


i) Describe the project Success Criteria
ii) Outline the project success factors
10.3

Lecture Outline

10.3.1 Project Success Criteria


10.3.2 Project success factors
10.3.3 Project Success Criteria
Many lists of success criteria have been introduced in the previous decades by various
researchers. Primal success criteria have been an integrated part of project management
theory given that early definitions of project management included the so called Iron
Triangle success criteria cost, time and quality. (Atkinson, 1999)
A more structured approach to project success is grouping the criteria into categories.
Wideman (1996) describes four groups, all of them time dependent: " project objectives ,
benefit to customer, direct contribution (in the medium term) and future opportunity (in the
long term)". All the above success criteria "should be simple and attainable and, once
defined, they should also be ranked according to priority

10.3.4 Project success factors


Success factors are those inputs to the management system that lead directly or indirectly to
the success of the project. These factors include the following:

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1. The project manager


Having a project manager is not going to guarantee the success of a project. He must have a
number of skills to use during the project to guide the rest of the team to successfully
complete all the objectives. Business, communication, responsiveness, process, results,
operational, realism and technological skills are mentioned as some of the most important
skills a project manager should have to deliver success.
2. The project team
Apart from their skills and commitment, project team members should have clear
communication channels to access "both the functional manager and the project manager
within a matrix organization. Effective management of this dual reporting is often a critical
success factor for the project.
3. The project itself
The type of a project underlines some factors that are important to success. For example, if
a project is urgent, the critical factor in that case is time.
4. The organization
Top management support is the principal success factor, which means that no project can
finish successfully unless the project manager secures true support from the senior or
operational management. It is extremely difficult to work in a hostile environment where
nobody understands the benefits that the project will deliver to the organization.
5. The external environment
External environment can be the political, economic, socio-culture and technological in
which the project is executed. Factors like the weather, work accidents or the governments
favourable or unfavourable legislation can affect the project in all of its phases.
Competitors should also be accounted as external factors which can undermine project
success because the original project could be overshadowed by a more glamorous and
successful project launched by another organization.

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CAM 205: PROJECT MANGEMENT

1.3 Activities
1.3.1 Why do projects go wrong?
1.3.2 Discuss the hard and soft success criteria of a project

1.4 Summary
It is critical for a project manager to understand what the stakeholders consider
as a successful project. In order to avoid any surprises at the end of the project,
there is an urgent need to identify the different perspectives of what success
means before the project goes live. It is also vital to remember that success
criteria are the standards by which a project will be judged, while success
factors are the facts that shape the result of projects.

1.5 Self assessment


Outline the benefits of project management

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CAM 205: PROJECT MANGEMENT

UNIVERSITY EXAMINATIONS 2009/2010


YEAR 2 STAGE III EXAMINATION FOR THE BACHELOR OF COMMERCE
CAM 205: PROJECT MANAGEMENT (DAY CLASSES)
DECEMBER 2010

TIME 2 HOURS

INSTRUCTIONS: Answer Question ONE and any other two questions


QUESTION ONE
a) Explain the terms below as used in project management:
i)

Critical path

(2 marks)

ii)

Directing project activities

(2 marks )

iii)

Configuration management

( 2 marks)

iv)

Feasibility studies

( 2 marks)

v)

Dummy activity

(2 marks )

b) Mrs. Otieno wants to open a cafeteria in Nakuru. A small business enterprise adviser whom
she approached, listed for her six major activities to be carried out. The table below gives a
summary of the normal time estimates of each activity, crash time and the cost reduction per day.
Activity
A:
B:
C:
D:
E:
F:

Predecessor

Procurement of materials
Plumbing
Masonry
Electrical works
Carpentry
Finishing

Activity
A
B
C
D
E

A
C
C
B,D,E

Cost slope (Sh.)


45,000
30,000
60,000
22,500

81

Normal time
(weeks)
3
6
5
8
6
4

Crash time
(weeks)
3
4
3
7
4
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CAM 205: PROJECT MANGEMENT

75,000

Required:
(I)

The normal completion time of the project and the critical activities.( 6 marks)

(II)

(i)

The shortest time the project can be completed if it is crashed.( 8 marks)

(ii)

The additional cost to be incurred if the project is crashed.

( 2 marks)

(III)

Explain the meaning of the cost slope and how it is computed.

( 2 marks)

(IV)

Assumptions made when crashing.

( 2 marks)
(Total: 30 marks)

QUESTION Two
a) Discuss the responsibilities of a project manager

(10 marks )

b) Distinguish between hard and soft success criteria of a project

( 4 marks)

c) For a project that is already underway in your organization, Identify the key areas
requiring monitoring and suggest the kind of information and procedures that would be
involved.

(6 marks)

QUESTION Three

(a) Outline the important stages which makes up the project life cycle

(10 marks)

(b) Explain the importance of procedural handling of exits and phase-out from one stage of the
project to the other

(10 marks)

QUESTION Four
The management of the project is an activity which does not only focus on the project
management tools and procedures but also extends it self to management of risks in the project
environment. As a project manager, describe the plan you will follow in managing risk.
(20 marks)
QUESTION Five
a) Describe the main responsibilities of a Project Support Office. (10 marks)
b) Briefly explain the various phases of Change management in an organization.

(10marks)

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CAM 205: PROJECT MANGEMENT

UNIVERSITY EXAMINATIONS 2009/2010


YEAR 2 STAGE III EXAMINATION FOR THE BACHELOR OF COMMERCE
CAM 205: PROJECT MANAGEMENT (DAY CLASSES)
DECEMBER 2010

TIME 2 HOURS

INSTRUCTIONS: Answer Question ONE and any other two questions


QUESTION ONE
a) State and explain three main responsibilities of a project manager

(6 marks)

b) Discuss the hard and soft success criteria of a project

(8 marks)

c) Outline the common problems faced by Project Managers during the Initiation Phase.
(4 marks)
d) Explain the Factors that Affect Individual and Organizational Perceptions of project
Risks

(4 marks)

e) Outline the tasks undertaken during the Project Closure phase.

(4 marks)

f) Explain the terms below as used in project management:


vi)

Configuration management

( 2 marks)

vii)

Feasibility studies

( 2 marks)

QUESTION Two
d) For a project that is already underway in your organization, Identify the key areas
requiring monitoring and suggest the kind of information and procedures that would be
involved.

(6 marks)

e) Ujenzi Company ltd has been awarded a construction project. The chief Engineer of the
company has established the following cost and time information relating to the contract:

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CAM 205: PROJECT MANGEMENT

Activity

Predecessor(s) Normal

Normal

Crash time

Crash cost

time

cost

(Days)

(sh)

(Days)

(sh)

30

90,000

25

105,000

25

180,000

20

190,000

10

50,000

54,000

10

7,500

9,000

B,D

10

4,200

10

4,200

A,E

20

20,000

16

30,000

A,E

35

28,000

30

35,000

B,D

20

12,000

18

15,000

20

14,000

15

24,000

Required
(i) The critical path and the normal completion time of the project (6 marks)
(ii) The minimum project duration and the additional project cost for that duration.
(8 marks)

QUESTION THREE
a) Research with hundreds of project teams has shown that a one-size-fits-all approach
change management is not sufficient. To be effective at leading change,
to customize and scale their change management efforts, based
of the change and the attributes of the impacted

to

companies will need

on the unique characteristics

organization (Change Management

Learning Centre, 2004).


Discuss the stages of a successful change management

(16 marks)

(b) Explain the importance of procedural handling of exits and phase-out from one stage
the project to the other

QUESTION Four
a)

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Define the following terms as used in network analysis:

of

(4 marks)

CAM 205: PROJECT MANGEMENT

(b)

(i)

Crash time,

(2 marks)

(ii)

Optimistic time,

(2 marks)

(iii)

Forward pass,

(2 marks)

(iv)

Dummy activity,

(2 marks)

(v)

Slack.

(2 marks)

James Mutiso is a computer engineer in an information technology firm. The firm has
decided to install a new computer system to be used by the firms help desk. James
Mutiso has identified nine activities required to complete the installation.
The table below provides a summary of the activities durations and the required number
of technicians:
Activity

Duration (weeks)

Required number of
technicians

12

13

24

25

34

36

45

56

67

Required:
(i)

Draw a gantt chart for the project.

(6 marks)

(ii)

Mr. Mutiso would like to reschedule the activities so that not more than 6
technicians are required each week. Determine if this is possible and how it can
be achieved by rescheduling the activities.

(4 marks)

QUESTION Five
Discuss the contents of the project Standards and Procedures Manual.

85

(20 marks)